I t begins to sound a bit naughty -- all this talk about the need to "stimulate" the economy, as if we were discussing how to make a porn film. I don't mean to trivialize our economic difficulties or the need for effective government intervention, but we have to face a disconcerting fact: For years now, that strange stimulus-crazed beast, the economy, has been going its own way, increasingly disconnected from the toils and troubles of ordinary Americans.

The economy, for example, has been expanding, at least until now, and growth is supposed to guarantee general well-being. As long as the gross domestic product grows, World Money Watch's Web site assures us, "so will business, jobs and personal income."

But hellooo, we've had brisk growth for the past few years, as the president has tirelessly reminded us, only without those promised increases in personal income, at least not for the poor and the middle class. According to a study just released by the Economic Policy Institute, real wages actually fell last year. Growth, some of the economists are conceding in perplexity, has been "decoupled" from widely shared prosperity.

I first began to sense this in the boom years of the late 1990s, when I was working in entry-level jobs for my book "Nickel and Dimed." While the stock market soared and fortunes were being made in the time it takes to say "IPO," my $6-to-$8-an-hour co-workers lunched on hot dog buns because that was all they could afford and, in some cases, fretted about whether they could find a safe place to sleep.

Growth is not the only economic indicator that has let us down. In the past five years, America's briskly rising productivity has been the envy of much of the world. But again, there's been no corresponding increase in most people's wages. It's not supposed to be this way, of course. Economists have long believed that some sort of occult process would intervene and adjust wages upward as people worked harder and more efficiently.

We like to attribute our high productivity to technological advances and better education. But a revealing 2001 study by the consulting firm McKinsey & Co. also credited America's productivity growth to "managerial . . . innovations" and cited Wal-Mart as a model performer, meaning that our productivity also relies on fiendish schemes to extract more work for less pay. Yes, you can generate more output per apparent hour of work by falsifying time records, speeding up assembly lines, doubling workloads and cutting back on breaks. That may look good from the top, but at the middle and the bottom, it can feel a lot like pain.

And what about the unemployment rate? The old liberal certainty was that "full employment" would create a workers' paradise, with higher wages and enhanced bargaining power for the little guy and gal. But we've had nearly full employment, or at least an official unemployment rate of under 5 percent, for years now, without the predicted gains. What the old liberals weren't counting on was a depressed minimum wage, weak unions and a witch's brew of management strategies to hold wages and salaries down.

So thoroughly is the economy decoupled from ordinary experience that according to a CNN poll, 57 percent of Americans thought we were already in a recession a month ago. Economists may complain that this is only because the public is ignorant of the technical definition of a recession, which specifies at least two consecutive quarters of negative growth. But most of the public employs the more colloquial definition of a recession, which is hard times. And -- far removed from whatever happens on Wall Street, the Nikkei, Dax, or the curiously named FTSE -- most Americans have been living in their own personal recession for years.

I could see this when I was doing research for a book on white-collar unemployment in 2004. Although the economy was officially on an upturn, I met laid-off people who'd been searching for a job for more than a year and often ended up -- after selling their homes and borrowing from relatives -- taking low-wage work as big-box sales clerks or even janitors.

In the months ahead, we can expect the hard times to spread. Citigroup has announced plans to eliminate 21,000 jobs; investment banks in general will shed 40,000. The mortgage industry is in a meltdown; Business Wire predicts a 37 percent increase in the number of companies planning layoffs this year. This is what a stimulus package needs to address: the persistent and growing struggles of the middle class and the working class, which is increasingly conterminous with the working poor.

There are reasons for doing so other than compassion. The chronically poor and the battered middle class have become a tripwire in the American economy -- generating defaults on debts, depressed consumption and global market turmoil.

Consider how we got into the current credit crisis in the first place, through defaults on subprime mortgages. These went to plenty of affluent folks and have wreaked havoc in gated communities. But overall, subprime loans were designed for, and snapped up by, the poor. According to a recent study from United for a Fair Economy, 55 percent of subprime loans went to African Americans and 17 percent to whites. Among whites, they went far more frequently to low-income people than to the wealthy -- 39 percent compared with 24 percent. Hence the subprime industry's noble boasts about providing the opportunity for home ownership to people who might otherwise have been excluded from it.

And why were so many Americans poor enough to turn to subprime mortgages and other dodgy credit schemes? The chief reasons are low wages and job insecurity. Chronically low wages afflict about 25 to 30 percent of the population -- more than twice the 12 percent the federal government counts as "poor." And even earnings in the six-figure range can be canceled overnight when an employer downsizes or outsources, leaving a family without income or health insurance.

For years now, we've had a solution, or at least a substitute, for low wages and unreliable jobs: easy credit. Payday loans, rent-to-buy furniture and exorbitant credit card interest rates for the poor were just the beginning. In its May cover story on "The Poverty Business," BusinessWeek documented the stampede to lend money to the people who could least afford to pay the interest on it: Buy your dream home! Refinance your house! Financiamos a todos! It wasn't just the bottom-feeders that joined the unseemly frenzy to lend to the poor; big companies, such as Wells Fargo and Countrywide Financial, plunged right in. But somehow, no one bothered to figure out where the poor were going to get the money to pay for all the money they were borrowing.

When personal finances are squeezed hard enough, you have the possibility of a genuine recession. People buy less, so growth declines to the point where even the economic overclass has to sit up and take notice. We saw the beginnings of that in the last Christmas season, which even Wal-Mart survived only through perilously deep discounting.

Not that we hadn't been warned. A century ago, Henry Ford realized that his company would only prosper if his own workers earned enough to buy Fords. But, like Wal-Mart, too many of our employers today haven't figured out that their cruelly low wages would eventually curtail their own growth and profits.

Government intervention, whether short-term or long-term, needs to get to the heart of this problem by offering a hand to the poor and the unemployed. Until the House capitulated to Bush two weeks ago, Democrats seemed to be standing solidly behind a stimulus package that would include an increase in food-stamp allotments and an extension of unemployment benefits, both of which are screamingly obvious measures. Current unemployment benefits last just 26 weeks in most states and end up covering only a third of people who are laid off. Food stamps are in even shabbier shape, with an allotment amounting to about $1 per meal. Nothing could be more stimulating than putting money in the hands of those who will spend it quickly.

But you can't jump-start a car that lacks a working battery. We need less titillating talk about "stimulus" and more commitment to some fundamental repairs -- higher wages, a real safety net and a return to progressive taxation among them. The challenge isn't just to prop up stock prices but to rebuild an economy in which everyone shares the good times -- and no one is consigned to a permanent recession.

barbara.ehrenreich@gmail.com

Barbara Ehrenreich's books include "Nickel and Dimed: On (Not) Getting By in America" and "Bait and Switch: The (Futile) Pursuit of the American Dream."

For Clinton, Government as Economic Prod

http://www.nytimes.com/2008/01/21/us/politics/21clinton.html?pagewanted=2&hp

By DAVID LEONHARDT

Published: January 21, 2008

Senator Hillary Rodham Clinton said that if she became president, the federal government would take a more active role in the economy, to address what she called the excesses of the market and of the Bush administration.

In one of her most extensive interviews about how she would approach the economy, Mrs. Clinton laid out a view of economic policy that differed in some ways from that of her husband, Bill Clinton. Mr. Clinton campaigned on his centrist views, and as president, he championed deficit reduction and trade agreements.

Reflecting what her aides said were very different conditions today, Mrs. Clinton put her emphasis on issues like inequality and the role of institutions like government, rather than market forces, in addressing them.

She said that economic excesses — including executive-pay packages she characterized as often “offensive” and “wrong” and a tax code that had become “so far out of whack” in favoring the wealthy — were holding down middle-class living standards. Interviewed between campaign appearances in Los Angeles on Thursday, she said those problems were also keeping the United States economy from growing as quickly as it could.

“If you go back and look at our history, we were most successful when we had that balance between an effective, vigorous government and a dynamic, appropriately regulated market,” Mrs. Clinton said. “And we have systematically diminished the role and the responsibility of our government, and we have watched our market become imbalanced.”

She added: “I want to get back to the appropriate balance of power between government and the market.”

In the last two weeks, Mrs. Clinton has devoted most of her public remarks to the economy, and she won the New Hampshire primary and the Nevada caucus largely because of support from households making less than $50,000 a year, according to polls conducted by Edison/Mitofsky.

Mrs. Clinton’s approach to the economy would have three main components. She would roll back the Bush tax cuts for households with incomes over $250,000 while creating more tax breaks below that threshold; impose closer scrutiny on financial markets, including the investments being made by foreign governments in the United States; and raise spending on job-creating projects like the development of alternative energy.

“We’ve done it in previous generations,” she said, alluding to large-scale public projects like the interstate highway system and the space program. “We can create millions of good new jobs. But we’ve got to have a plan, and we’ve got to make investments.”

Using blunt and at times populist language in the interview, Mrs. Clinton, Democrat of New York, tried to steer a course between the often business-friendly themes embraced by her husband and the straight populism that John Edwards, the former senator from North Carolina, has used in his presidential campaign this year. Senator Barack Obama, Mrs. Clinton’s main rival for the Democratic nomination, has also begun using more of her kitchen-table language in recent days.

Although the two Clintons share similar views on a wide range of economic issues, she has long been more skeptical about the benefits of freer trade and other aspects of a free-market economy. While he peppered his 1992 campaign speeches with both populism and calls for personal responsibility — including welfare reform — she talks less about irresponsibility among individuals and more about irresponsibility in corporate America and the government.

Perhaps the bigger difference, though, is that Mr. Clinton was running for president when the federal budget deficit was much larger than it is now and the United States seemed to be falling behind Western Europe and Japan in economic competitiveness. Mrs. Clinton is running when the economy has grown at a healthy clip for six years but incomes for most Americans have barely outpaced inflation.

Republicans say that her tax increases on the affluent and her spending proposals would increase the deficit, but Mrs. Clinton’s advisers respond that she, like her husband, is a fiscal conservative. They add that reducing the deficit is no longer sufficient, because today’s problems have less to do with the size of the economic pie than the way it is divided.

“Inequality is growing,” Mrs. Clinton said. “The middle class is stalled. The American dream is premised on a growing economy where people are in a meritocracy and, if they’re willing to work hard, they will realize the fruits of their labor.”

Mrs. Clinton, whose campaign initiated the interview, can speak in both fine detail and sweeping historical terms about the economy — almost as would a policy adviser, which she essentially was for a long time. When talking about the middle class, she divides the decades since World War II into two periods, using the same cutoff point that many economists do.

In the first period, from 1946 to 1973, the pay of most workers rose steadily. The income of the median family — the one earning less than half of all other families and more than half of all others — more than doubled during those years, to almost $50,000, in inflation-adjusted terms, according to Census Bureau data analyzed by the Economic Policy Institute, a liberal group in Washington.

Since 1973, the income of the median family has grown only about 25 percent.

During the earlier period, Mrs. Clinton said, the share of workers in labor unions grew, allowing workers to win raises and benefits that they can rarely win on their own. Marginal tax rates on the affluent were “confiscatory” by today’s standards, she said. (In the early 1970s, the top rate, which applied to income above $1 million in today’s terms, was 70 percent; the top rate now is 35 percent.)

Jobs once paid enough that only one parent in many families needed to work, saving them from expenses like day care. And not only did the federal government invest in public goods like the highway system, but companies also invested more in communities than they do today. In Rochester, for example, Kodak helped build hospitals and schools.

“You had a corporate ethos, that, because of the more self-contained American economy, was really focused on community,” Mrs. Clinton said. “There was a sense of multiple obligations. It wasn’t just to one’s shareholders. It was also to one’s employees, to one’s community.”

Mrs. Clinton mentioned technological change, which has eliminated the need for many blue-collar jobs, as well as global trade, which studies suggest may be holding down the wages of some Americans.

But when discussing the causes of the middle-class wage slowdown, she tends to focus not on market-based changes, like technology and trade, but on institutions, like unions and the government.

Her first priority, she said, would be changing the tax code. She has proposed tax credits for college tuition, retirement savings, health care and alternative energy use, most of which would go to lower- and middle-income families. She would also raise the top marginal rate to 39.6 percent, its level for much of her husband’s administration. Increasing high-end tax rates would bring in $52 billion a year, her campaign says, and help pay for some of her other proposals.

“It’s shocking that there is such a continuing political pressure to lower tax rates on the wealthy, when so much of what we look back on now with nostalgia and pride,” she said, referring to the decades immediately after World War II, “was at a time when those who were well off were paying a significantly higher percentage of their income.”

She said she would also use the White House bully pulpit to inveigh against the current level of executive pay. Though it is difficult to reduce such pay with new laws, she said, she wants to consider proposals that law school and business school professors have made along these lines.

“We have this class now of professional corporate managers who are not the creators of the corporation — they very rarely had anything to do with starting the business or building it up,” she said. “And then they come in and they believe their No. 1 obligation is to secure the biggest possible pay package at the expense at everybody else.”

On this subject, she sounds very much like Mr. Edwards, yet, unlike him, she has still received considerable support from top executives. She has been endorsed by John J. Mack, the chief executive of Morgan Stanley; Peter Chernin, president of the News Corporation; and Lloyd C. Blankfein, the chief executive of Goldman Sachs, who received a $67.9 million bonus last year.

David Bonior, Mr. Edwards’s campaign manager, said her support from Wall Street suggested that she would be as friendly to corporate America as her husband was.

Still, if Mrs. Clinton is elected, she might bring the toughest regulatory scrutiny of any president in a generation. Mr. Clinton nudged the Democratic Party toward a more laissez-faire economic policy, and President Bush has gone considerably further in this direction.

“I just believe strongly that we are in great need of a total overhaul,” she said, arguing that the Bush administration has outsourced too many functions and damaged the federal government’s competence.

Last March, when many officials in the administration and at the Federal Reserve were saying that the housing slump would not be too severe, she warned in a speech about “trouble signs below the horizon” with subprime mortgages. She has suggested that she would have been more willing to crack down on some lending practices than the current administration has.

But perhaps the most telling example of her approach is how she would try to clean up the mortgage problems. She has called for a 90-day halt to foreclosures on homes with subprime mortgages and a five-year freeze in the interest rates on all subprime mortgages, many of which are scheduled to jump.

The proposal would most likely reduce the number of coming foreclosures. But it would also potentially reward real estate speculators and others who took out mortgages they could not afford. In the process, it could raise interest rates for everyone else, economists say, by forcing banks to rewrite the terms of loans retroactively and to lose money on some.

Her plan goes significantly further than Mr. Obama’s. She decided, in effect, that the downsides of rewarding irresponsible borrowing was outweighed by the benefits of reducing foreclosures.

She said she could “understand totally” the frustration of people who did not take out such loans and now wonder why the government would help those who did. “What I’m trying to do,” she said, “is practically stabilize the patient so we can begin to try to cure this mess that everybody got us into.”

If she were to win the Democratic nomination and the general election, she would most likely take office at a similar economic moment as her husband, with the economy struggling to emerge from a downturn. In 1993 — with Mrs. Clinton playing a role that Bob Woodward later described as “de facto chief of staff” — Mr. Clinton pushed through an economic plan without a single Republican vote.

Many analysts say that plan played a role in the Democrats’ loss of Congress the next year, but it is also widely credited with helping lay the groundwork for the 1990s boom. Mrs. Clinton suggested that she would be willing to take a similar approach in 2009.

“You try to find common ground, insofar as possible. But if you really believe, you have to manage the economy,” she said. “You have to stake a lot of your presidency on it. Because at the beginning is when you’re strongest.”