COLUMN-Fading optimism in "new normal" America:Bernd Debusmann

(Bernd Debusmann is a Reuters columnist. The opinions expressed
are his own)

By Bernd Debusmann

WASHINGTON, Dec 23 (BestGrowthStock) – Optimism is so deeply
embedded in the American national psyche that it withstood the
Great Depression in the 1930s and a string of recessions since
then. But in the era some economists call “the new normal” in
America, optimism is fading.

So say public opinion polls that ask Americans how they see
the future, theirs and their country’s. One recent survey, by
the respected Pew Research Center, found that depression era
Americans were more optimistic about economic recovery in the
near future than people questioned in a Pew poll this October,
when only 35 percent said they expected better economic
conditions in a year’s time. In response to a similar question
in 1936 and 1937, about half expected general business
conditions to improve over the next six months.

The phrase “new normal” was coined by PIMCO, one of the
world’s biggest investment funds, and is shorthand for an
American future that includes lowered living standards, slow
growth and high unemployment. Joblessness now stands at 9.8
percent, up from 9.6 percent in October. Add workers who have
given up looking for jobs and people forced to work part time
and the rate climbs to 17 percent, a powerful reason for
declining optimism.

But it’s not the only one. A slew of studies, surveys and
reports show that a growing number of Americans — some surveys
say more than half — no longer believe that their country is a
land of unlimited opportunity, where all it takes to rise to
success is hard work and determination.

“The end of American optimism,” as a headline over an
opinion piece in the Wall Street Journal proclaimed this summer,
has not quite arrived. But Americans increasingly believe that
the rich just get richer and the poor just get poorer. They have
good reason to think so. The rich-poor gap in the United States
is wider than in any other developed country.

That has rarely been a matter of concern for most Americans
but the recession that began in December 2007 turned inequality
into a topic of public debate, on occasion with peculiar twists.
In November, a widely read New York Times columnist, Nicholas
Kristof, compared the United States to Latin American banana
republics. To see countries where the richest 1 percent take
home more than a fifth of the national income, he said, it was
no longer necessary to leave the United States.

Two weeks later, he followed up with a column reporting that
the comparison had drawn protests from readers who deemed it
glib and unfair. Latin Americans thought it hurtful and
invidious. After checking into the matter, he came to the
conclusion that “I may have wronged the banana republics.”
Unlike in the United States, he said, Latin America had become
more equal in recent decades.

TRICKLE-DOWN THEORY

There is no reason to believe that American income
inequality will shrink soon — the next Congress will be
dominated by Republicans, many of whom firmly believe in
“trickle-down economics,” the notion that giving tax and other
financial breaks to the rich and the super-rich will result in
increased profits for corporations which reinvest them, and then
create new jobs. Money trickling down from the top. In theory.

This was the idea behind Republican insistence on an
extension of tax cuts, introduced by George W. Bush, that
included America’s wealthiest. Congress voted in favour of a
two-year extension on Dec. 17 after Republican leaders and
President Barack Obama agreed on a compromise many in his own
Democratic party saw as an abject surrender.

While considerable attention has been focused on the gap
between rich and poor, wider than at any time since just before
the Great Depression, there is perhaps an even weightier reason
for Americans to lose their optimistic, can-do spirit — for
many millions, the notion that they can climb up the economic
ladder is more myth than reality.

Half of those starting at the bottom 20 percent never leave
that level. “The … American economy tends to help those at the
top stay there while making it difficult for those at the bottom
to move up,” according to a study by Ron Haskins and Isabel
Sawhill of the Brookings Institution, a Washington think tank.

That is true despite the rags-to-riches stories that
underpin the American dream and have fired the imagination of
countless immigrants. Obama himself could be a poster child for
upward mobility, a black man reaching the pinnacle of power
after an unconventional childhood that included a spell of
subsisting on his mother’s food stamps.

Obama’s Republican opponents portray him as a latter-day
Karl Marx, intent on an economic model that distributes income
from each according to his ability, to each according to his
needs. That perception gained currency during Obama’s election
campaign, when he used the phrase “spread the wealth around” in
an exchange on his tax ideas with an Ohio voter named Joe
Wurzelbacher.

Wurzelbacher became an instant hero to the American right as
“Joe the Plumber.” He need not have worried. Obama never used
the term again and wealth distribution looks likely to continue
in one direction — upwards. In the “new normal,” there is
reason for optimism for those at the top, not those in the
shrinking middle or the bottom.
(You can contact the author at [email protected])

COLUMN-Fading optimism in "new normal" America:Bernd Debusmann