The gridlock in Congress that has impeded the implementation of any meaningful economic reform is now being felt by the American people. The impact of the recently passed debt ceiling compromise is just the most recent example. The disparity in its provisions is starting to become clear. It’s not pretty.
We have already written about the effect that bi-partisan bickering has had over the FAA. A disagreement between two Senators over funding has partially shut down the airline regulator. The matter was tabled during the debt ceiling debate and will remain unresolved while the Senate recesses. Meanwhile four thousand FAA workers have been furloughed. Two hundred construction projects have been shut down costing another 78,000 construction workers their jobs. The shutdown has also left the FAA without the authority to collect $1 billion in airline ticket taxes; precious revenues that would have been poured back into the economy. Now more mortgages will not get paid, more houses will be lost to foreclosure and more workers will seek government assistance through unemployment benefits and social programs.
That is only the beginning.
The bi-partisan Economic Policy Institute has crunched the numbers on the debt ceiling legislation. They have determined that “The spending cuts in 2012 and the bills failure to continue two key supports to the recovery (the payroll tax holiday and emergency unemployment benefits for the long term unemployed) could lead to a 1.5% reduction in the GDP and the loss of 1.8 million jobs.” Even in the unlikely event that Congress decides to continue the payroll tax holiday and the even more contested emergency long term unemployment benefits, the discretionary spending cuts alone would reduce the 2012 GDP by 0.3% and result in 323,000 fewer jobs.
Since the bill only focuses on spending cuts without any provisions for increased revenue or job creation we can only expect the problem to get worse. As evidence of that very fact; yesterday the treasury department exercise it’s newly authorized borrowing authority. As a result our debt now stands at 100% of our GDP.
While the historic impact of our failing economy is being felt by the middle class and the poor, such is not the case with the wealthiest among us.
The New York Times reports that the rich just keep getting richer. Wall Street is reporting record profits. In spite of the drop in stocks over the past week the Dow Jones is up 80% from its low in March of 2009. Luxury items are flying off the shelves. The luxury segment has posted 10 consecutive months of sales increases. In July alone the luxury segment posted an 11.6% increase; the biggest month in more than a year.
What do we mean by “luxury segment”? Mercedes sold more cars in July in the US than it had in any July in 5 years. Their $200,000 S-Class sedan jumped 14%. BMW doubled its quarterly profit from a year ago and Porsche first half profits rose 59%.
But luxury cars are not the only items being gobbled up by the rich. Tiffany’s first quarter sales were up 20% to $761 million. LVMH which owns Louis Vuitton and Givenchy reported sales growth in the first half of 13%; and PPR, home to Gucci and Yves Saint Laurent said its luxury sales segments gained 23% in the first quarter. When Nordstrom has a waiting list for a Chanel Sequined-tweed coat priced at $9,010, business is good. When Neiman Marcus has sold out of every size of their Christian Louboutin “Bianca” platform pumps at $775 a pair…things are going quite well thank you very much.
Meanwhile Wal-Mart is selling smaller packages because some shoppers do not have enough cash to afford multipacks of toilet paper.
The disparity between the wealthiest 2% and the rest of the country is the largest in our history. That disparity will continue to grow unless we can find a way to create jobs for the poor and middle class. The current legislation made no provisions for job growth. And the only way to get out of this economic mess is to work and build our way out of it. Tax cuts and spending cuts won’t do it. History has proven that.
The current legislation is but the tip of the iceberg. In a few short months Congress will be required to find $1.6 trillion in additional spending cuts. If they fail to do so, which is likely, then drastic across the board cuts will automatically be implemented. These cuts will slash defense, entitlements, education and discretionary social programs. These cuts will affect primarily the poor and middle class…again. Once again there will be zero provisions for job creation. And once again the remedy will be to cut vital programs while allowing the tax loopholes used by the wealthy to hide their profits to remain in place.
We understand that there will always be an economic disparity in our free society. Those few who are good at capitalism will accumulate vast amounts of wealth; and those who aren’t…not so much. But that disparity should not apply to government. It doesn’t seem fair for government to give a leg up to the wealthy few while turning its back on the struggling majority.