Monday, April 28, 2014

A Nation Adrift: Studies Confirm The Slow Sinking of the US Middle Class

Cartoon Middle Class Declineby Nomad

Due to economic policies of going back 30 years, studies show, the American middle-class is withering on the vine. While the US may still be the richest country in the world, that wealth has not trickled down to the middle class at all, compared to other nations. The effects of this shrinkage of the middle class could spell big trouble in America's future. 

Falling Behind
Most of us have known for quite some time now but a New York Times article has recently confirms the fact. According to an analysis of the numbers based on surveys reviewing the last 35 years, figures show that across the lower- and middle-income tiers, citizens of other advanced countries have received considerably larger raises over the last three decades.
In other words, the impact of income inequality based on flawed policy is driving Middle-class families to the point of extinction.
The numbers, based on surveys conducted over the past 35 years, offer some of the most detailed publicly available comparisons for different income groups in different countries over time. They suggest that most American families are paying a steep price for high and rising income inequality.
Hardly startling news, of course, but the proof is fairly conclusive when compared to other countries. 
If studies are anything to go by, then it isn't that America overall is being poorer, only that the middle-class is withering away. The top half of the income scale is still wealthier than any other nation. Indeed, when it comes to global economic growth, America is still a powerhouse, but that's not the problem. The problem is the middle class is clearly not benefiting. 

While America might remain the most wealthy country in the world, the actual distribution of that wealth has changed considerably since our parents' day. As a New York Times article explained:
With a big share of recent income gains in this country flowing to a relatively small slice of high-earning households, most Americans are not keeping pace with their counterparts around the world.
And a comparison of nations makes pretty grim reading. While median income has risen in other countries, in the US, adjusting for inflation, median income per capita has remained virtually unchanged since 2000.
The same measure, by comparison, rose about 20 percent in Britain between 2000 and 2010 and 14 percent in the Netherlands. Median income also rose 20 percent in Canada between 2000 and 2010, to the equivalent of $18,700. Other income surveys, conducted by government agencies, suggest that since 2010 pay in Canada has risen faster than pay in the United States and is now most likely higher. Pay in several European countries has also risen faster since 2010 than it has in the United States.
The cause of the decline are obvious but that doesn't mean they are easy to fix. There will be no quick fixes. It will take compromise and concerted effort to reverse the trend. 
That's something that seems to be in short supply in Washington.  

Causes of the Sinking
The analysis suggests that the problems with the economic are systemic.  Three general factors are to blame for the weakening of the economy:

  • an educational system that bring less and less returns to graduates, Additionally, the costs of a college education, the gateway into the middle class, have skyrocketed. Fewer and fewer are able to acquire the skills needed to join the middle class.
  • a grossly unbalanced wage system among companies with top executives being overpaid while workers are receiving less and less. Wages have stagnated to pre-1980s levels, while productivity has continued to expand.
  • Finally, government policies which are meant (either directly or indirectly) to aid wealth distribution are being axed in the US, unlike in Canada and Western Europe. Policies that guarantee a living wage, for example, have received little support in the US Congress.
Earnings graph since 1970s
Wages and Productivity Graph
But those factors were noted some time ago. As Senator Tom Harkin, Chairman of the Senate Health, Education, Labor, and Pensions Committee pointed out in a 2011 report:
In the decades after World War II, the economy grew as our middle class flourished. In those years, rising worker productivity was rewarded with commensurately rising earnings. Access to high quality K-12 and higher education expanded. Retirement security was bolstered by a partnership of individual savings, employer-sponsored defined-benefit pension plans, and Social Security. Vibrant unions provided workers with the ability to negotiate for better pay, stronger workplace safety standards, as well as benefits including paid sick leave and a basic pension.

All of these factors combined to make our middle class the driving force of the US economy by giving working families the ability to live a middle class life without taking on huge debts. This in turn created robust consumer demand that drove businesses to expand here in America.
Borrowed Money, Borrowed Time
Today, the situation is very different. The years of easy credit, in the 1980s and 90s, led to a era of substantial economic growth based on consumerism. It was presented in patriotic terms, "Buy American. Keep American workers working."

It was a celebration of materialism but that party left Americans with a pounding hangover. Economies, as Republican conservatives are so fond of telling us now, cannot be built of borrowing. However, as one source points out:
When Reagan left the presidency he also left the nation with a steep rise in credit market debt. A new culture of borrowing was underway with an expanded use of credit cards that had begun under Carter but was accelerating under Reagan.
Graph US debt vs Income
Had wages kept pace, there would have been no problem. After all, the idea of  credit has always been a kind of gamble that things will improve or stay the same. For the middle class, staying the same - with rising costs of living- meant slowly but inevitably falling behind. (Meanwhile, the average Chinese was saving money instead of spending, and not using on credit for purchases.)

Eventually, it wasn't American workers who were kept working but the Chinese. Thank globalization for that. 
Since the 1990s, China saw a miracle of economic development, based primarily on the growth of its manufacturing sector which in turn, led to the rise of a strong middle class there. Good for them. 
And importantly, starting at the turn of this century, U.S. manufacturing employment losses have been concentrated in industries that have seen a large rise in U.S. imports from China.
But that manufacturing shift was caused by a cold-blooded kind of economic model. No American middle-class worker, especially not a unionized one,  could possibly live on the average wage earned by a Chinese or India worker. Bad for us.  
But that still didn't stop the  unrestricted flood of cheap Chinese products. And it still didn't stop people from buying them on credit.   

Who isn't Suffering
Here, according to Harkin's report, .
Jobs in our economy today are increasingly service sector jobs, as our manufacturing base has been shipped overseas. More and more, the finance sector is driving changes to corporate practices, putting shareholder and executive gains above those of the average worker.

While this is good news for Wall Street bankers, it has shrunk the pool of well-paying jobs in the “real” economy.
In spite of the crash (because of which many middle-class Americans lost their homes) Wall Street today is doing splendidly. Corporate CEOs, unlike middle-class workers, have actually seen increases in their salaries. On average, they now make nearly 273 times as much as the people they employ.
In 1965, an average CEO took home slightly more than 20 times what an average "production/nonsupervisory" employee earned. That ration crept slowly upward throughout the 1960s, 70s and 80s, before soaring in the 1990s. Brief plunges in 2002 and 2009 still maintained a CEO-to employee earnings ration far above that of previous decades
Forbes adds that this trend peaked around 2000, with CEOs earning a jaw-dropping 383.4 times as much as the average worker. 
The very idea that the middle class was asked to bail out institutions without any real changes in their way of doing business or improved oversight seems, for many Americans, beyond understanding.
The effects of this inequality have been disastrous for the middle class, however.
As a result, the American Dream has slipped out of reach for the average American family. Most families live paycheck to paycheck, unable to save for the future. Earnings have stagnated and costs have risen, especially for the “big-ticket” items that in many ways define the middle class: health care, housing, and college tuition. The future looks no brighter, as the jobs of today’s economy are increasingly low-wage jobs that do not support a middle class lifestyle.
The age of dependence on middle-class consumerism appears to have come to an end.
The question now arises whether the world economy- which has depended on a robust US economy- can actually be supported solely by the top 1% in the US. Certainly it is doubtful whether the American economy can be sustained by such a small number of the super-wealthy. Especially when, by and large, they have been exempted from paying a historically reasonable share of taxes.

America without a Middle Class?
You might say, so what? America can survive, whether there is a middle-class or not. That may be perfectly correct, but it won't be an America anybody would like to live in.
One American political sociologist, Barrington Moore, Jr., in his book, Social Origins of Dictatorship and Democracy, noted the critical role that the middle class plays in maintaining  democracy. He suggested that only societies with a sufficiently strong middle class could become and remain democratic. 

A 2003 Massachusetts Institute of Technology study came to an ominous conclusion about what becomes of a nation without a large and thriving middle class. The threat of a revolution grows when a coalition between the middle
class and the poor is formed. That makes sense. The middle class acts as buffer and provides a stable ground for any democracy to grow. A country that neglects this stabilizing class is asking for big trouble.
When all political power is held in the hands of a few, there will be a greater chance of a struggle for a more politically-balanced condition, even if force is required. On the other hand, a full democracy emerges, says the report, as a way to change the future distribution of political power. When this is not possible, not only is the situation hopeless, it can be dangerous.

The study concludes that "a highly unequal society may not democratize because with such high levels of inequality democracy would be highly redistributive, and anticipating this, the rich are willing to use repression to prevent democratization.

And that's something that can be read in the newspapers every day.
In a variety of ways, from restricting voting rights, to corrupting the Supreme Court to allow corporation more influence in the political process, from gerrymandering districts to skew the election outcomes, to control of mass media to impose a false narrative, the rich appear to be using all of its tools.

In short, we are watching we have seen political theory become a pathetic reality. Unless some drastic systemic changes are made, which will revive the middle class, there may be some darker days ahead. 

No comments:

Post a Comment

This blog uses Disqus as a commenting service. We invite you to become a member and join the discussion.

Repost.Us

Sharethis

/span>