Is the U.S. Middle Class About to Become Extinct?
As long ago as 2005, many economists, including some at then-powerhouse banking conglomerate Citigroupconcluded that certain groups of Americans and the measurements based on those groups had become useless. “There is no such animal as the U.S. consumer,” Citigroup’s in-house economists had determined. Such descriptions as “average” consumer debt and “average” consumer spending were highly misleading, and should be avoided in any future analysis, the report went on to say.
In fact, they said, America was composed of two distinct groups: the rich and the rest. And for the purposes of investment decisions, the second group didn’t matter; tracking its spending habits or worrying over its savings rate was a waste of time. All the action in the American economy was at the top: the richest 1 percent of households earned as much each year as the bottom 60 percent put together.
Bear in mind that this was 2005. Three years before the ill-timed collapse of the carefully thought-out strategy by Republicans and Wall St. insider and former Senator from Texas, Phil Gramm.
Citigroup and various Wall Street Investment Banks had understood for years that the top 1% of Americans possessed as much wealth as the bottom 90 percent; and with each passing year, a greater share of the nation’s treasure was flowing through their hands and into Citigroup’s pockets. It was this segment of the population, almost exclusively, that held the key to future growth and future returns. The analysts, Ajay Kapur, Niall Macleod, and Narendra Singh, had coined a term for this state of affairs: plutonomy.
In a succinctly worded, albeit bitingly butcherous tone, Kapur and his co-authors wrote, “economic growth is powered by and largely consumed by the wealthy few.” America had been in this state twice before, they noted—during the Gilded Age and the Roaring Twenties. In each case, the concentration of wealth was the result of rapid technological change, global integration, laissez-faire government policy in which little or no government interference is tolerated, and “creative financial innovation.”
In 2005, the rich were nearing the heights they’d reached in those previous eras, and Citigroup saw no good reason to think that, this time around, they wouldn’t keep on climbing. “The earth is being held up by the muscular arms of its entrepreneur-plutocrats,” the report said. The “great complexity” of a global economy in rapid transformation would be “exploited best by the rich and educated” of our time.
This Time Around Things Are Different
Income inequality usually shrinks during a recession, but in the Great Recession, it didn’t. The top 1 percent of earners actually did see their incomes drop more than incomes of other Americans at the end of 2008 and the beginning of 2009. But that fall was brief and due to the stock-market crash, and with it a 50 percent reduction in realized capital gains. Excluding those capital gains, top earners saw their share of national income rise even in 2008. Additionally, corporate profits have marched smartly upward, quarter after quarter, since the beginning of 2009.
It’s impossible not to notice just how disproportionately the Great Recession has affected different classes of people. From 2009 to 2010, wages were essentially flat nationwide.
In the Washington, D.C., however, job postings in the first part of 2012 were as numerous as job candidates. Stray from the beltway, such as in Cleveland or Pittsburgh, however, and for every job posting, as many as six people were unemployed.
The ease with which the rich and well educated have shrugged off the recession shouldn’t be surprising; Republicans have had their backs for many years. The recession, meanwhile, has restrained wage growth and enabled faster restructuring and off shoring, leaving many corporations with lower production costs and higher profits; and, of course their executives with higher pay.
Anthony Atkinson, an economist at Oxford University, has studied how several recent financial crises affected income distribution, and has established that in the wake of most, the wealthy have generally strengthened their economic position. Atkinson examined the financial crises that swept Asia in the 1990s as well as those that afflicted several Nordic countries in the same decade. In most cases, he says, the middle class suffered depressed income for a long time after the crisis, while the top 1 percent were able to protect themselves by using their cash reserves to buy up assets very cheaply once the market crashed, and emerging from crisis with a significantly higher share of assets and income than they’d had before.
The Paring of the Middle Class
One of the most significant features of severe downturns is that they tend to accelerate deep economic shifts that are already under way. Declining industries and companies fail; declining cities shrink faster; workers whose jobs were already being replaced by technology were done so more quickly. Some economists have argued that in a similar way that a forest fire clears tangled and cluttered brush, a recession clears unnecessary jobs and inefficient workers with brutal clarity.
“The Great Recession has quantitatively but not qualitatively changed the trend toward employment polarization” in the United States, wrote the MIT economist David Autor in a 2010 white paper.
Autor isolated the seperating of middle-skill, middle-class jobs as one of several labor-market developments that are profoundly reshaping U.S. society. The others are rising pay at the top, falling wages for the less educated, and “lagging labor market gains for males.” “All,” he writes, “predate the Great Recession. But the available data suggest that the Great Recession has reinforced these trends.”
For more than 30 years, the American economy has been in the midst of a sea change, shifting from industry to services and information, and integrating itself far more tightly into a single, global market for goods, labor, and capital.
Fortunately for some, America’s transformation may now be nearing completion. But since 2000, U.S. manufacturing has shed about a third of its jobs. Some of that decline reflects losses to China. Still, industry won’t vanish from America, any more than agriculture did as the number of farm workers plummeted during the 20th century.
One of the great puzzles of the past 30 years has been the way that men, as a group, have responded to the declining market for blue-collar jobs.
“I’m deeply concerned” about the prospects of less-skilled men, says Bruce Weinberg, an economist at Ohio State. In his working paper “People People,” Weinberg and two co-authors found that interpersonal skills typically become more highly valued in occupations in which computer use is prevalent and growing, and in which teamwork is important. Both computer use and teamwork are becoming ever more central to the American workplace, of course; the restructuring that accompanied the Great Recession has only hastened that trend.
Most worrisome is that the nonprofessional middle class, both economic and cultural seem to be phasing out the middle class. We cannot know the future, but over time, and further advances in technology may be less punishing to middle-skill workers. But that is hardly the normal trend.
All Is Not Gloom and Doom
One distinct advantage that the American worker enjoys is that the U.S. has always been an innovator. Venues like Silicon Valley, North Carolina’s Research Triangle, and the Massachusetts high-tech corridor are without comparison. Foreign students still flock here in droves. When you compare apples to apples, the United States still leads the world in the number of skilled engineers, scientists, and business professionals in residence.
Politicians Are Not the Solution. Politicians are the Problem
Even though economists, including yours truly, have all manner of ideas regarding the answers to repairing our economy, literally nobody expects Congress to enact any of them any time soon.
Americans themselves have become so caught up in this growth-stunting game of whack-a-mole that even they do not expect Congress to pass any kind of economic workable plan anytime in the near future. This political paralysis alone is enough to bring about the next Great Depression.
Pundits have complained for years that Congress is hopelessly dysfunctional, and the Financial Times’ Edward Luce says it’s hurting America more than we admit. “At a time when … long-term interest rates are so low the money is virtually free, the political system is unable to accomplish what ought to be a no-brainer.”
Tax reform would likely lower tax rates for both corporations and individuals, but eliminate many deductions and loopholes. The concept has been endorsed by everyone from President Obama to his likely Republican opponent Mitt Romney, but working out the details in a partisan atmosphere strikes economists as out of reach.
Until now, America has never faced an ideological divide on infrastructure: both parties accepted the need to upgrade America’s broadband capability, energy and water systems, and roads.
But America’s infrastructure is fast descending to second world status. The US spends just 2 per cent of its gross domestic product on infrastructure. The European Union spends twice that, and China more than four times. It is showing.
The Banking System is Killing America
The Democrats, the Republicans, and President Obama all promised that something would be done about the too big to fail banks so that they would never again be more likely to destroy our financial system than a terrorist attack is likely to strike. Those promises have not been kept and the too big to fail banks are now much bigger and much more powerful than ever.
Before the financial crisis of 2008, the assets of the five biggest U.S. banks were equivalent to about 43 percent of U.S. GDP. Today, the assets of the five biggest U.S. banks are equivalent to about 56 percent of U.S. GDP. So if those banks were “too big to fail” before, then why are they so much bigger now? They continue to gobble up smaller banks at a brisk pace, and they continue to pile up debt and risky investments as if a day of reckoning will never come. But of course a day of reckoning is coming, and when it arrives they will be expecting more bailouts just like they got the last time.
The size of these monolithic financial institutions is truly difficult to comprehend. They completely dominate our financial system and everywhere you look they are constantly absorbing more wealth and more power.
Despite all of the talk from the politicians, they just keep getting bigger and bigger and bigger.
So why isn’t anything ever done?
For the once vast middle class in America, the coming election may be its last best hope to change the course we are on or forever disappear under the thumb of the 1% for whom the system has never failed.
- 25 Signs That Middle Class Families Have Been Targeted For Extinction (zionistoutrage.com)
- Intellectuals Weigh In on the Occupy Movement (theepochtimes.com)