What the Middle Class Should Want From the Economy in 2014

A roundup of the biggest economic questions facing everyday Americans in the new year.

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National Journal
Nancy Cook
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Nancy Cook
Jan. 2, 2014, 11:39 a.m.

Eco­nom­ists feel pretty up­beat about the pro­spects for 2014 after roughly five years of tep­id, if not pess­im­ist­ic, fore­casts. The U.S. eco­nomy grew at a pace of 4.1 per­cent dur­ing the third quarter of 2013, the largest ex­pan­sion since 2011. Hous­ing prices in the 20 largest cit­ies rose 13.6 per­cent since Oc­to­ber 2012, ac­cord­ing to the S&P/Case-Shiller Home Price In­dex, and the na­tion­al un­em­ploy­ment rate — while still too high — de­creased from 7.3 per­cent to 7 per­cent in Novem­ber. If we keep this up, 2014 may fi­nally be the year of the long-awaited eco­nom­ic re­cov­ery.

Even if the U.S. eco­nomy re­turns to a health­i­er place with bet­ter top-line num­bers, that still will not solve all of the quandar­ies to face Amer­ic­ans as they try to build wealth, land bet­ter-pay­ing jobs, and get ahead fin­an­cially. Here is a roundup of the eco­nom­ic is­sues to watch over the next 12 months for the middle class:

WILL ANY­ONE HELP THE LONG-TERM UN­EM­PLOYED? The un­em­ploy­ment rate dropped in Novem­ber to 7 per­cent, but that didn’t help the 4.1 mil­lion people who have been out of the work for more than six months. This group still ac­counts for roughly 37 per­cent of job­less Amer­ic­ans, and Wash­ing­ton poli­cy­makers can agree on few, if any, plans to re­con­nect them to the work­force. It will be hard to claim a win­ning eco­nom­ic re­cov­ery un­til a wider swath of people re­turn to work. That’s not just a mor­al ar­gu­ment — it’s one that should con­cern all Amer­ic­ans. People with jobs earn more money; they pay high­er taxes; they feel more com­fort­able spend­ing money; and over­all, their con­tri­bu­tions lead to high­er pro­ductiv­ity.

WILL MIDDLE-CLASS WORK­ERS SHARE IN THE COUN­TRY’S GROW­ING WEALTH? If you are lucky enough to live in the top tier of the U.S. eco­nomy, then life looks great right now. High-in­come Amer­ic­ans are no longer feel­ing shy about spend­ing money on big-tick­et items like cars. Really, really wealthy people like Bill Gates saw their bil­lion­aire wealth grow by a huge mar­gin last year, ac­cord­ing to a new in­dex from Bloomberg News. Yet middle-class Amer­ic­ans are not shar­ing this spate of good news. The me­di­an in­come of U.S. house­holds shrank from 2011 to 2012, ac­cord­ing to census data; not every­one keeps enough cash in the stock mar­ket to be­ne­fit from its re­cent up­tick. If the eco­nom­ic re­cov­ery hap­pens in 2014, a key ques­tion will be if people in the middle and lower classes profit, too.

WILL A HIGH­ER MIN­IM­UM WAGE LIFT PEOPLE OUT OF POVERTY? On Jan. 1, 13 states in­creased their min­im­um-wage thresholds high­er than the fed­er­al gov­ern­ment’s $7.25 per hour. Lib­er­als ar­gue that in­creas­ing the min­im­um wage is a must-do for 2014 (and a ma­jor polit­ic­al push) be­cause too many work­ing fam­il­ies re­main poor and be­cause of the grow­ing in­come gap between high- and low-in­come Amer­ic­ans. Con­ser­vat­ives don’t want the fed­er­al gov­ern­ment to be­come in­volved in these de­cisions, which they be­lieve are best left to mar­ket forces. Rais­ing the min­im­um wage state-by-state will give us a win­dow (and data) to show wheth­er high­er hourly wages alone can lift Amer­ic­ans out of poverty.

WHAT WILL STATES’ DIF­FER­ENT ECO­NOM­IC STRATEGIES MEAN FOR AMER­IC­ANS? The U.S. is rap­idly turn­ing in­to a coun­try where states are en­ga­ging in wildly di­ver­gent ex­per­i­ments in eco­nom­ic and fisc­al policy. Move to Mary­land, as one ex­ample, and you’ll pay high­er taxes. You’ll also re­ceive great­er gov­ern­ment pro­tec­tions as a work­er. Move to North Car­o­lina, and your tax bill will shrink. You also won’t re­ceive the same level of so­cial safety-net ser­vices if you lose your job. That’s just a few policy areas where two states dif­fer. As more time passes, law­makers and policy wonks will ac­quire more data to gauge the suc­cess of these state-by-state eco­nom­ic ex­per­i­ments. In the com­ing years, ex­pect it to provide the two parties with much fod­der for their on­go­ing ar­gu­ments about the best way de­liv­er eco­nom­ic policy.

HOW IN­VOLVED WILL THE FED­ER­AL GOV­ERN­MENT BE IN YOUR LIFE IN 2014? The fi­nal big ques­tion for 2014 is what role the fed­er­al gov­ern­ment will con­tin­ue to play in Amer­ic­ans’ eco­nom­ic lives. How long will the Fed­er­al Re­serve pump money in­to the eco­nomy month after month to try to boost the eco­nom­ic re­cov­ery? Will Con­gress pass an ex­ten­sion of fed­er­al emer­gency un­em­ploy­ment be­ne­fits, or find bet­ter ways to sup­port the job­less? And, will poli­cy­makers make any moves to tackle some of the oth­er press­ing con­cerns of the middle class, like sav­ing for re­tire­ment or the high cost of col­lege?

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