Opinion

The Edgy Optimist

A new American dream for a new American century

Zachary Karabell
Jul 26, 2013 13:22 UTC

In a major speech this week on the economy, President Obama emphasized that while the United States has recovered substantial ground since the crisis of 2008-2009, wide swaths of the middle class still confront a challenging environment. Above all, the past years have eroded the 20th century dream of hard work translating into a better life.

As Obama explained, it used to be that “a growing middle class was the engine of our prosperity. Whether you owned a company, or swept its floors, or worked anywhere in between, this country offered you a basic bargain — a sense that your hard work would be rewarded with fair wages and decent benefits, the chance to buy a home, to save for retirement, and most of all, a chance to hand down a better life for your kids. But over time, that engine began to stall.” What we are left with today is increased inequality, in wages and in opportunity.

The assumption is that this is unequivocally a bad thing. There have been countless stories about the “death of the American dream,” and Detroit’s bankruptcy last week was taken as one more proof. Yet lately the unquestioned assumption of a better future based on hard work has not served America well. If anything, today’s version of that dream has been the source of complacency rather than strength, and its passing may be necessary in order to pave the way for a constructive future.

But you wouldn’t know that from the president’s speech and from continued news stories and academic studies. The inequalities of opportunity were underscored by a recent study that was brought to national attention by the New York Times this week that showed wide variations in income mobility depending on what part of the United States you live in. Those who live in metropolitan areas, as well as those with more higher education and wealthier parents, have significantly more upward mobility than many in rural areas.

The wage stagnation for tens of millions of working Americans over the past decades combined with the financial crisis has been painful and even calamitous for millions. In truth, however, the middle class security that has now disappeared only existed for a very brief period after World War Two, when the United States accounted for half of global industrial output and achieved a level of relative prosperity and growth that was substantially higher than in any other country. Before the Great Depression and World War Two, there was no assumption in the 17th, 18th or 19th centuries that the future would be inherently better for one’s children.

The Obamacare plot twist

Zachary Karabell
Jul 18, 2013 18:25 UTC

For months, we’ve been told that the impending implementation of the Affordable Care Act (aka Obamacare) will lead to soaring healthcare costs and more expensive premiums. That narrative has taken hold, even for those who otherwise support the suite of reforms. And that’s why the recent front-page article in the New York Times, reporting that premiums in New York State may actually fall 50 percent or more, came as such a surprise.

Only a few weeks prior, the Wall Street Journal announced that “Healthy consumers could see insurance rates double or even triple when they look for individual coverage under the federal health law later this year.” Their analysis did acknowledge that ailing individuals could see rates fall, but the driving point was one that has been made ad infinitum by critics of the reforms: costs will soar.

So entrenched is that view that the Republican-controlled House of Representatives continues its quixotic quest to repeal the bill, and voted this week for the 38th and 39th times to repeal parts of the bill, including the “employer mandate” that the Obama administration has already decided to delay. Paul Ryan said about the latest vote: “This law needlessly raises healthcare costs. And this law will cause millions of people to lose the health insurance that they have, that they want to keep.”

Bonds are not safe

Zachary Karabell
Jul 11, 2013 11:16 UTC

The old stock market cliché “sell in May, and go away” had so far proved untrue this year. Instead, it is the bond market — so often perceived as steady, low risk and dependable — that has bitten investors. In fact, June was one of the worst months for bonds in many years. The declines were steep enough to serve as an acute reminder that nothing, and I do mean nothing, in the financial world is without risk.

Stocks have been rising with volatility for more than four years. Yet money has poured into bonds. That reversed dramatically in June, with investors pulling $28 billion from bond funds, the most since monthly records began in 2007. Pimco, one of the largest bond managers in the world, saw its normally staid and stable Total Return Fund drop by 2.6 percent, and investors yanked $14 billion from Pimco alone.

The proximate cause was the meeting of the Federal Reserve and the subsequent statements by Chairman Ben Bernanke. Bernanke said that if the U.S. economy continues its gradual path towards strength and stability, the Fed would consider ending its purchases of $85 billion of bonds per month. Those statements accelerated what had begun a few weeks earlier, namely a sharp rise in interest, with yields on U.S. 10-year Treasuries rising above 2.5 percent after they had been hovering around 1.5 percent.

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