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David Leonhardt | For Many, a Boom That Wasn't    •

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    Chances of Homeowner Relief Losing Momentum in Senate
    By David M. Herszenhorn
    The New York Times

    Wednesday 09 April 2008

    Washington - A bipartisan effort in the Senate on tax breaks to stabilize the housing market and other aid for homeowners at risk of foreclosure began to crumble on Tuesday, as the White House threatened a veto, saying the bill would only make things worse.

    House Democrats, meanwhile, said they would pursue their own, more expansive homeowner assistance bill, and would support only a few provisions in the Senate measure.

    But even as the White House reiterated its opposition to government help for irresponsible lenders and speculators, there were signals that it was prepared to endorse broader aid for struggling homeowners - provided that it did not involve new legislation sought by Democrats.

    In a draft of testimony to be delivered before the House Financial Services Committee on Wednesday, Brian D. Montgomery, the commissioner of the Federal Housing Administration, said the administration would look to expand a program to help refinance the mortgages of borrowers struggling with subprime adjustable-rate mortgages. But the draft urges Congress not to overreach.

    A spokesman for the Department of Housing and Urban Development, Stephen C. O'Halloran, cautioned that the draft text could change. But the testimony seemed likely to set the stage for continued wrangling over the competing homeowner-aid proposals in the weeks ahead.

    The relatively modest Senate bill contains tax breaks for struggling businesses, including home builders; a $7,000 tax credit for buyers of foreclosed properties; $10 billion in tax-exempt bonds for local housing agencies to refinance troubled loans; $4 billion for local governments to buy foreclosed properties; and $100 million to counsel borrowers.

    In an effort to speed the bill's passage, Senate Democrats had agreed to delay a broader effort to assist troubled homeowners by authorizing up to $300 billion in federally insured mortgages, enough to help as many as 1.5 million borrowers refinance expensive adjustable rate loans into more stable and affordable 30-year loans.

    The dimming prospects of the relief package seemed incongruous with the 92-to-6 vote on Tuesday afternoon, by which the vast majority of Democrats and Republicans, including all three leading presidential candidates, voted to curtail debate and move toward its final passage on Wednesday.

    At the White House, however, the press secretary, Dana M. Perino, called the legislation ill-conceived. "The bill will likely do more harm than good," she said, "by bailing out lenders and speculators and passing on costs to other Americans who play by the rules and honor their mortgage debt obligations.".

    Ms. Perino also suggested that the Senate bill could be irrelevant, citing a desire of many House Democrats to go further. "Fortunately, it doesn't appear that likely that this bill will come to the president's desk," she said, "as the House has indicated that it plans to go its own way."

    The comments from the White House seemed to blindside Senator Mitch McConnell of Kentucky, the Republican minority leader, who earlier in the day repeated his strong support for the housing bill.

    At a news conference, Mr. McConnell said he was not prepared to respond to the criticism from the Bush administration. "It was unclear that the White House had a stated position yet on this bill," he said.

    House Democrats did not dispute Ms. Perino's assertion that they planned to pursue a more aggressive rescue plan for homeowners.

    Those efforts are expected to accelerate throughout the week as hearings begin on a Democratic plan to expand the availability of loans insured by the federal government and to help troubled borrowers refinance.

    Representative Barney Frank of Massachusetts, who is the main author of that plan, said House Democrats were prepared to endorse some aspects of the Senate bill, including the money for local governments to buy foreclosed properties, bonds for refinancing and a proposal to "modernize" the F.H.A.

    House Democrats also have their own version of a provision in the Senate bill that will create a property-tax deduction up to $500 for individuals and $1,000 for couples who do not itemize deductions on their tax returns.

    Mr. Frank, who has forged a solid working relationship with Henry M. Paulson Jr., the Treasury secretary, said in an interview that he remained hopeful of winning administration support for his more expansive plan to help borrowers with more insured loans.

    Also in the House on Tuesday, Representative Charles B. Rangel, Democrat of New York and chairman of the Ways and Means Committee, introduced tax legislation aimed at helping homeowners and first-time home buyers.

    Mr. Rangel's bill would give individuals and families a refundable credit, akin to an interest-free loan, of as much as $7,500, or 10 percent of the purchase price of the home. The money would have to be repaid over 15 years in equal installments.

    House Republicans issued a set of House Principles on Tuesday that they said should frame the debate over any legislation. Among them: "The best way out of the housing crisis is to get Americans purchasing homes again. The housing market needs a jump-start, not a bailout."

    The Republicans also said they opposed "a taxpayer bailout that rewards reckless behavior."

    Mr. Frank said that Democrats shared many of those goals, and noted that his proposal would not use tax revenue to pay off troubled mortgages.

    But whatever common ground House Republicans and Democrats might share, the parties seemed likely to clash over the housing issue for weeks to come. A recent Gallup poll showed sharply different views on the issue among voters. A majority of Democrats favored government help for troubled homeowners; a majority of Republicans opposed it.

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    For Many, a Boom That Wasn't
    By David Leonhardt
    The New York Times

    Wednesday 09 April 2008

    How has the United States economy gotten to this point?

    It's not just the apparent recession. Recessions happen. If you tried to build an economy immune to the human emotions that produce boom and bust, you would end up with something that looked like East Germany.

    The bigger problem is that the now-finished boom was, for most Americans, nothing of the sort. In 2000, at the end of the previous economic expansion, the median American family made about $61,000, according to the Census Bureau's inflation-adjusted numbers. In 2007, in what looks to have been the final year of the most recent expansion, the median family, amazingly, seems to have made less - about $60,500.

    This has never happened before, at least not for as long as the government has been keeping records. In every other expansion since World War II, the buying power of most American families grew while the economy did. You can think of this as the most basic test of an economy's health: does it produce ever-rising living standards for its citizens?

    In the second half of the 20th century, the United States passed the test in a way that arguably no other country ever has. It became, as the cliché goes, the richest country on earth. Now, though, most families aren't getting any richer.

    "We have had expansions before where the bottom end didn't do well," said Lawrence F. Katz, a Harvard economist who studies the job market. "But we've never had an expansion in which the middle of income distribution had no wage growth."

    More than anything else - more than even the war in Iraq - the stagnation of the great American middle-class machine explains the glum national mood today. As part of a poll that will be released Wednesday, the Pew Research Center asked people how they had done over the last five years. During that time, remember, the overall economy grew every year, often at a good pace.

    Yet most respondents said they had either been stuck in place or fallen backward. Pew says this is the most downbeat short-term assessment of personal progress in almost a half century of polling.

    The causes of the wage slowdown have been building for a long time. They have relatively little to do with President Bush or any other individual politician (though it is true that the Bush administration has shown scant interest in addressing the problem).

    The slowdown began in the 1970s, with an oil shock that raised the cost of everyday living. The technological revolution and the rise of global trade followed, reducing the bargaining power of a large section of the work force. In recent years, the cost of health care has aggravated the problem, by taking a huge bite out of most workers' paychecks.

    Real median family income more than doubled from the late 1940s to the late '70s. It has risen less than 25 percent in the three decades since. Statistics like these are now so familiar as to be almost numbing. But the larger point is still crucial: the modern American economy distributes the fruits of its growth to a relatively narrow slice of the population. We don't need another decade of evidence to feel confident about that conclusion.

    Anxiety about the income slowdown has flared at various times over the past three decades. It seemed to crescendo in the first half of the 1990s, when voters first threw George H. W. Bush out of office, then, two years later, did the same to the Democratic leaders of Congress. Pat Buchanan went around preaching a kind of pitchfork populism during the 1996 New Hampshire Republican primary - and he won it.

    Then came a technology bubble that made everything seem better, for a time. Record-low oil prices in the 1990s helped, too. So did the recent housing bubble, allowing families to supplement their incomes by taking equity out of their homes.

    Now, though, we appear to be out of bubbles. It's hard to see how the economy will get back on track without some fundamental changes. This, I think, can fairly be considered the No. 1 economic project awaiting the next president.

    Fortunately, there is an obvious model waiting to be dusted off. The income gains of the postwar period didn't just happen. They were the product of a deliberate program to build up the middle class, through the Interstate highway system, the G. I. Bill and other measures.

    It's easy enough to imagine a new version of that program, with job-creating investments in biomedical research, alternative energy, roads, railroads and education. On the campaign trail, Hillary Clinton, John McCain and Barack Obama all mention ideas like these.

    But there is still a lack of strategic seriousness to the discussion, as Bruce Katz of the Brookings Institution notes. After all, the United States spends a lot of money on education already but has still lost its standing as the country with the highest college graduation rate in the world. (South Korea and a couple of other countries have passed us, while Japan, Britain and Canada are close behind.)

    The same goes for public works. Spending on physical infrastructure is at a 20-year high as a share of gross domestic product, but too much of the money is spent on the inefficient pet programs championed by individual members of Congress. Pork barrel spending does not add up to a national economic strategy.

    Health care and taxes will have to be part of the discussion, too. Dr. Ezekiel Emanuel of the National Institutes of Health pointed out to me that a serious effort to curtail wasteful medical spending would directly help workers. It would spare them from paying the insurance premiums and taxes that now cover that care.

    The tax code, meanwhile, has become far more favorable to high-income workers at the same time that they - and they alone - have received large pretax raises. That doesn't make much sense, does it?

    It's a pretty big to-do list. But it's a pretty big problem. Since the economy now seems to be in recession, and since recessions inevitably bring their own pay cuts, my guess is that the problem will look even bigger by the time the next president takes office.