Sleight-of-hand economics to make even Houdini jealous

May 9, 2008 | Aaron Keating

This is a bit of trickery that might have made even Houdini jealous.

First comes a “nothing up my sleeve” assessment of the dismal state of the economy:

We’re still shedding jobs, consumer confidence remains down, and discretionary spending shrinks as gas and grocery prices rise.

Second, a little “abracadabra” (i.e., mumbo jumbo that really means nothing):

May’s promise of spring has yet to lighten the spirits of working people and the somber solons who represent us.

Then right before your eyes, the sleight-of-hand:

As JFK famously observed, a rising tide lifts all boats. Now, however, the tide has gone out. And those left behind by the receding waters of recession are eagerly courted.

Notice how this economic downturn is portrayed as something natural, even inevitable? Nothing we can do about it – we all know what happened to King Canute, right?

But play this paragraph back in slow motion, and you can see the magician at work. The misdirection (essential for any trick) is in these two phrases: “a rising tide lifts all boats” and “the tide has gone out.”

First, the magician fails to mention that all boats are not tied to the same dock. In today’s economy, a few people can afford big, expensive deep-water moorages where the ebb and flow is barely noticed. Most people, however, can only afford to tie their boats up in shallower water, where it really matters when the water disappears.

Income inequality in Washington State grew significantly during the most recent period of economic growth. The highest income families saw their average income grow by nearly 12 % since the late 1990s, while incomes stagnated for those at the middle and bottom of the income scale, after adjusting for inflation.

This tide is also different from others we’ve experienced. Census data shows Washington is one of 37 states where family incomes of the top fifth grew significantly faster than the incomes of the bottom fifth between the late 1980s and now.

In contrast, between World War II and the 1970s, the benefits of economic growth were broadly shared by families at every income level. Is it any wonder that more Americans feel stuck in their tracks than ever before?

Second, the tide didn’t just “go out”, magically stranding middle-class Americans (in leaky boats with shoddy motors that require very expensive gasoline to run, no less). Many of the economic problems we face today relate to public policy decisions made by our government that have failed to protect working families from market excesses. For example:

  • Our nation faces a mortgage crisis that “many economists trace back to overly loose credit and abusive loans.”
  • We spend more on health care – and get less for our money – than any other industrialized nation, because “delivery of both insurance and of care is undertaken by a crazy quilt of private insurers, for-profit hospitals, and other players who add cost without adding value.”
  • Workers are losing confidence in their future retirement as companies like Verizon, Lockheed Martin, Motorola and I.B.M. replace pension plans with 401(k)s that expose employees to the vagaries of the financial markets.

Given the reality of today’s economic hardships for so many people, and the fact that those difficulties largely stem from human – not natural – causes, it’s easy to see why a bit of misdirection is needed before the real trick is performed:

We know that life isn’t always fair. But it’s important that we believe that it is fair most of the time.

And that right there is the bunny being pulled out of the hat. If you think the bunny was actually made to appear, rather than having been there all along…well, you probably think our economy is just fine and fair as-is and thank you very much, you’ve been a great audience.

But if you’re wondering why this magician wants people to believe this economic scenario is fair – when it so obviously is not – then perhaps you also think we can do better than to throw up our hands and say “these are tough times.”

Our country is at its best when we ensure the benefits of prosperity are broadly available to all those who contribute to it. So let’s roll up our sleeves and put our government to work fashioning public policies that make our economy truly float every boat.

Start with a high-quality education for our children; then provide modern work-life standards for working families; and finally, improve retirement security for those in their golden years. We can afford it. In fact, we can’t afford not to.

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Posted in Retirement Security, State Economy

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