Dissecting Romney’s Statement: What Are Problems the Middle-Class Has That the Poor Don’t?

Updated at end.

I’m sure you’ve seen the latest by Mitt Romney. On CNN he said:

“I’m in this race because I care about Americans. I’m not concerned about the very poor, we have a safety net there. If it needs repair, I’ll fix it. I’m not concerned about the very rich, they’re doing just fine. I’m concerned about the very heart of America, the 90-95% of Americans that are struggling.”

He clarified by saying:

“I’m sure there are places where people fall between the cracks,” Romney said. “And finding those places is one of the things that is the responsibility of government. We do have a very ample safety net in America, with Medicaid, housing vouchers, food stamps, earned income tax credit. We have a number of ways of helping the poor. And yet my focus and the area that I think is the greatest challenge that the country faces right now is not, is not to focus our effort on how we help the poor as much as to focus our effort on how to help the middle class in America, and get more people in the middle class and get people out of being poor and becoming middle income.”

Andrew Sullivan has a set of links on the right-wing going into defense and worry mode over the comment – it’s good stuff.  Jared Bernstein has an excellent post noting that Romney’s budget would destroy this safety net.

Since Romney’s defending it and probably believes it, let’s dissect this argument.  A quick glance would show that things like unemployment are worse in places that are poorer.  Yet Romney’s comments are predicated on there being a set of problems – problems that have policy solutions – that impact middle-class people but do not impact the poor.  Let’s try to make a list of these problems, stipulating in advance we might not find them convincing.

Problem 1.  Middle-Class People Have to Work

The most obvious take-away is that the poor receive a near-middle class lifestyle off the generosity of the government, and don’t even have to pay or work for it.  Here’s Bethany Mandel at Commentary:  “Compare this $28,000 [of means-tested programs] to what the average middle class American receives from the government in comparable subsidies, $0.”

Or as this lucky ducky cartoon put it:

Atrios is completely right that Romney “isn’t saying fuck the poor. He’s saying that the really poor actually have it really really good! The government basically gives them free cars and housing and medical care and food stamps they can use at the liquor store etc. The rest of you struggling to get by, you don’t get anything. In fact, the really poor (and we know who they are) are taking your hard earned money.”  As Joshua Cohen tweeted, it’s a view where the poor aren’t people who happen to make a small income but instead a separate group that exists entirely outside the labor market.

It’s interesting that Mandel thinks Romney’s statements are a liability to him on the right: “To the right, it verifies that Romney is as liberal as they fear, complacent with the welfare state as it currently stands.”

(It’s also possible, and amusing, to think that Romney also has a very distorted view of “middle-income people”, where middle-income people are worried about how the real-time price transparency regulations of credit default swap clearinghouses will be implemented under Dodd-Frank and whether they’ll be able to count their labor income as capital gains under a second Obama administration. )

Unlike food stamps, nobody is debating making middle-class households take a drug test to qualify for the mortgage-interest tax deduction version of welfare.  I’ll note that the way inclusiveness is defined is very important for the regulatory state and that democratic feudalism and upside-down populism is very relevant to Corey Robin’s new book on the conservative movement, and move on to the next concern.

Problem 2:  Loss Aversion and Reproducing the Middle-Class

People often display loss aversion: they hate losing something more than they enjoyed gaining it.  Everybody wants a better life for their children, but middle-income people expect to enjoy and be able to hand down a certain quality of life to their children as a baseline.  Even more, once that quality of life is achieved, it needs to be defended, because falling out of the middle-class is a serious cost – personally, socially, and materially.  One can create a whole theory of middle-class-ness centered around this “Fear of Falling”, as Barbara Ehrenreich has.

This is becoming harder to maintain for middle-income people themselves (as we’ll discuss in the next few problems), but generationally it is currently a mess.  Youth unemployment is very high, even for kids with college degrees.  Young people are living at home much longer, which has to be causing anxiety for a huge amount of middle-income parents who expected their kids to thrive.  The research tells us that the long recession will have serious impacts on young people’s lifetime opportunities.

Problem 3:  Relative Cost Inflation

There was a series of econometric arguments about why inequality isn’t so bad based on the idea that the poor have a different inflation rate than the rich.  In what sense the poor “have” this rate wasn’t clear, but basically the argument went that a lot of basic goods were becoming much cheaper while the things rich people consume are getting expensive faster, therefore we should adjust the bottom numbers up and the top numbers down.  Digging into the data, this is driven in large-part by food inequality, where poor people are able to survive on a cheaper diet.

But how does this impact middle-income people? As Elizabeth Warren argues in Two-Income Trap (and this Boston Review summary of the argument), the middle-class isn’t in trouble because of “luxury fever.” Instead it is because a few, core, middle-class staples have skyrocketed in cost:

The answer begins with the most expensive and most important thing most Americans will ever buy: a home….for similar homes, school quality was the single most important determinant of neighborhood prices…housing prices for families with at least one minor child at home grew at a rate three times that of other families…

other major types of expenses are worth singling out as new burdens for the middle class. We have considered one of them already: the higher cost of cars. Yes, the per-car cost has dropped, but with Mom joining the work force and families living farther than ever from city centers, the second car has become essential for many. The family on average now spends an additional $4,000 every year to buy, lease, and maintain all its cars.

The rising cost of health care has also taken a bite out of the family budget, even for healthy families. In one generation, the average out-of-pocket cost of employer-subsidized health insurance has jumped by about 90 percent.

The last decade saw a giant housing bubble (see next problem), high costs – direct or implied – in schooling for children, more spent on cars (cost of gas, distance, number of drivers, lack of public options) and the runaway cost-inflation of health care.  Poor people need places to live, good health, good schools and the ability to get around, but these goods almost by definition create and define the American middle-class.

Problem 4:  Debt, Housing

It’s expensive to be poor.  A quick glance at the distributional impact of overdraft fees show that the financial system puts the poor through a ringer just to get access to the basic financial means of participating in a market economy.

But the huge run-up in debt, especially housing debt, was primarily a middle-income phenomenon.  From the Federal Reserve’s Changes in U.S. Family Finances from 2004 to 2007: Evidence from the Survey of Consumer Finances:

Or from the LA Times, The consumer isn’t overleveraged — the middle class is, based on a BofA Merrill report:

“The consumer debt problem in the economy really is a debt problem for the middle class. The need to work off a chunk of that debt will sap middle-class families’ spending power for perhaps years to come.”  The chaos in the housing market could be argued to impact middle-income people more, or at least differently, than the poor.  Middle-income people are more likely to have to figure out what to do with an underwater mortgage.

Problem #5:  Retirement Savings

The poor save very little, because, by definition, they have very little.  Middle-income people have more and hope to save some of it.

Here’s a little secret.   One reason people don’t project what the employment-population ratio should look like at full-employment is that they have no idea what the elderly are going to do.  The Federal Reserve Bank of San Francisco: “Even though their unemployment rate more than doubled over the past three years, older workers have generally stayed in or entered the labor force….The upward trend may continue in the near future. The trends in retirement and health benefits will probably remain in place and the recession’s severe shock to wealth will likely compel even greater numbers of retirement-age workers to stay in the labor force.”  It’s a crime we didn’t make Medicare eligible for those over 55.

What else is missing?  Personally I don’t think these are that useful to split into poor people problems and middle-income problems – these are all just problems for the 99%.

Updated.  Problem #6:  Job Polarization

Adding another potential problem that should have been in the list. Under a very popular theory about where the medium-term labor market is headed, there will be significant job polarization: “…the structure of job opportunities in the United States has sharply polarized over the past two decades, with expanding job opportunities in both high-skill, high-wage occupations and low-skill, low-wage occupations, coupled with contracting opportunities in middle-wage, middle-skill white-collar and blue-collar jobs.”

In so much that much of the middle-income falls into medium-skill work, this tightening of the labor market will disproportionately hit them.  It’ll also hit the poor, because mobility will be, at least in theory, lower without a range of jobs to attempt to get.  But this polarization and disappearance of medium-skilled jobs has to be adding to middle-class anxieties.