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After losing ground for four decades, middle America increasingly looks doomed. Here's how it happened.
paycheck. It’s exacting harm across America. When too many workers are desperate for jobs, those who have them lose as well. Their bargaining power with employers declines, meaning wages languish.
There’s been much discussion lately of a lost decade, with housing prices slumping, stock market indices struggling to regain dot-com era highs, and US median earnings falling below 2000 levels.
In fact, experts increasingly date the financial gloom back to the 1970s, when globalization, technology and politics first started rewriting the social contract.
After stripping out factors that artificially elevate earnings — such as health care inflation and additional hours worked — “middle-class incomes grew just 4.9 percent across the 28 years from 1979 to 2007, with most of that growth occurring just in the late 1990s,” according to a recent Economic Policy Institute study. That means despite the advent of computers, the 24/7 work week and all the productivity gains achieved over the past third of a century, when adjusted for inflation, a family earning $50,000 under President Carter could be expected to earn $52,450 today — and the bulk of that gain actually came in a few prosperous years in the late 1990s.
So even though the real economy expanded by an average of more than 2.6 percent annually over the past three decades, middle class earnings benefited from essentially none of this.
American nest-eggs are at risk as well, with the typical family getting poorer, fast. In 2010, median family net worth stood at $77,300 according to the Federal Reserve, down nearly $50,000 from the pre-Great Recession high, and almost $30,000 less than in 2001.
Meanwhile, debt is mounting. Mortgage and credit card debt owed by US households soared to more than $13.5 trillion in 2007. That's roughly equivalent to the entire size of US output that year — more than double the rate in 1979. (The debt burden has declined incrementally since the Great Recession, but still stands at nearly $13 trillion.)
And the middle class population is shrinking, prompting the Pew Research Center to report a ominous “hollowing of the middle.” Specifically, the number of middle class households — earning two-thirds to twice the median income (or about $33,000 to $100,000 in 2011) — has progressively shrunk, from 61 percent of the population in 1971 to 51 percent today. Moreover, that diminished middle now collects 45 percent of national income, down from 62 percent four decades ago.
The news is not entirely bad: 6 percent of the population has graduated to upper income status (although a stagnant median income figure has lowered the upper-income bar). But it is greater evidence that the country is divided, and that one of America’s greatest assets, its celebrated middle class, is being gutted.
“Since 2000, the middle class has shrunk in size, fallen backward in income and wealth, and shed some — but by no means all — of its characteristic faith in the future,” Pew concluded. “Fully 85 percent of the self-described middle-class adults say it is more difficult now than it was a decade ago for middle class people to maintain their standard of living.”
To the coastal elite, middle America’s slump might seem like someone else’s problem. Not so, says Mark Rank, an expert on poverty and inequality at Washington University in St. Louis. After crunching decades of income data, Rank has determined that while Americans aren’t nearly as upwardly mobile as they once were, chances are poverty will afflict our families before retirement. Between the ages of 25 and 60, some “54 percent of Americans will experience at least one year of poverty, and 75 percent will experience at least one year of significant economic distress” requiring use of a welfare program, unemployment or subsisting on income below 150 percent of the poverty line, he says.
And Rank says this risk of dropping into poverty has gone up — beginning in the 1970s.
America’s greatest social achievement
A generation ago, being average in America was the envy of many in the world. The American Dream was something rare: an attainable ideal, based on the notion that if you worked hard and played by the rules, you could earn a comfortable, secure livelihood, and enable the next generation to do even better.
The world’s huddled but ambitious masses