The biggest issue facing the American economy, and our political system, is the gradual descent of the middle class into proletarian status. This process, which has been going on intermittently since the 1970s, has worsened considerably over the past five years, and threatens to turn this century into one marked by downward mobility.
The decline has less to do with the power of the “one percent” per se than with the drying up of opportunity amid what is seen on Wall Street and in the White House as a sustained recovery. Despite President Obama’s rhetorical devotion to reducing inequality, it has widened significantly under his watch. Not only did the income of the middle 60% of households drop between 2010 and 2012 while that of the top 20% rose, the income of the middle 60% declined by a greater percentage than the poorest quintile. The middle 60% of earners’ share of the national pie has fallen from 53% in 1970 to 45% in 2012.
This group, what I call the yeoman class — the small business owners, the suburban homeowners , the family farmers or skilled construction tradespeople– is increasingly endangered. Once the dominant class in America, it is clearly shrinking: In the four decades since 1971 the percentage of Americans earning between two-thirds and twice the national median income has dropped from 61% to 51% of the population, according to Pew.
Roughly one in three people born into middle class-households , those between the 30th and 70th percentiles of income, now fall out of that status as adults.
Neither party has a reasonable program to halt the decline of the middle class. Previous generations of liberals — say Walter Reuther, Hubert Humphrey, Harry Truman, Pat Brown — recognized broad-based economic growth was a necessary precursor to upward mobility and social justice. However, many in the new wave of progressives engage in fantastical economics built around such things as “urban density” and “green jobs,” while adopting policies that restrict growth in manufacturing, energy and housing. When all else fails, some, like Oregon’s John Kitzhaber, try to change the topic by advocating shifting emphasis from measures of economic growth to “happiness.”
Other more ideologically robust liberals, like New York Mayor Bill de Blasio, call for a strong policy of redistribution, something with particular appeal in a city with one of the highest levels of income inequality in the country. Over time a primarily redistributionist approach may improve some material conditions, but is likely to help create a permanent underclass of dependents, including part-time workers, perpetual students, and service employees living hand to mouth, who can make ends meet only if taxpayers subsidize their housing, transportation and other necessities.
Given the challenge being mounted by de Blasio and hard left Democrats, one would imagine that business and conservative leaders would try to concoct a response. But for the most part, particularly at the national level, they offer little more than bromides about low taxes, particularly for the well-heeled investor and rentier classes, while some still bank on largely irrelevant positions on key social issues to divert the middle class from their worsening economic plight.
The country’s rise to world preeminence and admiration stemmed from the fact that its prosperity was widely shared. In the first decades after the Second World War, when the percentage of households earning middle incomes doubled to 60%, it was no mirage, but a fundamental accomplishment of enlightened capitalism.
In contrast, the current downgrading of the middle class undermines the appeal of the “democratic capitalism” that so many conservative intellectuals espouse. In reality, capitalism is becoming less democratic: stock ownership has become more concentrated, with the percentage of adult Americans owning stock the lowest since 1999 and a full 13 points less than 2007. The fact that poverty — reflected in such things as an expansion of food stamp use — has now spread beyond the cities to the suburbs, something much celebrated among urban-centric pundits, is further confirmation of the yeomanry’s stark decline.
How our political leaders respond to this challenge of downward mobility will define the future of our Republic. Some see a future shaped by automation that would “permanently end” what one author calls “the age of mass human labor,” allowing productivity to rise without significant increases in wages. In this world, the current American middle and working class would be economically passé.
One would hope business would have a better option that would restart upward mobility. Lower taxes on the investor class, less regulation of Wall Street, and the mass immigration of cheap workers — all the rage among investment bankers, tech oligarchs and those with inherited wealth — does not constitute a compelling program of middle-class uplift. Nor does resistance, particularly among the Tea Party, to make the human and physical infrastructure investment that could help restore strong economic growth.
Fortunately history gives us hope that this decline can be turned around. The early decades of the Industrial Revolution saw a similar societal decline, as once independent artisans and farmers became fodder for the factory lines. Divorce and drunkenness grew as religious attendance failed. But a pattern of reform, in Britain, America and even Germany, helped restore labor’s place in the economy, and rapid growth provided the basis not only for the expansion of the middle class, but remarkably improvements in its well-being.
A pro-growth program today could take several forms that defy the narrow logic of both left and right. We can encourage the growth of high-wage, blue-collar industries such as construction, energy and manufacturing. We can also reform taxes so that the burdens fall less on employers and employees, as opposed to those who simply profit from asset inflation. And rather than impose huge tuitions on students who might not finish with a degree that offers employment opportunities, let’s place new emphasis on practical skills training for both the new generation and those being left behind in this “recovery.” Most importantly, the benefits of capitalism need be more widely shared if business hopes to gain support from the middle class for their agenda.
This story originally appeared at Forbes.com.
Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.
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don't forget the post WWII impact of unions
Geography student
Non of this discussion mentions that unions began demanding a bigger share of large corporation profits beginning in the late 19 century. Union membership tracks the increase in share of wealth from the 1920's to present day. After WWII it wasn't just that the US had a good manufacturing base but that the wealth generated by this was shared with employees. Now firms are sitting on huge cash assets but feel no need to pay their employees more.
For all their faults (just as capitalism has faults) unions may well be necessary to keep wealth flowing to employees. Since the late 1970's employers became much more aggressive in getting rid of unions. This has in turn made the Democratic party more dependent on corporate money and probably one reason the Democratic party accommodates the wished of the financial services industry in similar ways the Republicans do.
The USA would benefit from a system of capitalism and unionism more like that found in Germany where the unions and firms work more closely together to increase productivity and benefits for a broader section of society. This should include more training not at the college level but at the practical "hands on" level of machinist, computer repair, etc.
As far as automation increasing the wage gap, etc. this has not consistently happened in the past 200 years. Automation results in more societal wealth. It is how people adjust to the changing workforce, how they can re-train and adjust, and how society allows/encourages then to that matters. However simply using more automation to increase the top 1 percents share of income is not going to preserve the middle class. The benefits of automation must be shared. The best way is to pay employees more as their output increases, not resort to more welfare.
Sorry
You have written a well thought out version of conventional wisdom.
I disagree. The golden age of Unions was not that golden.
First: In 1945, WWII had pretty much destroyed the industrialized world except for the USA (Europe and Japan had been bombed to dirt. There was not much industry anywhere else). With no competition, US manufacturing exploded. General prosperity in the US was almost guaranteed. By the late 60's, Europe and Japan had rebuilt. With real competition, US manufacturing and jobs began the long decline that most of us have seen over of life times.
Second: Unions and the effect of unions have changed almost completely over the last 100 years. The first unions where just a form of RACISM. Black folks were willing to work for less money than white folks. When the unions came into power, by not accepting black folks, they eliminated competition from people willing to work for a lower wage. Unions are not racist today, far from it, but they still do everything they can to eliminate competition from anyone willing to work for a lower wage. That is not racist or evil but it does tend to suppress the upward mobility of many.
Third: The solution of paying employees more as their output increases (due to automation) would be an ideal, fair solution but it would be a very short term fix. In a Global economy, if American companies did that, they could not compete with foreign companies that did not do that. ALL of the jobs that can be moved overseas will not be moved. They will just cease to exist in the USA and be recreated overseas. Automation will mostly eliminate the low skilled worker. Raise the minimum wage too much and your next order at a fast food restaurant will be taken by an iPad. Your food will cooked by a robot and delivered in pickup bin. You will like that. It will be faster and they will be much less likely to "screw up your order." (The same thing will happen even if the minimum wage is not increased. Over time, iPads and robots will become cheaper than humans and the same will happen. But! But, we all love that "dollar menu", don't we?)
Finally: Unions allowed people with little or no skills to earn a decent living. That was a very good thing while it still worked. In the age of Globalization and automation that is just no longer possible. Low skilled jobs will mostly be eliminated as time goes bye (Hotels will require fewer maids when they begin to use those really cool robot vacuums that they advertise on TV.)
100 years ago or even 30 years ago, unions provided a way for letting low skilled workers to make a "living wage." That was a good thing. Today unions can, at best, provide a short boost to a very small number of people. As time goes by, jobs of the "workers" the unions rely on will be eliminated by the new reality. That may not be fair, but that is way it works.
Instead of talking about unions, please start talking about EDUCATION (welding and plumbing classes - not BA degrees - too many of us can learn to weld but cannot make it through 4 years of college.) Unskilled jobs are going away. We need to raise our skill level, not join a union which will lead to even greater job loss.
Unions may seem like the answer, but aren't
Unions may seem like a good idea, and do "work" for their members, for a while. There are two problems, though:
1) Unions are great for those who are lucky enough to be members (the "haves"), but they are terrible for those who are unlucky enough to not be members (the "have-nots"). The whole idea of unions is to artificially restrict the supply of labor by creating a contractual barrier to entry of cheaper competitive workers. The economic gains that union members achieve come at the expense of non-unionized potential competitors that are locked out of employment with the unionized employer. Whether unions are good or bad, then, depends entirely on whether you are on the inside or the outside. If you are a non-union laborer desperate for work and willing to work cheap, you are just out of luck and don't see unions as a good thing at all.
2) The Union game works well for its members in the short run, if they can manage to get the employer to deal with them through one means or another. In the long run, however, it is a different story. By artificially driving up wages, the union gives the employer tremendous incentives to replace labor with capital equipment, or to contract out to cheaper subcontractors, or to move their production entirely to someplace with lower-cost labor, or to just get out of that line of business. This is exactly what we saw unionized employers do in a big way starting in the 1970s, and is the reason why the percentage of the workforce that is unionized has declined from around a third during the post-war peak to around ten percent today. While unions may increase their member's wages in the short term, in the long term they often just end up killing off their member's jobs altogether. Is that really a good deal for the union members? Ask the union guys whose plants have closed.
What I have been speaking of here are industrial unions. Trade and craft unions might be a somewhat different story. Many of these operate to not just lift the wages of their members, but also to exert a non-governmental quality control mechanism that ultimately benefits the consumer. When consumers hire a unionized tradesperson, they might need to pay a little more but they should also know that they have been trained to and operate by certain quality standards. This is a much more viable form of unionization.
Another thing that has worked very well for their (mostly agricultural) members are producer cooperatives. These are a good way for workers to have more control over their economic lives than they would get as mere cogs in the corporate machine.
Perhaps what we really need to be moving toward is an economy where most workers are independent professionals, tradespersons, or craftspersons. Each belongs to some sort of trade union, craft guild, or producer cooperative. Employers needing labor should then contract with these trade unions, craft guilds, or producer cooperatives to obtain the supply of high quality, reliable labor. I can see a more promising future in such an approach.
Stefan Stackhouse
Black Mountain NC
unions
Your problem 2) certainly applies to companies that can outsource their manufacturing (which is a lot of them). The whole idea of unions in manufacturing only works when all your competitors economies have been destroyed by WWII. Even German unions are going to start feeling this pinch as countries like China are able to produce higher technology goods (which Germany has specialized in). However, I think unions still have a place in service industries that can't be outsourced (supermarkets, tutoring, car repair) and things like that. However, as soon as a union captures an industry like that, it immediately (as you mention) puts up barriers to entry so that new business models can't flourish. This is often done through ridiculous license requirements pushed through state governments by politicians accepting union money.
Enlightened Capitalism?
"The country’s rise to world preeminence and admiration stemmed from the fact that its prosperity was widely shared. In the first decades after the Second World War, when the percentage of households earning middle incomes doubled to 60%, it was no mirage, but a fundamental accomplishment of enlightened capitalism."
Far from "Enlightened Capitalism" the U.S. rise to world preeminence stemmed more from the fact that no other country had an intact industrial base.
Britain had been bombed and as soon as peace was announced elected a quasi-socialist government which resulted in the usual leftist policy of spinning gold into straw. There was not competition to U.S. industries there or anywhere on the ravaged and blood-soaked European continent.
Japan was flattened as was China, which was flattened more by falling under the control of Mao and the Chinese Communists.
The Soviet Union, which had been decimated by Stalin, was decimated again by Hitler and again by Stalin. The Soviets had years ahead of them before they would reach high enough to be called poverty stricken.
In fact, in the entire world, the United States alone had a significant manufacturing ability.
That, and not any brilliance on the part of the American government, is what raised the U.S. to world preeminence.
Twenty years after defeat (West) Germany started breaking in to the American market with cheap automobiles (BMW Issetta or VW Bug anyone?) and clockwork machinery.
Japan was back into the American market at about the same time with gimcrackery toys and things. Made in Japan was synonymous with cheaply made junk.
Fast forward another ten years to the mid 1970s and you start seeing Toyota and Datsun autos, Kawasaki and Honda motorcycles, BNW and Mercedes luxury cars. Japanese Stereo systems.
The next thing you know, about 35 years after being left in ashes, the rest of the world is competing against us in the global marketplace.
That is where U.S car makers start whining about unfair competition and sucking up to Washington to "do something."
We're now 30 years beyond that. Now 80 years since the defeat of Germany and Japan. China has shaken off the constrictions of the Communist religion and been born again. Places like Pakistan, Indonesia,Thailand,Vietnam and the nations of Central and South America are in the marketplace.
There's no going back to the 1950s. We're not going to destroy the rest of the world so we can have our manufacturing monopoly again.
As a wise man said; "It is what it is" and the sooner we realize that and act accordingly the better.
Exactly right
All so very true. The 25 post-war years were a one-off, a unique era never to be repeated again. As long as we try to go back there and replicate what we had then, we are doomed to failure.
What has been going on, however, goes beyond the utterly predictable and inevitable post-war recovery of the economies of other nations. There have also been two big megatrends that really started taking off right around the same time:
1) The substitution of technology for human labor had been advancing at a slow pace up until the invention of semiconductors and computer logic circuits, but then started picking up at an exponential rate. The ability of we mere humans to keep up has started falling behind, and the gap is quickly opening up into an ever-widening chasm. This really only started becoming apparent over the past couple of decades, but this megatrend is still just getting started. People who look to the past and assume that just because technological displacement has created as many or more new jobs previously, it therefore is guaranteed to do so forever, couldn't be more wrong. We have entered an entirely different dynamic, and the past is no indicator of how the future will unfold. Most people still either don't get this or are in denial. This may ultimately become the biggest challenge to face our species since the end of the ice age. When our robots are smarter than we are, better than we are in every way, and can build more and more robots, where does that leave us?
2) An entirely predictable and inevitable consequence of the lowering of global trade barriers is the convergence of wage levels toward a global mean for most workers, combined with wonderful opportunities for the favored few to leverage fabulous wealth into almost unimaginable wealth. There were probably a few economists and policymakers who saw this coming, but they kept quiet about it and most certainly did not discuss this openly with the general public. Yet, this is exactly what has happened. Even today, most people don't understand what is happening, or are in denial about it.
The future is not going to be very good for the bottom 80-90% of the US population. This is not something that virtually any economist or policymaker is yet willing to admit, but it is the truth.
Stefan Stackhouse
Black Mountain NC
A little more optimism
"People who look to the past and assume that just because technological displacement has created as many or more new jobs previously, it therefore is guaranteed to do so forever, couldn't be more wrong. We have entered an entirely different dynamic, and the past is no indicator of how the future will unfold. "
Why isn't the past an indicator of how the future will unfold. The past (if accurately understood) is the best indicator of how the future will unfold. How is replacing people with robots now days any different than replacing people with weaving machines (very simple robots) during the industrial revolution of the 1800's. The idea that an economy has to be based on actually people physically making things is an old-fashioned concept that no longer has any place in a modern economy. Ideas are the only currency that matters now. Ideas are where most of the money is (which is why Apple, not Foxcon still gleans 90% of the money from each Iphone sale), and so far, innovative ideas are only the providence of human beings.
Welfare State
The democrat party has worked relentlessly for 50 years to create a huge dependent class of people. Their instrument has been The Great Society and War on Poverty programs. The Welfare State. Pay mothers to have babies and insist that the father not be present. Each child born into poverty and the probability of staying there. The freebies from The Government are to hard to resist. They have been called the 47 per-centers but in reality they are Americas version of the proletariat.
Saul Alinsky wrote about the eight steps to a communist state in America.
1) Healthcare – Control healthcare and you control the people
2) Poverty – Increase the Poverty level as high as possible, poor people are easier to control and will not fight back if you are providing everything for them to live.
3) Debt – Increase the debt to an unsustainable level. That way you are able to increase taxes, and this will produce more poverty.
4) Gun Control – Remove the ability to defend themselves from the Government. That way you are able to create a police state.
5) Welfare – Take control of every aspect of their lives (Food, Housing, and Income)
6) Education – Take control of what people read and listen to – take control of what children learn in school.
7) Religion – Remove the belief in the God from the Government and
schools
8) Class Warfare – Divide the people into the wealthy and the poor. This will cause more discontent and it will be easier to take (Tax) the wealthy with the support of the poor.
Step number two and five are particularly relevant to this article.
Actually, both parties have gotten it wrong
Yes, the Democrats have been wrong-headed, and so have been the Republicans.
Neither state socialism nor libertarian capitalism is the answer, at least not for the ordinary people of the general public. State socialism ultimately only benefits the few who are in charge of the centralized bureaucracy, skimming off the top as money (in ever-decreasing amounts) is shuffled from one set of people to another. Libertarian capitalsim ultimately only benefits the few who are exceptionally well-placed to take advantage of exceptional opportunities.
The answer for the masses of ordinary people is a revolution in responsibility. People need to take responsibility for themselves and their families, taking charge of their lives and helping themselves rather than looking to corporations or governments to do it for them. People also need to take responsibility for each other, helping their neighbors to help themselves, both through informal neighborly assistance and through more organized efforts in the not-for-profit sector, mostly locally but also on a national or international level.
Neither corporations nor governments really have anything on offer that comes close to being an effective substitute for this. There is no substitute, really.
Stefan Stackhouse
Black Mountain NC
Thanks for writing this.
Thanks for writing this. Not that it hasn't been said many times but it always bears repeating. In my new political romance, A Part-time Job in the Country (soon to be released on Kindle), I offer a six plank platform to address the situation:
1. An across-the-board moratorium on immigration (not just the illegal kind) until we can assimilate and integrate the forty-to-fifty million foreign born residents who are already here, the vast majority of whom grew up in cultures with no, or very weak, democratic traditions.
2. A biometric national ID as the only realistic way to enforce our immigration laws.
3. A protective tariff on goods and services imported from China and other low-wage countries that do not share our commitment to democratic values.
4. A six-hour working day (with triple pay for overtime) so that all those who earn their livings with their hands and their feet can share in the fruits of a never-ending stream of new labor-saving technologies.
5. An expanded (and improved) version of the earned-income tax credit that will fully compensate American workers for the long decline in their real hourly wages that was (in part) caused by our trade and immigration policies over the past forty years.
6. A graduated expenditure tax as the only fair and efficient way to finance plank 5 that does not simultaneously penalize entrepreneurial success or discourage saving and investment.