Thanks to all of you who have contributed to this post with your corrections and comments.
A POINT OF VIEW
The Great Debate has begun. On Monday, the second of February, 2015, the President of the United States submitted his budget to the Congress, now controlled by the opposition party. Leaving aside the contentious debate on foreign policy, which will largely be a sideshow, albeit a very important one, the Great Debate over domestic policy was joined when President Obama claimed championship for “middle class economics.” For the better part of the next two years the two great political parties of this nation will be fully engaged in an effort to convince the American people that the decision they will make at the ballot box in November, 2016, will determine whether the nation will rely more heavily on the government or on the marketplace to ensure the good life for its citizens. Both parties will be pushing water uphill because the vast middle class is suspicious of both.
The question being debated, however, will not be framed so clearly, nor will it have the drama of a Shakespearian history. Instead, the rhetoric will be abstract, partisan, and lofty, but still focused on how best to restore (or, hopefully, maintain) the health of the dwindling middle class and its hope of achieving the fading American Dream. According to some studies, definition of what constitutes being a member of the middle class is as much aspirational as it is economic. The middle class, collectively, aspires to essentially the same things: home ownership, a car, college education for the children, health and retirement security. and an occasional vacation. There is agreement among scholars and commentators that the lower middle class and the middle middle class are being squeezed, especially when it comes to paying for higher education and health care. Homeownership, since the Great Recession, is getting harder, because of loan qualification requirements, but it is still obtainable, especially in certain states. Richard Florida, director of the Martin Prosperity Institute in Toronto, has conduced a study that rather convincingly claims that Red states offer a more affordable lifestyle than Blue states, especially when it comes to housing affordability. The average house in the aggregated “red markets” is $119 per square foot, while in the Blue states, it is $227. (A future post will deal more extensively in housing issues.)
Tax burdens in Red states are generally less than in Blue states, because most of the Red states spend less on education, infrastructure development, and social welfare programs and receive more in federal aid than they remit in federal taxes. While the causes of this inverse tax relationship with the federal government can be attributed to many different factors over which local or state governments have little control, and which include such things as public lands and military bases, it is nonetheless true that, according to the institute, life is cheaper in Red states and obtaining “the American dream” requires less income than in other states. Interestingly enough, although salaries are usually higher in Blue states and educational attainment greater, the biggest decline in the number in the middle class occurred in the Northeast.
CAN WE TURN THINGS AROUND?
Some aspects of the President’s “middle class economics” budget are targeted directly at those in the lower middle class (such as raising the minimum wage and providing other tax credits) so they can maintain a standard of living that can be called “middle class,” as opposed to letting them slip further into poverty. For those in the middle range, he is proposing tax cuts and economic stimulus projects. as well as pointing to the improving economy as evidence that his policies are working for the entire middle class. It has been only very recently that the vast middle class has seen any improvement in their take-home pay, thanks to the improvement in the economy and the increase in the minimum wage by many states. Still, far too many have said it is harder to maintain a middle class standard of living than it was ten years ago.
Republicans in Congress have already announced that the President’s budget is Dead on Arrival, even though the party’s Presidential standard bearers have started wringing their hands over the plight of the middle class. Gov. Jeb Bush, considered by many to be the most logical nominee as the Republican candidate for President, has said: “While the last eight years have been pretty good for top earners, they’ve been a lost decade for the rest of Americans.” Sen. Ted Cruz is saying “We’re facing a divided America when it comes to the economy. Although he is belaboring the obvious, it is encouraging to hear him say something that suggests he is open to working with fellow Senators to overcome the biggest domestic problem we have. Also welcome is Mitt Romney’s departure from the scene because it is clear evidence the party he represents is desperate to put behind them his attitude toward the 47% of Americans he regards as “takers.” More to the point, it is generally acknowledged by economists that the Great Recession was caused, at least in part, by the failure of the marketplace and the laissez faire attitude of the GOP, which is not apt to change. Insofar as my research reveals, the GOP does not at this point have much of a game plan for using government for a preemptive strike against a declining standard of living for more than half of Americans. I do, however, take some hope from Paul Ryan’s somewhat obscure commitment to revamping the tax code.
Democrats, however, seemed to have resurrected what the New York Times has called “standard Democratic initiatives” (upon which the President’s budget is largely based), such as raising the national minimum wage. However, the front runner among the Democrats, Hillary Rodham Clinton, has had presented to her some newer ideas, such as strengthening collective bargaining and corporations sharing profit with employees. These the Times lumped under the provocative title “inclusive capitalism,” which, at least to me, implies that her advisors must regard capitalism as not inclusive, but limited to the owner class. I rather wish they would abandon the term “inclusive” in favor of something like “The People’s Capitalism,” because in the final analysis, I think a form of state-supported capitalism that helps everyone enjoy the benefits of a capitalistic economy holds out the greatest hope for universal prosperity. Think of the G.I. bill after World War II.
Setting aside the impulses of genuine compassion, the basic reason politicians want and need the middle class is because there are so many of them and they represent votes. If, suddenly, economic issues become more important than abortion or same sex marriage to the broad middle class, the politicians of both stripes will be chasing those votes more vigorously. That means specific solutions and an abandonment of the “trickle down” theory because corporations will do whatever they have to ensure shareholder return.
The outcome of the Great Debate will be decided in November of 2016, when the nation traditionally sheds its political indifference in sufficient numbers to actually set an agenda for the nation. Both parties have recognized that agenda must include restoring the economic health of the middle class for two reasons: no candidate for President can possibly ignore the income disparity in the nation, and second, the economy is, by most accounts, heavily dependent upon consumer participation, the free flow of financing for credit-worthy middle class entrepreneurs, and the creation of new industries and the skills required to manage them. Whichever candidate makes the best case for how best to address those two multi-faceted issues will win the election.
This is not the first time we have had this debate, but it is different this time, because the debate will be between differing philosophies in very specific terms before an election. In 1932, when Herbert Hoover was running for reelection on a platform that the then current policies relying on the marketplace would return the nation to prosperity in the long run gave rise to the period’s most famous observation. The economist John Maynard Keynes wryly noted that “In the long run, we are all dead.”
Beyond a genuine concern for its victims, FDR did not have a thought-out set of plans or programs and even a coherent philosophy on how to deal with depression. But he knew that something had to be done and he relied heavily on advisors after he was elected and before he took office. The first days of the famous hundred days of the new President’s term were basically a set of emergency actions that encountered little resistance from Congress, which during the rest of the 100 days rushed through programs that under ordinary circumstances would never have gotten off the table. But faced with a nation “one third ill-housed, ill-clad and ill-nourished,” Congress was willing to try anything. Perhaps we don’t face such an extreme conditions today, but about one out of every four workers in the United States has a job that pays $10 an hour or less and one out of four workers brings home wages that are at or below the poverty level, according to one web site. The census bureau says that 46.6 million Americans live in poverty, which works out to 15 percent, although when broken out separately, 21.8 percent of children under the age of 18 are living in poverty. By any measure, that is 21.8 percent too many.
At the moment, the Democrats have an edge in getting credit for turning “it” around. Although they were defeated handily in the midterm elections, that loss has to be put into perspective. Midterms, despite their importance, just do not get the turnout that Presidential elections do and this past one had the lowest turnout in decades. I think a sense of helplessness, a kind of “my vote won’t make any difference” attitude permeated the midterms. A vigorous, open and honest debate along the lines described above can change all that. And while the recent job reports and the upward tic in wages, when coupled with the ridiculous showing of the GOP in the first month of their ascendancy in Congress (although there are many things going on in the background that are positive, the GOP is going to have to come up with public positions on critical issues that confirm their claim that they are equipped to govern) and the improving favorable ratings of the President, accrue to the Democrats’ favor, surely the GOP can lay before the American people a better program than simply saying “No.”
The silver lining in the coming debate is that the value-oriented distractions that have occupied the electorate will most likely be in second place except among the fringe elements. The gay rights movement has, in effect, won and they’re just engaged in a mopping up exercise now. The freedom of women to manage their own bodies is not going to be challenged by the GOP mainstream, especially after the revolt of the Republican Congresswomen on the floor of the House. The obsession with repealing the Affordable Health Care Act has become a sad joke now that ten million Americans have signed up and even some Republican governors are willing to consider expanding Medicaid.
Perhaps the most radiant part of that silver lining is the recognition by both parties that the government has to do something productive about the real problems facing our nation. It is to be earnestly hoped that, because the White House and the Congress are under the control of different ideologies, that hands will be extended across the aisle. There will, of course, be rhetoric about the extent of the role of government in addressing these problems, but government exists to be a part of the solution. If it is a problem, then we have the wrong form of government and I will quote Winston Churchill again and again. “We can always count on the Americans to do the right thing after they’ve tried everything else.” and my favorite: “Democracy is the worst form of government except for all others.” Well, we’ve tried having a dysfunctional Congress. It’s long past time when to do the right thing, otherwise we are running the risk that the current ideological polarization threatens our Constitutional form of government.
My wife Carole, who frequently observes, paraphrasing Alexander Pope, that “Hope springs eternal in the breast of the deluded,” (I think she’s referring to me) recently wrote a letter to our Senator Richard Burr, who responded with a full page of invective against President Obama, saying that his recent Executive Order on Immigration was an “overreach” that “poses a grave threat to our rule of law.” Talk about overreach. Congress can pass a law that renders the executive order null and void, if only it could put aside the ideological differences long enough to agree on what would fix an obviously broken law. If Senator Burr could set aside his claim that the President’s recent action was amnesty and instead help lay a path to citizenship for people who have lived and worked here, raised families here, and probably don’t face deportation en mass, we would all be better off. Frankly I am tired of ideological breast-beating and would expect our elected officials to be eager to work on real solutions instead of pandering.
HOW MUCH DO WE NEED TO KNOW ABOUT THE PROBLEMS OF THE MIDDLE CLASS?
Decades ago, when I was a graduate student burning the midnight oil in the stacks of the beautiful Oklahoma State University library, I became enamored with statistics. I would make charts and graphs to illustrate the narrative, thinking it would really impress my thesis advisor. He asked only one question about my abundance of statistics proving arcane aspects of ancient Greek society.
“What does it all mean?” he asked, going on to point out that I had not drawn any conclusions that would justify generalizations I might but hadn’t made about my subject. “Remember,” he said, “figures don’t lie, but liars love to figure, so figures alone don’t make the case.” He then went on to explain that the ability to generalize accurately is the hallmark of genius. When I became a newspaper reporter, I learned that the lead paragraph of any newspaper article should sum up the research on whatever issue is being reported upon.
So I’ll pretend I’m a reporter for the Winston-Salem Journal struggling to generalize accurately about the middle class, based on the month-long pursuit of 24 web sites and newspaper articles that served as my prime sources.
“Middle class Americans are running scared these days as their numbers shrink and the ‘American Dream’ slips away. Politicians on both sides of the aisle are beginning to take notice but their differences threaten to keep them securely in their seats on their side of the aisle.”
Knowing just that much should be enough to scare anyone who believes that the middle class is the backbone of American society and that if it disappears, America no longer has any claim to being exceptional. It isn’t enough just to say that we are grandchildren of exceptional people or to build museums and memorials to honor the greatest generation this nation produced, which is dying off daily and maybe not being replaced.
However, if we really have turned the corner on the plight of the middle class, then the Democrats stand a good chance of being a shoo-in in 2016 regardless of what the GOP does or doesn ‘t do. However, if the numbers cited below don’t change, then the nation has lost regardless of who wins.
LET’S DO THE NUMBERS
The numbers begin to take on different levels of importance when you break down the income groups within the broader definition of middle class into lower middle, middle middle, and upper middle and take into consideration their different characteristics and needs. Wikipedia and the Pew Research Center do an astonishingly good job of detailing the differences between these segments of the middle class, leaving me with the uneasy feeling that it is misleading to lump the three groups under one heading. Nonetheless, that’s what we do and I don’t have a better idea other than to suggest that these three groups require different responses from government.
The Middle Class is divided into three broad subgroups:
Lower Middle, with an annual income between $35,000 and the median income of $51,000 annually
Middle Middle, with an income between $51,001 and $79,000,
Upper Middle, with an income of between $79,001 and $100,000 or more, until income reaches about $250,000.
The numbers will vary from web site to web site and from study to study, but unless you want to split hairs, the ones cited above gives you an idea of the range. I am indebted to Michael Snyder, of thetruthwins.com for much of what follows verbatim, but each of the claims he has made and which I repeat have been verified, within an acceptable range of difference, by other sources. An added note: Some researchers, as noted, claim that how people feel about themselves determines whether they are “middle class” or not. However, the trend is that fewer and fewer people are describing themselves as “middle class,” especially among young adults without a college education. As Timothy Smeeding, director of the Institute for Research on Poverty at the University of Wisconsin- Madison, wrote in 2012, about young folks in general and the undereducated in particular, “Their economic future isn’t very bright.”
The Pew Research Center says that 61 percent of all Americans were “middle class” in 197o, but today, that number is 44 percent. Does that mean that more Americans are wealthier or poorer? In February 2008, one-quarter of all Americans considered themselves poor or lower middle class. Today, that number is 40 percent. The numbers suggest that fewer Americans today consider themselves on the pathway to wealth.
The Federal Reserve pegs the median net worth of all families in the United State in 2010 at $77,300, compared to $126,400 in 2007. The reason most often cited is the decline in housing equity value. Housing values dropped about 30 percent and housing prices dropped about 24 percent during the Great Recession and have only recently started to recover. It may be that housing values will eventually return to their previous levels, but the demographics are working against such an assumption. Young folks are marrying much later, delaying family formation, and their preferences are trending toward a disdain for suburban living and the attendant expenses of commuting and the distance from cultural and entertainment venues. Even the addition of children to the equation does not seem to substantially change the demographic reality, especially in the larger cities that have paid attention to the quality of schools in their city.
So things are changing and the middle class has but two ways to go: down or up. Given the size of the middle class, it appears at the moment that the downward direction is more prevalent than moving up. The cost of education and the burden of student debt is a significant contributing factor, although the emergence of the community college as a stepping stone to a four-year education or as a viable alternative is very encouraging. Obama’s proposal to make community colleges free may seem bold and perhaps even unnecessary, but it is hardly different from the 19th century decision to make public education in America free to all. The unfortunate fact is that a high school degree alone has lost value in the marketplace and, given the obvious importance of education, it is hard to understand why every avenue to ameliorate expenses is not being aggressively pursued. I was pleased to see our Governor is planning on raising beginning salaries for teachers in North Carolina to $35,000. At least that would make them a part of the middle class.
Median family income has fallen from $56,080 in 1999 to $51,017 in 2012. In 1970, middle income Americans brought home 62 percent of all income in America. By 2010, they brought home 45 percent of all income, and it wasn’t because more Americans had become wealthy enough to be kicked upstairs.
In 2007, 19.2 percent of all American families had a net worth of zero or less. By 2010, that figure had climbed to 32.5 percent.
In 2,000 there were about 72 million middle class jobs in the United States, but today there about 65 million jobs and since 1950, the percentage of all men in the United States who have jobs has dropped from 80 percent to less than 65 percent, in part because of the number of retirees living longer.
The Commerce Department documents 2.9 million U.S. manufacturing jobs lost during the 2000s, and overall since 1979 manufacturing employment dropped from 19.5 million to 11 million. These were, of course, the highest hourly wage jobs.
Almost half of all Americans are considered “low income” or are living in poverty and it is excepted that this year the poverty rate will be the highest it has been in almost fifty years.
In 2010, 42 percent of all single mothers in the U.S. were using food stamps.
In 1980, less than 30 percent of all jobs in the U.S. were considered “low income jobs.” Today, more than 40 percent are.
Incomes for households led by someone between 25 and 34 have fallen by about 12 percent since 2000, after adjusting for inflation.
Debt is still high for middle income earners, even though credit card debt was being more carefully managed until very recently. In 1983, the bottom 95 percent of all income earners had 62 cents of debt for every dollar they earned. Today, it is $1.48.
In 2010, the bottom 99 percent of Americans received an income gain of only seven percent, compared to a gain of 56 percent by the top one percent.
Income disparity has become a hot political issue and is certain to dominate much of the 2016 campaign debate. One of the observations that kept popping up as I researched this issue is that most Americans do not resent the wealth of those who have earned it or, if inherited, use it for philanthropy. However, there are many who regard how some wealth is accumulated as unearned, If you recall the Occupy Wall Street movement, among their objections was that the creation of certain kinds of investment instruments did nothing productive for society. Because I was on the sidelines of the creation of mortgage-backed securities, which, if transparent as to true value so they can be rated accurately, I regard as a valuable tool for creating more capital that can be put to good use. There is also a growing perception that much wealth is created by exploitation of what would have been called “the working classes” in another age by treating them as “part time.” I suspect this perception relates also to the practice of outsourcing jobs off-shore as to anything else.
Today, the wealthiest 1 percent of all Americans own more wealth than the bottom 95 percent combined.
The wealthiest 400 families in the U.S. have about as much wealth as the bottom 50 percent of all Americans combined. (The number 400 has an interesting history. It is Biblical as well as the number used in assessing the Forbes Richest 400 people in America, and was the number used to study social mobility and wealth retention in studies as far back as the 18th century.)
The six heirs of Wal-Mart have a net worth that is roughly equal to the bottom 30 percent of all Americans combined.
37 percent of all income gains went to the top 0.01 percent of all income earners.
56 percent of all income gains went to the rest of the top 1 percent.
You get the idea.
WHY IS THE MIDDLE CLASS IMPORTANT AND WHY SHOULD WE PROTECT IT?
In economic terms, the health of the nation depends upon the massive purchasing power of the middle class as long as it has disposable income. However, the Pew Research Center has found that 85 percent of middle class Americans today say it is harder to maintain a middle class standard of living today compared with ten years ago and that 77 percent of middle class Americans say they have had to reduce household spending over the last year.
Economist Alan Krueger wrote in 2012 that income inequality is “a threat to our economic growth because the wealthy tend to save nearly 50% of their marginal (i.e. disposable) income.” The rest of the population saves 10 percent at most and 28 percent have not saved a penny. At least 77 percent of all Americans are living paycheck to paycheck and one third are not paying their bills on time. The net result is to substantially reduce disposable income used to fuel a consumer-based economy. Less demand usually translates into lower profits and fewer jobs
Although there is a growing cadre of economists who regard income disparity as harmful to the nation, there are those who do not regard income inequality as necessarily harmful. Richard Epstein regards income inequality resulting in “forced transfers of wealth through taxation” destroys the pools of wealth needed to generate new ventures. Others find no correlation between income inequity and economic growth in developed countries.
The gradual disappearance of the middle class causes undisputed social disruptions or, to be less polite, class warfare. The current polarization in America is due in part to the growing income disparity, in which one side says the wealthy have unfair advantages in determining how public policy affects them. The conflict between the moral standards of a Christian society and the allegiance to a kind of Darwinian survival of the fittest economic philosophy creates a political climate that, if history is any precedent, establishes a base for a revolutionary angst. As noted, Americans do not ordinarily resent the wealth of entrepreneurs as long as some of that wealth gets shared by creating jobs, philanthropy, and is the result of the work ethic. However, when perceived as due to unfair advantages, Americans have consistently sought to redress the balance. With the rise of the global economy, it becomes much less clear that the working classes and/or the middle classes still have the bargaining power of their labor, especially if unskilled, they once enjoyed. Since they are less able to, collectively, flex their muscles, especially in an environment that has minimized their effectiveness, it seems logical to look to the government for relief, assuming that nation as a whole regards the middle class as worth preserving.
That’s what I think the coming election is all about.
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