How to Kill an Economy: Eliminate the Middle-Class

Elizabeth Warren, the US Chairman of the Congressional Oversight Panel overseeing the TARP, has an excellent article titled "America without the Middle Class" in the Huffington Post.

The article summarizes what many have been saying for the past thirty years; the American middle class is in serious decline. The macroeconomics should be clear to everyone. Income for middle class workers has been stagnant since the late 1970's. Permanent company jobs with lifetime employability and benefits are now non-existent, as short-term contract work and a mobile class of professional workers has become the norm. The American manufacturing base, once the envy of the world, has been hollowed out through corporate globalization reaching for the lowest common denominator. Union jobs, once the backbone of the middle class, are derided and repeatedly dismissed as inefficient and anti-capitalistic, while Wall Street's financial services as a percentage of GDP have doubled during the same period.

Warren illustrates the declining purchasing power of the middle class here:

In the boom of the 1960s, for example, median family income jumped by 33% (adjusted for inflation). But the boom of the 2000s resulted in an almost-imperceptible 1.6% increase for the typical family. While Wall Street executives and others who owned lots of stock celebrated how good the recovery was for them, middle class families were left empty-handed.

In order to maintain their standing of living, the American family was initially forced into having two wage earners in the family. With greater credit and a variety of other quick-debt schemes in the 1980's, these same middle-class denizens were enticed into believing that they, like every Republican Administration since Nixon, could just charge their concerns away. Remember Cheney saying, "Reagan proved deficits don't matter!"

The underlying strength of the American economy this past century has been the growth of the middle class and their attendant purchasing practices. New homes were built around highways leading to factories; cars in every driveway that would ferry the masses; increased attendance at colleges and universities that spawned further innovation and technological growth; and increased consumerism created mega-malls filled with shiny-happy shoppers. However, as the demographics shifted from rural agriculture and domestic manufacturing to a service-based economy, the captains of high-capital rejected Henry Ford's axiom that workers needed a decent wage in order to buy their employers produce.

Professor Warren concludes:

America today has plenty of rich and super-rich. But it has far more families who did all the right things, but who still have no real security. Going to college and finding a good job no longer guarantee economic safety. Paying for a child's education and setting aside enough for a decent retirement have become distant dreams. Tens of millions of once-secure middle class families now live paycheck to paycheck, watching as their debts pile up and worrying about whether a pink slip or a bad diagnosis will send them hurtling over an economic cliff.

Indeed. Gov. Eliot Spitzer, who was on Democracy Now yesterday, also stated the obvious,

The reality is median family income has been stagnant for forty years, and the policies of what I call financialization, which is major banks trading assets back and forth, the Wall Street banks, such as Goldman, which is rightly a lightning rod right now for much of what’s going on, buying and selling, playing with tax dollars in proprietary trading—they make huge money, nothing is added to the economy, jobs are sent overseas. All of this going on simultaneously. That is what our economy has become.

The issue is simple. Government of all stripes and labels, be it Republicans or Democrats, have decided it was more important to bail out and feed the banks money borrowed by the middle-class, rather than institute policies that would nurture and enhance the middle class. As Spitzer says, "So what are the priorities, in terms of infrastructure investment, job creation, building the foundation of an economy that will permit us to be competitive so that real Americans can get jobs, not just investment bankers and lawyers?" A specific example of this short-term profit driven corporatism, is in the $12.9 Bn that was alone given to Goldman Sachs through the AIG government backed bailout. Compare that sum with the meager $4 Bn given to invest in K-12 education across the nation or the $8 Bn for high-speed trains. As usual, socialism for the rich, fuck-you-very much capitalism for the rest.