Any serious proposals to ease the squeeze?

Yes, Virginia, the middle class is getting hammered in America.

Yesterday the Census Bureau reported:

Although household income rose in 2006 [by 0.7 percent], the inflation-adjusted earnings of full-time workers age 15 and older declined for the third consecutive year, the Census Bureau said. Real median earnings fell 1.1 percent for men (to $42,261 from $42,743 in 2005 adjusted to 2006 dollars), and 1.2 percent for women (to $32,515 from $32,903).
...
Household income rose despite the drop in full-time workers' earnings partly because of an increase in the number of full-time workers overall and per household, Johnson said. "This trend can have a positive impact on household income, even if real earnings for individual year-round, full-time workers is declining," he said.

Translation produced by taking off the rose-colored glasses: families are working more hours to just stay in place. And that's just the fortunate families who owned homes several years ago. Considering that the average price of a home more than doubled between 2000 and 2006 (from ~$130K to ~$270K), and that "overall household income has not yet recovered to its 1999 pre-recessionary peak of $49,200" according to the Census Bureau, people who did not share in the home equity boom are facing double the housing costs on less income with more hours at the office. Macroeconomic measures aside, this is not healthy for our society.

But where are the serious proposals to understand why this is happening and what might be done to promote the holistic welfare of the body politic?

Not here. Attacking the compensation of the top-paid executives is counterproductive class warfare. Wealth isn't a zero-sum game, so it does not matter whether some CEO has a fleet of yachts. What matters is whether ordinary Americans can put a decent roof over their heads, maintain their health, educate their children, and have a reasonable amount of family and leisure time. The class warfare proposals - limit executive pay and increase their taxes - do nothing to achieve the real goal.

The Fair Economy report does make one good point: it is not fair or right that highly-paid executives are allowed to "defer compensation" to delay and lower their taxes until they leave the company while middle class families cannot do the same thing when they are trying to save up money to buy a house or take time off to raise children. The problem is that every time Congress tries to put the breaks on executive compensation, the only people who benefit are lawyers. I know: my first year out of law school I signed up to work in the "Employee Benefits" group because I wanted to help design and administer 401(k) and health plans. Alas, a month later Congress enacted "Section 409A" of the Internal Revenue Code, which is supposed to limit executive deferred compensation, so the "Employee Benefits" group went to work rewriting hundreds of executive compensation plans so they will continue to be nearly as beneficial to the executives as they were previously. And they're still at it, nearly 3 years later! (I am not, thank God. I would have quit my job long ago if I didn't get out from under this tedious line of work.) This has generated millions in legal fees for my firm alone, many billions I'm sure across the industry. Who loses? The employees of companies whose lawyers are too busy amending executive compensation plans to implement 401(k) plan improvements that were otherwise in the works, and shareholders whose profits are diminished by the enormous legal fees. Oh, the law of unintended consequences.

At the same time, Larry Kudlow's cheerleading (or President Bush's) will not help either. People are working harder? Hurray! Productivity is king, quality of life "on Main Street" is measured by the market value of your house and not whether you have any time to spend in it with your family. Hogwash.

It's depressing. Will the real champion of the middle class please stand up?

Babies Demand

A pair of articles posted on National Review Online yesterday illustrate the enormous gulf in economic perspective between the deified-market right and the traditional-values right.

John Tamny claims that Tech Booms Trump Baby Booms: Governments in the 21st century need not sweat low birthrates. (This article also starkly contrasts with the Mark Steyn article that was listed on NRO hotlinks the previous day.) According to Tamny,

If rising birthrates were essential for economic growth, there would be no need for taxpayer-financed handouts to maintain rising birthrates. More realistically, citizens of the world possess an acute understanding of the infant-replacement rates necessary to achieve increasing standards of living.

The article then makes an obvious point: technology increases each individual's capacity for production. We can produce more with fewer people with the help of computers and other technological innovations. No dispute there.

But is greater production necessarily equivalent to greater wealth, as Tamny suggests? He cites the enormous market capitalization of Google, saying that, on average, a Google employee creates $15 million in wealth. But market capitalization depends on demand. If demand falls, the "wealth" represented by market capitalization will disappear as profits decline. In fact, no thing has a value apart from its demand. A declining population will eventually mean declining demand, which will cause the "wealth" that Tamny equates with production to prove ephemeral.

And what about Tamny's implicit claim that free markets will produce the "right" amount of babies? This careless assertion is aptly refuted by C. R. Hardy in the second NRO article:

The benefits [of childbearing] are somewhat obscure: How, for example, do you measure the benefits for society of a child that grows up to join the Sisters of Charity of Mother Theresa, ministering to the poorest of the poor around the world? Or how do you measure the benefit to society of a child that will spend 18 years studying and 50 or more years thinking, producing, working, and paying taxes? Or what about the child that will grow up to cure cancer, negotiate peace in the Middle East, or discover a renewable clean source of fuel? The fact is, it's impossible and silly even to think about it. What's the value of a human life, considered ex ante?

But the costs -- oh, the costs are so easy to calculate! So many diapers, so much formula, so many inconvenient trips around Harvard Square with one extra little guy who doesn't fit into my double stroller.

Not only are the costs apparent while the benefits are obscure, but nearly all the costs accrue to the parents of a child while the benefits accrue to society at large. Has Mr. Tamny heard of a common economic phenomenon called "free-riding"?

Though the government cash incentives for childbearing that Tamny criticizes are not necessarily good public policy, his cavalier dismissal of the economic problem of declining population is alarming. As the market-deifiers and family-values groups uneasily share the same political party, economists like C. R. Hardy who consider the intersection of family and markets need to have a larger voice. Families and free markets cannot afford to ignore each other when both are under siege.