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Feeling the crunch

With costs, job insecurity and anxiety on the rise for the hard-pressed middle class, the economy could be a decisive factor in the presidential election.

By ROBERT TRIGAUX
Published October 10, 2004

With a bit more than three weeks and counting until the election, let's cut to the chase. If the U.S. economy at long last is gaining some steam, why do so many middle-income households feel like they are treading water financially?

Job insecurity remains widespread. Household income is essentially flat. Costs for health coverage are way up - unless you're among the 45-million Americans who don't have any. Property insurance is rising (just wait until Florida's next hurricane rates kick in). Oil hit $53 a barrel last week and gasoline prices are increasing again. Up, too, are housing prices, college tuition and, last but not least, interest rates.

Welcome to the "middle-class squeeze."

Presidential candidate John Kerry claimed political title to this squeeze, the national malaise of stagnant income and soaring costs. Kerry is betting his pitch to ease the middle class financial burden will hit a nerve with enough hard-pressed voters by Nov. 2 to send him to the White House.

Kerry's opponent, President Bush, has other plans. He has tried to tag Kerry as an economic pessimist who plays up bad news and ignores the good. Bush insists the economy is rebounding. And the number of new jobs is increasing modestly, while a series of Bush-engineered tax cuts have put some spending money back in people's pockets.

Which candidate is right? The potency of the middle-class squeeze as a political weapon will be put to the test Wednesday night when Kerry and Bush meet for the third and final presidential debate in Tempe, Ariz. This debate will deal with domestic issues and the economy and represent the last opportunity for either candidate to speak directly to a large, national audience before Election Day.

The debate is also about the future of America's middle class.

"This is about the survival of the middle class," says Elizabeth Warren, a professor at Harvard Law School who specializes in the finances of U.S. families. Income has declined, costs ranging from child care to credit cards are up, she says. The savings rate of middle-income families is near zero but their debts are multiplying.

"This is an issue that cannot be discussed enough," Warren says.

On economic matters, the Bush and Kerry camps deserve overtime pay for some remarkable spin. After listening for months to their often starkly selective views of the world and the average American's economic prospects, all the political banter comes down to six simple statements:

One, the candidate who most captures the financial heart and mind of the middle class will win the election.

Two, the squeeze on middle-income households is very real and troubling enough to test the best intentions of either candidate.

Three, the squeeze on the middle class is partially self-imposed. Too many people with middle incomes have let their lifestyle expectations - in housing, in cars, in vacations, in private schools, in entertainment - outstrip their ability to pay for it all.

Four, tax reform that promises to help the middle class but actually delivers far bigger breaks (in much lower tax rates on dividend income and stock sales) to the wealthy is not helpful and raises questions of fairness.

Five, not all solutions to the middle-class squeeze are economic. Without major strides in public education to upgrade the U.S. work force, the country will be sorely challenged to create and keep enough domestic, good-paying jobs in the coming years.

And six, statements one through five fly out the door if people enter the voting booth and decide the Iraq war and terrorism are more important than pocketbook issues.

What exactly is the middle class these days? Dictionaries lamely call it the class between the lower and upper classes.

The Census Bureau offers no official definition, but it gives the country's median household income, adjusted for inflation, as $43,318 in 2003. That was unchanged from 2002, though the median income declined in 2000 and 2001.

Very loosely defined, the middle class extends from those making in the $30,000 range to $80,000 or more. Economists and social scientists say many people with incomes well below and well above this range will call themselves middle class. It is a state of mind, as much as any financial benchmark.

Recent examples of the squeeze on a wide-ranging middle class are easy to find.

Wal-Mart CEO Lee Scott, in a Wall Street Journal interview last week, described the effect of higher gas prices on the buying habits of the heavily indebted "lower middle class" segment of his customers. Scott said 20 percent of Wal-Mart customers do not have checking accounts and "live paycheck to paycheck."

If 100-million Wal-Mart customers spend an extra $10 a week on gas, Scott said, "that's $1-billion in revenue that no longer exists." It does not take much to upset their spending habits.

The "upper middle class" - namely educated professionals - is feeling squeezed, too, argues Rosabeth Moss Kanter, a Harvard Business School professor.

On paper, this group (which Kanter calls the "uneasily employed") appears successful. "Yet these so-called gainfully employed feel that they're slipping rather than gaining," Kanter wrote in a newspaper opinion piece last week. "President Bush has had four years to show what he can do, and their situations haven't improved."

Over the first 31/2 years of Bush's presidency, gas prices have risen 28 percent, the cost of medical care is up nearly 16 percent and education costs are up almost 24 percent, according to the consumer price index.

If all these economic factors seem to put Bush at a disadvantage, more than a few top economists across the country would agree. Last week, 169 business school professors signed an open letter to Bush - coincidentally the first president to have an MBA - criticizing the president's economic policies. Among their big concerns: a Bush tax policy that aggravates the gap in America between the haves and have-nots; and a rapidly escalating national deficit.

"Nearly every major economic indicator has deteriorated since you took office in January, 2001," said the letter. "If your economic advisers are telling you that these deficits can be defeated through further reductions in tax rates, then you need new advisers."

The letter was penned by faculty members at Harvard Business School, where Bush earned his diploma in 1975. But the business professors who signed the letter work at many of the nation's top MBA programs.

Among those signing from Florida business schools are: John M. Jermier, Exide professor of sustainable enterprise research at the University of South Florida; Jose de la Torre, business dean at Florida International University; and Carol Saunders, MIS professor the University of Central Florida.

The letter to Bush warns that the mounting inequality of income in this country is greater than in any other developed country, and getting worse.

"We don't know where the breakpoint is for the U.S.," the letter states, "but we would rather not find out."

Is there also a breakpoint when the economic squeeze gets too much for middle-class households? It's a question Kerry might ask and answer in Wednesday's debate.

In the same week this letter was sent to Bush, a model that used past and current economic data to determine who will win the presidential election concluded the president will trounce Kerry on Nov. 2.

The model, by the well-regarded Economy.com group, gave Bush a whopping 373 Electoral College votes. That's plenty more than the 270 he needs to win. Kerry won only 10 states, including a handful of East Coast states, plus Illinois and California.

Florida, in this model, went to Bush. Of course, the Economy.com model used in the 2000 election picked Al Gore to win.

Robert Trigaux can be reached at trigaux@sptimes.com or 727 893-8405.

[Last modified October 10, 2004, 00:53:21]


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