In September, Don Peck, writing in The Atlantic, provided an exceptionally thoughtful and detailed analysis of the fate of the middle class. What has contributed to its emergence as the economic and political foundation of American life? What has transpired to put its well-being at such great peril?
Why is the future of the middle class in question? The numbers tell the story.
- The richest 1% of households earn as much per year as the bottom 60%.
- The number of Americans living below the official poverty line, 46.2 million people, was the highest number in the 52 years the bureau has been publishing figures on it.
- 1 out of every 7 Americans now rely on food stamps
- 25 million children are homeless
- Since 1993, more than half of the nation’s income growth has been captured by the top 1% of earners, and from 2002 to 2007, out of every three dollars of national income growth, the top 1% of earners captured two.
Today, a high school education only ensures that you’re more likely to be unemployed than the average American. A college degree is essential to climb out of statistics that are likely to condemn you to a life that ensures you will live a less affluent life than your parents.
Consider that:
- The national unemployment rate is 12% for people with only a high-school diploma, as compared to the national average of 9%, but only 4.5% for college grads, and 2% for those with a professional degree.
- In 1967, 97% of 30-to-50-year-old American men with only a high-school diploma were working; in 2010, just 76% were.
Peck notes that a 2010 Pew study showed that the typical middle-class family had lost 23% of its wealth since the recession began, versus just 12% in the upper class.
Back in 2007, Alan Blinder, an economist and the former vice chairman of the Federal Reserve, predicted that somewhere between 22 and 29 percent of all jobs in the United States had the potential to be moved overseas within the next couple of decades. Those jobs were not low-paying service sector jobs, but primarily middle class jobs paying closer to $20 or more an hour.
Peck also called attention to a more recent 2010 study by the McKinsey Global Institute, which detailed “just how mighty America’s multinational companies are—and how essential they have become to the U.S. economy. Multinationals headquartered in the U.S. employed 19 percent of all private-sector workers in 2007, earned 25 percent of gross private-sector profits, and paid out 25 percent of all private-sector wages. They also accounted for nearly three-quarters of the nation’s private-sector R&D spending. Since 1990, they’ve been responsible for 31 percent of the growth in real GDP. Yet for all their outsize presence, multinationals have been puny as engines of job creation. Over the past 20 years, they have accounted for just 11 percent of private-sector job gains. And in the latter half of that period, the picture grew uglier: according to the economist Martin Sullivan, from 1999 through 2008, U.S. multinationals actually shrank their domestic workforce by about 1.9 million people, while increasing foreign employment by about 2.4 million.”
So how do we change the trajectory of these dangerous trends? Peck has a number of important suggestions.
- We need to better harness the pace of innovation, in part by putting a much higher national priority on investment—rather than consumption. That means, among other things, substantially raising and broadening both national and private investment in basic scientific progress and in later-stage R&D—through a combination of more federal investment in scientific research, perhaps bigger tax breaks for private R&D spending, and a much lower corporate tax rate (and a simpler corporate tax code) overall.
- Edmund Phelps and Leo Tilman, professors at Columbia University, have proposed the creation of a National Innovation Bank that would invest in, or lend to, innovative start-ups—bringing more money to bear than venture-capital funds could, and at a lower cost of capital, which would promote more investment and enable the funding of somewhat riskier ventures.
- As we strive toward faster innovation, we also need to keep the production of new, high-value goods within American borders for a longer period of time.
- Grants, loans, and tax credits to undergraduate and graduate students total roughly —an inflation-adjusted decline of about 75 percent since 1978. More funds need to be available.
The middle class can be saved – we need to innovate to do so.
I agree Jeffrey that innovation is key. Every challenge is an opportunity for innovation.
But until we end “global free trade” that encourages companies to innovate (and then offshore their production to slave-labor markets), the middle class in the US will continue to die. Until there are financing mechanisms that encourage small-scale investment in diversified local production based on local markets and local resources, we’ll continue to see corporations expand their colonial extract/enslavement model. Until international movement of capital and products is constrained in the same way that international labor-emigration is constrained, the worst of corporate America will rule the day.
And above all, until we END the “infinite growth economic paradigm” that is caused by the FED and fractional reserve banking that makes all our currency based on debt, there will be no possibility of a sustainable economy. It doesn’t have to be this way.
Nothing can grow forever, yet because of our unconstitutional debt-based monetary system, the economy will collapse as soon as we have the “steady state” reality that is imperative for environmental sustainability.
Without constant growth (ie the same mentality as a cancer cell) our economy collapses because there’s no way to service the ever-increasing debt-levels that are caused by the FED. IF all of our debts were paid off, there would be ABSOLUTELY ZERO “US DOLLARS” AKA FEDERAL RESERVE NOTES in circulation, and therefore there would be no means of exchange.
The growth of the middle class in post-war America was directly connected to our central role as the world’s producer of advanced goods, services and technology. We had the best manufacturing practice, the best technology platform and a workforce that was upwardly mobile. Starting in the mid-1970’s with the de-industrialization period in America, we shifted to being a national of consumers. Advances in manufacturing and technology that started here were turned over to nations with lower labor costs – you can map the movement of manufacturing from the Midwest and Northeast. First, there was corporate flight to the Sun Belt, then to Mexico, then to Central America, then to China, then to India, then to Southeast Asia. With each expansion we lost more and more control over our ability to produce essential goods and services. Corporations focused on the value to shareholders and to the denigration of all other stakeholders. I live in Pittsburgh and know first hand about the dismantling of America’s basic industrial wealth. Whole communities that believed if they sent their kids to a technical school and then to college that they could raise their standard of living imploded. Pittsburgh suffered an exodus of well over 500,000 jobs from 1970 through the end of 1989. This tale was repeated over and over in one industrial center after another. The collapse of the middle class is a reflection of our unwillingness to recognize that unfettered capitalism with a drive toward profit maximization is in fact destructive to a stable society. It is as much an engine of destruction as creation – and now it is being reduced to its most basic, selfish form again.
It is a rather frightening, but true, picture of the society and how great impact corporations now have on it in many aspects. Hence, their duty to act like a good citizen is more important than ever. Just as much as they are a big part of the problem, they are a big part of the solution. I am not myself american, but I see tendency of this in my country as well. One would think that the moral intensity for the companies should be high in this issue, as this is something for facts happening in their very near surrounding, not in a country thousand miles away, and they should be more eager to finding a solution. But as Gaelan here wrote the benefits of the ‘free global trade’ are too many.