EMAIL SIGN UP!
Most Popular This Week
Popular content
Today's Top News
The Limping Middle Class
The 5 percent of Americans with the highest incomes now account for 37 percent of all consumer purchases, according to the latest research from Moody’s Analytics. That should come as no surprise. Our society has become more and more unequal.
When so much income goes to the top, the middle class doesn’t have enough purchasing power to keep the economy going without sinking ever more deeply into debt — which, as we’ve seen, ends badly. An economy so dependent on the spending of a few is also prone to great booms and busts. The rich splurge and speculate when their savings are doing well. But when the values of their assets tumble, they pull back. That can lead to wild gyrations. Sound familiar?
The economy won’t really bounce back until America’s surge toward inequality is reversed. Even if by some miracle President Obama gets support for a second big stimulus while Ben S. Bernanke’s Fed keeps interest rates near zero, neither will do the trick without a middle class capable of spending. Pump-priming works only when a well contains enough water.
Look back over the last hundred years and you’ll see the pattern. During periods when the very rich took home a much smaller proportion of total income — as in the Great Prosperity between 1947 and 1977 — the nation as a whole grew faster and median wages surged. We created a virtuous cycle in which an ever growing middle class had the ability to consume more goods and services, which created more and better jobs, thereby stoking demand. The rising tide did in fact lift all boats.
During periods when the very rich took home a larger proportion — as between 1918 and 1933, and in the Great Regression from 1981 to the present day — growth slowed, median wages stagnated and we suffered giant downturns. It’s no mere coincidence that over the last century the top earners’ share of the nation’s total income peaked in 1928 and 2007 — the two years just preceding the biggest downturns.
Starting in the late 1970s, the middle class began to weaken. Although productivity continued to grow and the economy continued to expand, wages began flattening in the 1970s because new technologies — container ships, satellite communications, eventually computers and the Internet — started to undermine any American job that could be automated or done more cheaply abroad. The same technologies bestowed ever larger rewards on people who could use them to innovate and solve problems. Some were product entrepreneurs; a growing number were financial entrepreneurs. The pay of graduates of prestigious colleges and M.B.A. programs — the “talent” who reached the pinnacles of power in executive suites and on Wall Street — soared.
The middle class nonetheless continued to spend, at first enabled by the flow of women into the work force. (In the 1960s only 12 percent of married women with young children were working for pay; by the late 1990s, 55 percent were.) When that way of life stopped generating enough income, Americans went deeper into debt. From the late 1990s to 2007, the typical household debt grew by a third. As long as housing values continued to rise it seemed a painless way to get additional money.
Eventually, of course, the bubble burst. That ended the middle class’s remarkable ability to keep spending in the face of near stagnant wages. The puzzle is why so little has been done in the last 40 years to help deal with the subversion of the economic power of the middle class. With the continued gains from economic growth, the nation could have enabled more people to become problem solvers and innovators — through early childhood education, better public schools, expanded access to higher education and more efficient public transportation.
We might have enlarged safety nets — by having unemployment insurance cover part-time work, by giving transition assistance to move to new jobs in new locations, by creating insurance for communities that lost a major employer. And we could have made Medicare available to anyone.
Big companies could have been required to pay severance to American workers they let go and train them for new jobs. The minimum wage could have been pegged at half the median wage, and we could have insisted that the foreign nations we trade with do the same, so that all citizens could share in gains from trade.
We could have raised taxes on the rich and cut them for poorer Americans.
But starting in the late 1970s, and with increasing fervor over the next three decades, government did just the opposite. It deregulated and privatized. It cut spending on infrastructure as a percentage of the national economy and shifted more of the costs of public higher education to families. It shredded safety nets. (Only 27 percent of the unemployed are covered by unemployment insurance.) And it allowed companies to bust unions and threaten employees who tried to organize. Fewer than 8 percent of private-sector workers are unionized.
More generally, it stood by as big American companies became global companies with no more loyalty to the United States than a GPS satellite. Meanwhile, the top income tax rate was halved to 35 percent and many of the nation’s richest were allowed to treat their income as capital gains subject to no more than 15 percent tax. Inheritance taxes that affected only the topmost 1.5 percent of earners were sliced. Yet at the same time sales and payroll taxes — both taking a bigger chunk out of modest paychecks — were increased.
Most telling of all, Washington deregulated Wall Street while insuring it against major losses. In so doing, it allowed finance — which until then had been the servant of American industry — to become its master, demanding short-term profits over long-term growth and raking in an ever larger portion of the nation’s profits. By 2007, financial companies accounted for over 40 percent of American corporate profits and almost as great a percentage of pay, up from 10 percent during the Great Prosperity.
Some say the regressive lurch occurred because Americans lost confidence in government. But this argument has cause and effect backward. The tax revolts that thundered across America starting in the late 1970s were not so much ideological revolts against government — Americans still wanted all the government services they had before, and then some — as against paying more taxes on incomes that had stagnated. Inevitably, government services deteriorated and government deficits exploded, confirming the public’s growing cynicism about government’s doing anything right.
Some say we couldn’t have reversed the consequences of globalization and technological change. Yet the experiences of other nations, like Germany, suggest otherwise. Germany has grown faster than the United States for the last 15 years, and the gains have been more widely spread. While Americans’ average hourly pay has risen only 6 percent since 1985, adjusted for inflation, German workers’ pay has risen almost 30 percent. At the same time, the top 1 percent of German households now take home about 11 percent of all income — about the same as in 1970. And although in the last months Germany has been hit by the debt crisis of its neighbors, its unemployment is still below where it was when the financial crisis started in 2007.
How has Germany done it? Mainly by focusing like a laser on education (German math scores continue to extend their lead over American), and by maintaining strong labor unions.
THE real reason for America’s Great Regression was political. As income and wealth became more concentrated in fewer hands, American politics reverted to what Marriner S. Eccles, a former chairman of the Federal Reserve, described in the 1920s, when people “with great economic power had an undue influence in making the rules of the economic game.” With hefty campaign contributions and platoons of lobbyists and public relations spinners, America’s executive class has gained lower tax rates while resisting reforms that would spread the gains from growth.
Yet the rich are now being bitten by their own success. Those at the top would be better off with a smaller share of a rapidly growing economy than a large share of one that’s almost dead in the water.
The economy cannot possibly get out of its current doldrums without a strategy to revive the purchasing power of America’s vast middle class. The spending of the richest 5 percent alone will not lead to a virtuous cycle of more jobs and higher living standards. Nor can we rely on exports to fill the gap. It is impossible for every large economy, including the United States, to become a net exporter.
Reviving the middle class requires that we reverse the nation’s decades-long trend toward widening inequality. This is possible notwithstanding the political power of the executive class. So many people are now being hit by job losses, sagging incomes and declining home values that Americans could be mobilized.
Moreover, an economy is not a zero-sum game. Even the executive class has an enlightened self-interest in reversing the trend; just as a rising tide lifts all boats, the ebbing tide is now threatening to beach many of the yachts. The question is whether, and when, we will summon the political will. We have summoned it before in even bleaker times.
As the historian James Truslow Adams defined the American Dream when he coined the term at the depths of the Great Depression, what we seek is “a land in which life should be better and richer and fuller for everyone.”
That dream is still within our grasp.
Robert Reich, one of the nation’s leading experts on work and the economy, is Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. Time Magazine has named him one of the ten most effective cabinet secretaries of the last century. He has written thirteen books, including his latest best-seller, Aftershock: The Next Economy and America’s Future; The Work of Nations; Locked in the Cabinet; Supercapitalism; and his newest, Beyond Outrage. His syndicated columns, television appearances, and public radio commentaries reach millions of people each week. He is also a founding editor of the American Prospect magazine, and Chairman of the citizen’s group Common Cause. His widely-read blog can be found at www.robertreich.org.
Comments
Note: Disqus 2012 is best viewed on an up to date browser. Click here for information. Instructions for how to sign up to comment can be viewed here. Our Comment Policy can be viewed here. Please follow the guidelines. Note to Readers: Spam Filter May Capture Legitimate Comments...
29 Comments so far
Show AllPerhaps this is the empty speech that oblahblah will be reading on the occasion of his upcoming "important" presidential address.
Reich's mouth is just like the Energizer Bunny: it keeps running and running and running...
Reich: "The question is whether, and when, we will summon the political will."
Response: Reich can't summon the will to directly criticize the corruption of the duopolistic parties as he will not leave the bounds of the establishment and risk giving up his Sunday morning political talk show visits. Kai Wright wrote a good article on Common Dreams today, "Stocks are Down, Obama's Unpopular, Who gives a ...". Reich could easily fall into the target of Wright's criticism as Reich knows the problems but tackles them in an economic theory world rather than a practical world. If this is how he teaches at Berkeley, he does a disservice to the students by not addressing to them what is wrong with the system that his theory world stays in the textbooks.
Robert Reich can hardly address our current problems directly since he is neither an elected or appointed member of government. He seems to me to be to be an avowed backer of what works, and what works is Keynesianism: When the private sector is not investing in the economy or the future, government must do so even if it becomes the "employer of last resort" as it did during the 1930s depression. Which the Obama administration would do if the majority in the House were not practicing how to out-Reagan Reagan and Grover Norquist.
I concur with your sentiment regarding Robert Reich, but obama is a dishonest war criminal that has zero interest in changing anything regarding the current D.C. establishment power structure.
As long as the half-baked narcissistic and sociopathic 'philosophy' of Ayn Rand reigns instead of a more 'whole picture' outlook like Aristotle amongst the management class, the USA's slide towards Third World superpower continues apace.
Very thorough, rational analysis by Dr. Reich. Too bad we have no vibrant political leaders to rally public opinion in favor of sanity and rationality. A tribune for real "class warfare" is too much to dream of. End the Empire. Tax the Rich. Rebuild America. Defend the Earth. Is that so hard?
I would amend your plan to be only 2 items - (1) tax the rich (2) eliminate corporate personhood. The other stuff would be the result.
Clearly the bourgeois class has been done in by Capitalism and not by Communisl as Marx invisioned.
I see only one way out of this:
Direct democracy
"...a land in which life should be better and richer and fuller for everyone.”
See, the problem RR and his ilk aren't grasping is that we're already there.
The vast majority has plenty of food, clothing, shelter, cars, TVs, gadgets, etc. We're obese, both physically and materialistically. We couldn't consume more if we wanted to. Seriously, think about it - how many iPads can ya own? How many shirts? If ya had more money - what? You'd buy a better car? A bigger TV? Then what? An even better car and even bigger TV?
Meanwhile, our grandparents and parents toiled away at hard labor so the next generations wouldn't have to and could enjoy 'a fuller and richer life.' And, thanks to their efforts, and robots, and 'globalization,' they succeeded. Of course, they succeeded so well, maintaining our fuller and richer 'way of life' simply no longer requires the skills, talents and abilities 25 million American workers have to offer. They are the Captain Dunsels of Starship America.
Working in order to buy lots of crap is not a 'fuller and richer life for everyone.' If you want a fuller and richer life, go do art, or save animals, or feed children, and stop worrying about whether your 60 inch screen is big enough to enjoy 'Jersey Shore.'
It bothered me, as well, that Reich is equating a richer, better life with what has become for most Americans a mind-numbing daily drudge that we have to do to keep ourselves going in debt peonage.
To keep growth going you need more stuff, to get more stuff you need to mine more resources, to mine enough resources for seven billion people you need...a couple more planets.
A Pox on this. While some people are getting rich through 'innovation', which is just the invention of new junk to sell this year, Americans are exhausted, ill-housed, low on health care, and dealing with an explosion in the price of food and transportation. Let's put that 'better life' thing under bright lights and go there. The average person has been exploited in this country for generations. Time to give it a rest.
Dmadrone
Americans are exhausted. You are so correct, thanks
The first step in reversing this trend is to stop corporate subsidies, including bailouts as well as most of the research done at the NIH and other indirect assitance such as patent protection etc., etc.
Step One however, may need to be a corporate personhood amendment.
That or with some luck getting a Supreme Court ready to overturn the 1886 case, "Santa Clara v. Southern Pacific" which I think most of us agree was the one that most of us believe gave the corporations the power to abuse. The 1877 case that never gets a mention, Munn vs Illinois, made it too easy for any private company to frame itself as working for the public interest. The 1818 case " Dartmouth College v. Woodward" that established the corporate charter as a contract might also be worth revisiting. I'm open to the amendment but seeing that there were Supreme Court cases mainly in the 19th century which gave too broad a structural power and protection to corporations, I don't know if it can work.
I'd go for the overturning of those 19th century cases but now it includes Citizens United.
Funny thing--I once read, that in Robert Bork's failed confirmation hearing, in response to a question about precedent, he said precedent was not always right and there were some 19th century Supreme Court decisions that ought to be overturned
Thanks for bringing up the case of Bork and his leaning towards ending corporate personhood. I detect a strong connection between that and American exceptionalism which ubrew12 brought up. The "borking" of Bork was most likely an insider's job by ruling class. Bork getting rejected because of his opposition to corporate personhood while Roberts, Corporate America's favorite go-to corporate trial lawyer, gets an easy rush all the way to Chief Justice should tell us lots. I wonder how the senators would have reacted had Bork stressed his support for ending corporate personhood well enough.
"The middle class," "the middle class," "the middle class," "the vast middle class,..."
If you are poor, I guess you don't matter to Robert Reich.
Upward mobility seems more important than equal justice to Mr. Reich.
It could be argued that the reason the middle class is "limping" is because they twisted their ankles when they were in such a hurry to get past the poor and they tripped over their own arrogance.
Yes, exactly. But that's all of a piece with the Dim Party's rejection of the New Deal and Great Society: now it's just f*** the poor.
Oh, and Reich's priceless belief that "free trade agreements" lead to prosperity for the "middle class" he affects to care about.
BA, glad you mentioned this. Whenever articles about the decline of the middle class get written, two things are almost always left out:
1. The middle class isn't what it used to be. Today's middle class would have been yesterday's lower class were it not for all the revisions to the definition of the term "middle class".
2. The content almost always ends up being patronizing and shallow in tone and content with or without the author realizing it. Aside from good pay possibly blocking his or her will to write in a class conscious style, the classist mentality could also be to blame.
Sweetheart, most people in this country think they are middle-class. They do not realize that to reach that honorable place in this society now days one has to make at least $250 K a year.
To be middle class is for a majority, an aspirational identity. In my long life I have been surprised to find people I worked with-who were a long, long way from middle class economically-never the less invariably describe themselves as middle class. Identifying with it also connotes some kind of desired virtue whereas being seen as poor or working class is some sort of shameful status. These themes of class are continually reinforced in our society and few of our comrade citizens see through it. That is part of the reason Americans as a society cannot seem to fight for their common interests. They would have to be honest with themselves.
There was a time when all business was small business. Communities are built around a group of small shops that meet the material needs of the people. These shops provide the essential goods and services the communities need to thrive. Because they are essential, they develop status, power,and competition. Out of the need for these goods and services, and the competition that arise comes the need for regulation. When regulations become punitive, business's large or small will attempt to change or avoid compliance with the regulation. The difference is the local community is in a better able to understand, and control the behavior of a small local shop, compared to a large multinational corporation. A community would not let a manufacture of dangerous chemicals build a plant next to a school, yet may have train loads of these same chemicals going right by a school everyday. The other big difference is that a local business puts their profits back into the community, where the big business takes wealth out of the community. As in sleight of hand, misdirection is the most important aspect of this con that we find ourselves in. The misdirection I speak of is the ideal that the most important issues to us are national and international. This is the smoke and mirrors they use to distract us from what's really important. We live in communities, what happens here is what is most important to us. The Headlines are misdirection. You live locally, so work, buy, sell, and care about what happens locally. We may need corporations to build jet planes and railroads, but we don't need to buy our food, and houses from them. We don't need to bank, or get our health care from them. Put the corporate genie back in the bottle by spending locally when ever you can. Corporations appear to be very powerful and in control don't believe it, if people stop buying their products they go away very quickly. They are based on greed for their success and therefore inherently weak. They only appear strong because we have lost site of our own power, and been blinded by the success of their misdirection.
Mostly I agree with you. But when was the last time you saw a corporation build a railroad?
You know, maybe now is the time to resurrect some "old" ideas: since new jobs are not coming, we need to share the ones we have. Shorten the work week, lengthen vacation time, pay parents to care for children, make universal preschool a reality (lots of jobs can be created there), increase paid sick time for workers, keep libraries open every day, fund schools as community centers after school hours, keep the parks open, keep the state and national parks open. (Now that I think about it, the possibilities go on and on.)
Government jobs do not have to be "make-work" jobs. They can be real jobs that provide real services for people. The economy does not have to be organized around consumerism. All it takes is the imagination and political will to go in another direction. People before Profit! Tax the Rich!
The "limping middle class" will seem like a dream in the next few years as we enter a "disabled middle class" now that public education is being roundly gutted by both the Republicans and current Democrats in control. The fact of the matter is Obama was never a "liberal" or "progressive." And with education, he surely shows his true colors. Case in point: he appointed Arne Duncan to be Secretary of Education -- a man with no genuine education credentials except further burning the Chicago Public Schools to the ground as a CEO there with failed experiments put in gear by the city's former Democrat Machine mayor, a man who greased the wheels for the privileged kids to get into the city's few top public schools (none of them Charters, btw), a man who coddled folks like James Ciesel of the Law Dept at CPS and Cheryl Colston (Director of Labor Relations at CPS), known for their heavy-handed, often bizarre, and surely ruthless termination machinations of good teachers, and a man who pushes for Race to the Bottom/Charter School expansion -- a plan no better than NCLB which will further corporatize our public education system and create a two-tier education system. Can we say cronyism, corruption and the Chicago Way? With Democrat "friends" like these for the middle class, who needs Republican bogey men or bogey women? Kill the education and you kill one of the single biggest opportunity to advance in our society!
Mr Reich, you speak often, honestly and well about our core problems. Yet anybody who reads the business press knows that "the economy" isn't coming back---not unless we the people who do the work do something. So this Labor Day I humbly invite all my Common Dreams friends to entertain a proposal for radical action centered on the one power we truly have---our work.
http://jackdempseywriter.wordpress.com/2011/09/05/woop-we-the-workers-of-the-world-walk-out-on-profit/
It may be that the solution to American climate change denial is for Texas to burn. American's can deny anything, but once the house is on fire...
American exceptionalism is that, unlike the Germans, we don't need a 'nanny state' to make ourselves happy. (Of course, if divorce rates are any indicator of happiness, we probably DO need a nanny state). There may simply have to come a time when our overwhelmed children are crushed under our various mythology-induced debt burdens before we realize that we aren't that different from the Germans after all. Faux News will, of course, blame that on Rap music, but too many Americans are already too close to the bone to buy that for much longer.
I've been watching America sh*t in its own bed for 50 years now. I find it remarkable that we defeated Hitler so we could make remake him with an American brand. The Germans have just GOT to be loving the irony. Like many Americans 'of a certain age', I grew up loving the antics of 'Hogans Heroes' (a comedy about American G.I. prisoners of war making mince-meat out of their Nazi captors). But our hero Hogan was, in his real life, a sex maniac who was probably killed by his lover, and Colonel Klink turned out to be a serious classical musician. We should have taken that as a clue, those many years ago...
You make an interesting comparison between Germany and US although I'm not so sure that burning TX will change anything on this empire's addiction to fossil fuels. From what I hear, that state too has been trying to go green in addition to wind energy.
You made a great case that Germany changed from brutal to level headed both on the economy and culture while the US went the other way. Based on both online and offline conversations, it seems to me that American exceptionalism is very pervasive that even progressives are divided on organizing and simply enlightening some more when most of us on the left should unify knowledge and organization.