Morning Must Reads: Honoring Work and Calling for a New Middle-Class Friendly Economic Policy

It is almost here, Labor Day weekend. That means family parties, celebrations and, of course, reverence for the holiness of work that ALSO affords us what workers in the last century called bread and roses. In that spirit, Rick Bloomingdale has an excellent op-ed this morning celebrating the creation of the middle class in this country and calling for a new direction in economic policy.

Labor Day is the one holiday devoted to honoring and recognizing America’s workers and their families and the value we bring to the prosperity and strength of our nation. That’s pretty much all of us, whether we’re employed or looking for work. And no matter what we do, our work makes the work of others possible...

The solution to our economic woes and shrinking middle class is not more tax breaks and more wealth for the corporations and the wealthy individuals of this nation. We traveled down this road for the last 30 years and all that we have received is lower wages, greater income inequality between the wealthiest and the rest of us, and a shrinking middle class.

The solutions are real job-creation policies that rebuild our aging infrastructure now, investments in public education that gives every child the opportunity to succeed, health security and retirement security for all Americans.

And just as important is giving back to workers what they need the most to improve their own wages, benefits and standard of living — the freedom to organize unions without being harassed or fired by their employer. This is the path to economic prosperity for all, recapturing the strength of our nation, recognizing the value of work and the American worker as the backbone of our nation.
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At some of those family parties this weekend, when the discussion turns to the economy and economic policy, you may find yourself repeating Rick's prescription which we also advance in the State of Working Pennsylvania 2012 released this week. Inevitably, someone at your family party will respond that investing in infrastructure and hiring instead of laying off teachers is great, but the federal budget deficit is already high and can we really afford to borrow more money from China?

Paul Krugman has your back this morning. The less-wonky-more-family-friendly story is this: actually, we are borrowing much less from foreigners as households and corporations pay down their debts, and if we jumpstart the economy with carefully targeted investments by the public sector, the budget deficit will eventually fall (as it did in the '90s) as the economy returns to a stronger growth path.

OK, let’s ask the question: how much overseas financing does the United States as a whole need?

The answer is that it’s determined by an accounting identity: capital inflows = the current account deficit, a broad measure of the trade balance including income on investments. (Trade can adjust to capital flows instead of the other way around, but that’s a longer story).

So what has happened to the current account deficit as a share of GDP in the Obama era? Um, it’s way down:

... How is it possible that we’re borrowing much less from foreigners when the government deficit has gone up so much? The answer is that the private sector is deleveraging, having moved into massive surplus as consumers try to pay down debt and corporations hold back on investment in the face of weak consumer demand. All those government deficits have only partly offset this move, so that overall national borrowing from overseas is down, not up.

But what would happen if the private sector stopped deleveraging? The answer is, we’d have a strong economic recovery, which would among other things greatly reduce the budget deficit. A side implication of this point, of course, is that for the time being that deficit is a good thing, helping to support the economy while the private sector unwinds its excessive leverage.

Finally, this morning an interesting story about the local tax and budget implications of the commonwealth's plan to provide tax breaks for the Shell Oil cracker.

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