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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A new middle class must be independent from the corporations
Whether at the turn of the 19th century or now at the end of the 20th and beginning of the 21st, the middle class has always worked for large corporations. The fight has always been about having those corporations share their wealth with the rest. But with globalization and new technologies, the relationship of labor to ownership has been, I think, permanently broken. Corporations can now rack up profits thru market speculation without the need to actually produce more or better services by the working class.
Corporations have also had a big hand in the "de-professionalization" of careers. While using liberal economics to rationalize that professional licensing and certifications shouldn't be necessary or obligatory, they have also made it more expensive to get an education geared for corporate jobs that are no longer secure or pay enough. That ensures that the working class stays dependent on big business for jobs and wealth.
But I think that these new technologies can also be used to recreate the independent craftsmen and professional class. It is now easier for some (but not all) business owners to reach customers on the other side of the globe through digital tech. Cities and communities should support such initiatives thru a new infrastructure initiative that includes digital connectivity in communities. For those services that require face to face interaction, local trade in services should be encouraged. Zoning laws should be changed accordingly to reflect this new live/work/play world. The social problems that the middle and working class have endured (divorce, drugs, etc.) are partly due (but not completely, of course) to the fact that the working world we live in today no longer reflects the 9-5, men work-women stays at home life of the 50s. The long commutes and long irregular corporate hours condemn both parents (if the kids are lucky enough to have both) to be absent from home, leaving kids alone to fend for themselves. The middle class should be able to conduct business closer to home, in walkable communities that promote the public realm.
I also agree that investment in education should emphasize job skills training through community colleges, which should be turn into technical vocational and professional institutes once again. There are many professions that have been co-opted and glamorized by research universities and therefore made too long and expensive for middle class people to attain (architects, designers, engineers, for example. I would also include health and education careers as potentially high wage). All these high wage professions were once attained through job training. They should be returned to their rightful place and taken out of the research university curriculum, which everyday requires more unnecessary electives that have nothing to do with the real world while at the same time increasing tuition. National (and global) industry certification and licensing exams should be encouraged (lawyers and doctors do it, why not everyone else), accessible to all, capable of attainment in a reasonable time (3 years right after HS is enough, I think, for most professions) and given as the final requirement for graduation and as the measure of competency in the profession. Licensed professionals can exercise their skills anywhere, without having to work for someone else. The higher education system should be broken up into the applied professional institutes, and leave the research universities for PhD's and scholars.
The new middle and working class is going to have to be independent of big business in order to be completely secure in their livelihood.
The solution must be in the hands of the ordinary people
No, giving those at the top of the heap even more tax breaks, government subsidies, and a pass on regulations designed to protect innocent people from harm is not going to be the answer that will result in making the lot of the "Yeomanry" better; more likely it will just hasten the trend that making things worse for us.
No, creating ever more massive, centralized, faceless federal bureaucracies to shuffle money from one set of people to another, with a big cut off the top for the politicians, bureaucrats, lobbyists, etc., isn't going to help anyone except them, either.
The answer, if there is an answer at all, must lie within the hands of the ordinary middle class people themselves. They have got to insist upon taking more control of their own economic lives and their economic destiny. How?
-If the big corporations are increasingly going to have all their work done by computers and robots, then the future of employment for the middle class isn't going to be with the big corporations. It is pointless to encourage such people to head to their garages and to start their own small businesses unless there is also: a) a level playing field against the big guys (which means that middle class voters have to stop supporting the politicians that are in the pocket of the crony capitalists that bankroll them and who they reward with sweetheart government deals and custom-tailored laws that reward them at the expense of everyone else); b) a customer base of ordinary middle class consumers that understand that rewarding local small businesses with their patronage is more important than buying a brand name or saving a few cents with megastore imports.
-IF progress can be made with the above, then there are a few positive things that governments could do to help. Changing zoning laws so that it is even possible to start up that small business in a garage would certainly be a good first step, as would allowing such businesses to put a sign in the front lawn. Who is REALLY being protected by such prohibitions?
-Home ownership is still the way to a more secure economic future for the middle class, but we need to be moving in a different direction than we have been. Instead of McMansions in the exurbs, middle class families with stagnant or declining incomes need to be living in much more modest and affordable housing that is closer to employment, shopping, services, and mass transit. They are also going to have to re-establish links with neighbors and re-learn to build community - something the suburbs have been custom-designed to destroy. Allowing more infill development closer in, and making remodeling of the older housing stock as easy as possible, would clearly help.
-A big reason why middle class families have been fleeing to the exurbs is the worsening condition of the public schools. As long as schooling is out of the control of middle class parents, they are going to be in an increasingly tough bind. The answer is for them to take control themselves. There are a couple of ways this could be done. Homeschooling will be the answer for some. Another possibility would be to create parent-owned cooperative charter schools. This latter is the last best hope for the salvaging of a public school system that actually works for the middle class.
- Middle class people need to be able to get around without the huge investment in automobiles that they have had, and they are going to have to get used to the idea of not doing so much driving in those cars. As long a mass transit is either a socialist or a corporatist enterprise, it is not going to be providing reliable and pleasant service at an affordable price to the middle class. Once again, the only hope for the middle class is to push for converting these systems into what is effectively a cooperative, owned by and operated for the people residing in the service district, with a directly elected board of trustees.
- The same can be said of energy. As long as middle class people are dependent upon corporate-owned utilities, they are going to receive both costly and unreliable service. Converting these to cooperatives is their only hope.
-Ditto with the whole health care mess. The answer is neither the corporatist rip-off that most of us under 65 must suffer with now, nor the socialist single payer system that is Medicare, but rather with a patient-owned cooperative single payer system. This is the only way to assure that managed health care is managed ultimately by the patients and not by government or corporate bureaucrats. Similarly, when are people going to wise up and realize that the only way they are going to get affordable health care is by organizing patient-owned clinics employing health care providers on a salaried rather than a fee-for-service basis?
-Credit unions, mutual funds, and mutual insurance companies are already available for most middle-class people, and should be made available for all of them. When are people going to wise up and realize that the corporate-owned competitors to these do not exist for the benefit of their customers, but rather for the benefit of their owners (and maybe their top executives)?
-Cooperative retailers could be one more way for middle class people to reclaim some economic control over their lives. There was a time long ago when food co-ops did this, and they still do in some other countries. In the US, however, the food co-op movement has been totally captured by and totally caters to a small population of people who are more interested in extreme forms of fastidious eating, regardless of the cost, than they are in eating frugally. Maybe we need a new type of food co-op that is more focused on delivering savings in food costs to the ordinary middle-class family.
-Finally, need I mention that there is a lot that ordinary middle class families could do to help themselves? Getting/staying married, being good parents/neighbors/citizens/workers, avoiding substance abuse, staying out of trouble, living frugally/prudently, etc. will all help a lot. Those of us in the middle class need to wake up and realize that the playing field is tilted against us, and we need to go through life a lot more seriously than a lot of us have been recently.
Stefan Stackhouse
Black Mountain NC
More of the same....
Regulations are blessings in disguise for large corporations, and anathema to the small organizations that you claim to support.
A large corporation (with 1000 employees) can afford incremental increases in regulations in a way that smaller companies (with 50-100 employees) cannot.
I speak as an (ex) small business owner; the amount of paperwork needed to run my business was simply incomprehensible.
As for utilities, there are substantial economies of scale that you're ignoring, as well as gigantic amounts of regulation that your "co-operatives" simply can't ignore.
Au contraire
The fact that the regulations are less of a difficulty for large corps than for small businesses should tell you something. There is a revolving door between the bureaucracy, the congressional staff, the beltway bandits, and the corporations. The regulations are made as complex as they are almost entirely due to the input of the big corps. They want them to be written in a certain way for their own benefit, sure. But they are also perfectly OK with them be written in the most complicated way possible, just to create a barrier of entry against the smaller guys. This IS the way it works.
Who says you can't have a BIG coop utility? There is no inherent reason why it can't be done. The only reason why we only have co-op utilities in rural areas are because the corp utilities, having creamed off the more profitable urban areas, bypassed the rural areas and were OK with the government coming in and providing the help needed to get the co-ops set up. A big co-op utility would presumably be just as able to afford the staffs of lawyers and engineers as the big corp utilities in order to comply with regulations.
Stefan Stackhouse
Black Mountain NC
Shrinking of middle class
Shrinking of middle class started way back from Reagan era, especially when the economy started pursuing Neo-liberalism policies, discarding Keynesian economics. Until and unless this policy is shifted back to Keynesianism the problem of shrinking middle class will continue. Allocation of fund should be done by the Federal Government directly so that the benefits reach the beneficiaries directly.
Someone didn't live through the '70s
First, Keynesian economics are politically unfeasible; they specifically call for cutting spending during good times. Any serious student of politics knows that reductions in spending increases are difficult, and actual spending cuts are impossible.
Second, the middle class started shrinking *long* before Reagan; it started shrinking during *Nixon's* administration, who was a consummate Keynesian. Nixon, Ford, and Carter all tried to get Keynesianism to work, and failed miserably.
Keynes got it right, BUT...
The basic insight of Keynes - that national economies will do better if the governmental sector implements a countercyclical fiscal policy and balances governmental budgets across the business cycle - was essentially correct. However, you are quite right that the fatal flaw has been the unwillingness of governments to exercise the fiscal discipline of running those countercyclical surpluses during the good years. The problem is actually that we give elected representatives far too much power over fiscal policy. The temptation to run deficits during the good years is just too great. We really need to find a way to put fiscal policy on automatic pilot, or else we need to resign ourselves to our fiscal policy and our economy being in a perpetual mess.
Stefan Stackhouse
Black Mountain NC
the 70s
American industry had a pretty good run in the post war years as the rest of the western world rebuilt, but by the late 60s they floundered as they began to face more and more foreign competition, and were floundering really badly by the end of the 70s. The people who argue that there was some glorious period before Reagan tend to focus on the 50s and 60s and forget that the 70s ever happened.
The world changed, people's minds didn't
You are exactly right. The world was changing rapidly in the 1970s, yet most people in the US were way too slow to see this and to adjust themselves to it. The people in charge in both the corporate and government sectors tended to just go on managing their institutions exactly the same way they had been in the 50s and 60s, and very few changed their management style or anything else until way too late. Most workers - especially unionized workers - didn't understand that the world was changing and that they would need to change too until way too late; in many cases the change came in the form of a pink slip.
Stefan Stackhouse
Black Mountain NC