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Middle class gets left behind

St. Louis Post-Dispatch

American families who feel like they’re spinning their wheels financially are right. According to recent figures from the U.S. Census Bureau, the median income in the United States remained essentially unchanged for the third year in a row while poverty rates remained stubbornly high.

The lone piece of bright news in the report was a significant drop in the number of uninsured Americans. Thanks to changes brought about by the Affordable Care Act, the number of uninsured Americans dropped by 13 percent between 2013 and 2014.

But that good news can’t change the fact that Middle America is not witnessing many gains following the end of the Great Recession, even as stocks, corporate profits and executive-level pay have gone up considerably.

The landscape for middle-income Americans is bleak. In real terms, wages have either flat-lined or declined over the past several decades. Median wages for men are lower now, adjusted for inflation, than they were in the 1970s. And inflation rates don’t even tell the whole story, failing to reflect the massive increases in areas such as college tuition.

Missouri fares notably worse than much of the rest of the country. Our median household income ranks in the bottom third of states, and our unemployment and poverty rates run high compared to the rest of the country.

Perhaps data like these explain why the Federal Reserve decided this month that now wouldn’t be a particularly good time to raise interest rates.

It was a wise decision, though there’s every indication the Fed will begin incremental increases by the end of the year.

Leaving rates unchanged will help Americans burdened by stagnating wages. Low rates hold down interest rates Americans pay on student loans and other borrowing. Sure, it hurts those with savings accounts _ but Americans hurt by paychecks that refuse to grow aren’t saving much anyway.

The low rates do hurt banks. And bankers made their displeasure well-known following the Fed’s decision. As New York Times columnist Paul Krugman noted, that’s less reason to think the Fed got it wrong than an explanation of why those who favor an increase in rates keep changing their rationale.

“Well, when you see ever-changing rationales for never-changing policy demands, it’s a good bet that there’s an ulterior motive,” Mr. Krugman wrote. “And the rate rage of the bankers — combined with the plunge in bank stocks that followed the Fed’s decision not to hike — offers a powerful clue to the nature of that motive. It’s the bank profits, stupid.”

Banks make money on the difference between what they pay savers in interest and what they can charge borrowers. They’re paying savers next to nothing these days, but they can’t charge much interest on loans, either. As a result, the net-interest margin has nosedived.

But bank profits aren’t the Fed’s job. Its job is to keep inflation in check — and there’s precious little evidence that inflation poses any threat these days.

There appear to be at least two economies operating in America today. One is doing quite well and would benefit if the Fed increased rates. The other — the one the vast majority of Americans live with — is struggling.

For that economy, an increase in rates would mean higher borrowing costs and not much else on the positive side. In the Washington Post last month, former U.S. Treasury Secretary Larry Summers made a compelling case that raising rates would threaten price stability, full employment and financial stability.

The Fed did the right thing by deciding to do nothing. The questions now are how that decision will remain intact and what can be done to make the economy work for more Americans.

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