The Crisis of the American Middle Class

In a January 29, 2015, article written for Stratfor, George Friedman provides a lucid summary of what has happened to our middle class across the last generation, along with a warning of the dire consequences of allowing the trends to continue. I recommend this article for clarifying what we have all been suspecting.

He starts by comparing the lifestyle opportunities for those of median income in 1989 vs 2011. Median income of 2011 ($49,103), adjusted for inflation, is below that of 1989. Making it even worse, today’s family at median income cannot live comfortably, which was possible in 1989. Friedman breaks it down in detail, but housing costs and college tuition increases in real terms make it far more difficult, without adding up all the rest.

Looking back to even earlier periods of better life for our middle class, Friedman attributes the feeling of great prosperity in the 60s to the GI Bill’s college tuition and attractive mortgage terms for vets returning, and to the interstate highway funding, which made the suburbs reachable and affordable. Thomas Piketty attributes much to Roosevelt’s New Deal and Lyndon Johnson’s Great Society and related programs. Both agree that these kinds of programs resulted from catastrophic events–the Great Depression and WWII. Without such external shocks to motivate something like that in present terms, it appears to both Piketty and to Friedman (and certainly to me) that we are caught in a trend of economic events that is increasingly negative for our middle class.

John Maynard Keynes forecasted in 1930 that by now we would be enjoying a 15 hour work week, due to anticipated advances, primarily in technology. No one will dispute that those came, along with globalization, and indeed brought great wealth. But Keynes failed to anticipate that the benefits of those advances would flow to the owners of capital, and not to the workers.

Friedman describes what happened to corporate America across this period, accelerating since 1980. Long term employment is all but gone. Disruptive innovation is abounding. Those who are not agile enough or too old get left by the wayside. Neither the company nor the government protects them. We are seeing a massive structural shift in the nature of our businesses and our work opportunities.

Friedman argues that our powerful American ideology was built on the idea of perpetually improving living conditions for our middle class. We are losing that, and with that loss we stand to lose a significant portion of our geopolitical power. I have argued in earlier posts that we have unintentionally caused some significant portion of growing terrorism, as young disadvantaged people of color look at our arrogant proselytizing of American ideology and do not find it working in reality–certainly not for them, and not even for us anymore.

My brother was one of the last single employer workers (now retired from Bell South). I had 7 employers. By the numbers shared in Friedman’s article, we both made it above the “medians” and, while not really wealthy, we have had good lives. We worry about our children and grandchildren, for whom the workplace offers little security and little wage growth, if you end up being “just a worker,” not making it to management or a critical skill (like “engineer”= coder, or something like that). And, regardless of your level, you better be agile–there is no net and there is no parachute these days. Disruptive business changes fast, and you have only your own resources with which to respond.

So, do we continue to advantage the wealthy in taxation so as to incent innovation and investment in order to promote more growth which might trickle down; or do we tax the rich, and redistribute into more equalizing programs such as infrastructure and schools?

Friedman summarizes the dilemma: “The left cannot be indifferent to the historical consequences of extreme redistribution of wealth. The right cannot be indifferent to the political consequences of a middle-class life undermined, nor can it be indifferent to half the population’s inability to buy the products and services that businesses sell.”

I agree entirely with his summary of the dilemma, and I respect Friedman’s acknowledgement that the solution is beyond him.

I would only add my opinion that the described challenges to redistribution (the solution proffered by the Left) through higher taxes on the wealthy (reduces investment by wealthy and reduces incentive) are applicable only at much higher levels of taxation than anyone has suggested. Much of profits accumulated to wealthy has not been going into jobs producing investment, and we have had stronger economic growth in periods of our past when taxes on the wealthy were much higher than any liberals are currently proposing.

I believe the pendulum has swung too far to the right. We don’t need to return to anything near past periods of peak taxation, but there is room to move to the left without harming investment or incentive. Would that we could concentrate our bi-partisan attention on just what programs would move us toward more balance–shared prosperity as we believed we could and should provide–a return to our beliefs as a nation, and set an example for the global community.

I welcome your comments

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