How Badly Has Obama Alienated the Middle Class?

By Michael Hirsh // June 12, 2012 | 10:27 p.m.

If President Obama loses in November, the new numbers out showing a calamitous drop in Americans' median net worth--we lost 20 years' worth of prosperity in the Great Recession, folks--will tell a good part of the story why. Bottom line: he lost the middle class. According to the Federal Reserve, a broad group of Americans loosely defined as the middle class saw its net worth plummet from a median of $126,400 in 2007 to $77,300 in 2010.

It's hardly fair to blame Obama for what began in 2007, but there's no reason why he shouldn't also be saddled with some of the blame in underestimating the severity of the crisis. Indeed, as economist Emmanuel Saez has written, the wealthiest one percent in the country have actually made out better, in percentage terms, during Obama's "recovery" of 2009-2010 than they did from 2002-07 under George W. Bush.

Judging from recent polls--my colleague Ron Brownstein parses one here-- the perception of the president is that he's spending a lot more time coddling the very poor (the uninsured) and the very rich (Wall Street) than he is the middle class. Obama spent a huge portion of his political capital on Obamacare, and almost none on helping underwater middle-class mortgage holders. Nor did he deploy, in a big way, the enormous leverage he had over Wall Street and Main Street both to induce more lending and hiring. Remember, the drop in middle-class net worth came largely because of the financial crisis, during and after which we witnessed Washington handing over hundreds of billions of dollars to sustain the mortgage-bubble-engendering financial firms that cost us all that middle-class income.

It gets worse. According to a 2010 paper by Andrew Haldane, head of the Bank of England's financial-stability department, the financial crisis of 2008-09 produced an output loss equivalent to between $60 trillion and $200 trillion for the world economy. Assuming that a crisis occurs every 20 years -- a very conservative estimate -- the systemic levy needed to recoup these crisis costs would be in excess of $1.5 trillion per year, Haldane says. What that means is that overall, our unrestrained financial sector does not add any net benefit to the economy--its repeated crises cost us far more than Wall Street brings to overall economic growth.

Haldane, pungently, compares the trading excesses of bankers to air pollution from the auto industry. "The banking industry is also a pollutant," he writes. "Systemic risk is a noxious by-product" not unlike the damage to public health from carbon monoxide, lead and so forth. The latter problems were dealt with through taxation and occasional prohibitions or restrictions on poisonous emissions. Why shouldn't we take the same approach to the excesses of over-the-counter derivatives (now back to more than $700 TRILLION in nominal trades), credit default swaps and other ultra-complex products that cause systemic risk?

"Banking benefits those producing and consuming financial services - the private benefits for bank employees, depositors, borrowers and investors," he writes. "But it also risks endangering innocent bystanders within the wider economy - the social costs to the general public from banking crises."

Yet no one -- no one -- in the Obama administration or the U.S. Congress has begun to talk in fundamental terms about the social costs of Wall Street.

So yes, this festering inequity at the heart of our economy is perhaps the main reason why Barack Obama may lose in November. The president, quixotically, sought to save both the poor (with Obamacare, mainly) and the filthy rich (Wall Street)--but at the expense of the bigger victim, the middle class. And if he gets voted out, they will be the ones to do it.