April 5, 2010
America's Sinking Middle ClassBy Jack Curtis
The U.S. middle class is sinking into government-provided economic quicksand.
U.S. living standards have declined ever since 1970; vanished stay-at-home moms were the alarm bell. In 1950, 37% of working- age women worked; by 2005, 75% were working, including 71% of moms with school-aged kids1. Laborsaving products and services cushioned the change, but the two-earner family lost ground even with lots of new gadgets. Typical U.S. households earned less in 2009 than a decade earlier2; median household income is still declining. Even with two earners, many live closer to the poverty line than did families in the '70s3. Middle-class family savings turned into consumer and mortgage debt, which reached 134% of household income at the end of 20074.
A middle-class key, and a requirement for its upper half, is a degree. For those whose parents couldn't afford it, "working your way through college" was practicable and so common that it became a cliché, but by 2008, ABC News said, "Soaring Tuition Pushes College Out of Reach5." Not only lower-middle, but also many upper-middle-class parents can't afford college for their kids. Graduates are often burdened with school loan debt. In short, life has been growing tougher for the middle class, with a recent kick from the ailing economy.
Considering that, what's ahead? Middle-class wealth was personal savings, homeownership, and a pension, stemming in most cases from a decent job. Savings are now debt, homes are mortgaged and losing value, and the private-sector pension has devolved into a 401(k) with shrunken assets. Government pensions face shrunken assets, too. Everyone knows that Social Security is in the red (seven years early), and the government is broke. Unemployment is outlasting previous declines (excluding the 1930s), and the current 9.7% rate has been "adjusted" by the government. At http://www.shadowstats.com, where readjusted numbers are more realistic, unemployment shows close to 21%. Those unemployed add another economic burden for the government (i.e., taxpayers), or for families. Here are three facts about today's burdens:
1) Federal, state, and local government debt (to be repaid by taxpayers) is $690,762 per U.S. family6.
2) U.S. citizens' personal debt is $205,842 per family6. Family total: $896,604.
3) U.S. average annual family income, the source for repaying that family total debt, is $61,9946.
The debt is still growing, with government deficits exceeding all experience and interest to be added. A former U.S. Comptroller General named David Walker thinks that the debt is reaching a tipping point7. Declining family incomes are accompanied by rapidly increasing taxes at all levels of government, with none seeming willing to significantly reduce borrowing and spending for the sake of suffering taxpayers. The federal government is adding costly entitlements, such as Obamacare and student loan forgiveness, with no resources to pay for them and no visible plan for repaying all the debt.
When most middle class wealth is built on jobs, no jobs = no middle class. So will the jobs be back soon? Short answer: No. And the main reason, politicians' speeches to the contrary being lies, is deliberate government policy. We'll ignore all but two speeches and consider facts:
The jobs disappeared for several reasons: Globalization sends jobs to cheaper places, high-paid labor is replaced by machines, and reduced demand brings reduced capacity (i.e., less payroll). Will jobs sent to India and China return soon? Will jobs handed to machines return to human labor? If not, the only jobs that may come back are those awaiting rising demand. So the question is: With the lengthening unemployment, declining incomes, debt, and rising taxes, who will spend massively enough to raise demand? The government can spend, but it spends taxpayers' money; it's a blood transfusion into the taxpayers' right arm with blood drained from his left, though blood doesn't need interest added.
Consider how government is treating future jobs:
Secretary of Energy Steven Chu said, "We believe that we have to decrease our use of energy to allow headroom for the developing nations to grow their economies7."
Transportation Secretary Ray LaHood announced on his blog: "This is the end of favoring motorized transportation at the expense of nonmotorized8."
His department is discouraging "transportation investments that negatively affect cyclists and pedestrians8." Henry Ford is blamed for the extinction of buggy-whips; Mr. LaHood may resurrect them. Money he cuts from commercial transportation won't resurrect real jobs, nor will it help many commuters get to them.
President Obama said we that must cut our use of coal, oil, gas, and such, and his "cap-and-trade" energy tax program will do that. So will his mandates forcing use of costly, inefficient wind and solar power and minimizing mining and drilling. We grew rich on cheap energy and transportation policies -- what will follow reversing them? Once deindustrialized, how will the U.S. make a living in a competitive world? Deindustrialized Detroit fell from the fourth- to the eleventh-largest U.S. city, and it's still shrinking. What will an entire country do? One thing it won't do: support a middle class.
Governments receive less from citizens in shrinking economies, and they respond by taking more in taxes -- as we see. That reduces productivity, starving the private sector of capital and workers of income -- a vicious circle of decline. At the end, refugees from the once-self-supporting middle class in their newly needy places among the dependent poor will be too many for governments to help much. Then, for the first time, true income equality will appear (for all but the political class), but the only thing available to share will be poverty. Ask a Russian.
Adam Smith reminded readers in 1776 that a man can't spend more than he earns expecting to prosper, nor can a country. Government doesn't seem to believe it. Thomas Malthus wrote in 1798 that population would outgrow food production, so all would starve. Technology made that silly, but the Obama folks, the new Malthusians, are set on shrinking our economy and dropping our living standards as the price of growth for others and pushing the false, pernicious idea that every gain must come from someone else's loss. America's middle class didn't become wealthy by depriving others; it was done by hard work, frugality, and ingenuity operating in a free economy, while government promoted but was too small to interfere much. Left alone, the U.S. middle class and technology can do it again -- and help raise the poor, too. China and India are using our technology and selling to our market; without our prior success, they would be nowhere.
But, grown large and powerful on our wealth, government has decided for us that our wealth will be given up for others, ignoring Rev. W.J.H. Boetcher: "You can't help the poor by destroying the rich."
1 Bureau of Labor Statistics, U.S. Department of Commerce
2 New York Times: "A Decade With No Income Gains" By David Leonhard, 9/10/2009
3 www.huffingtonpost.com/elizabeth_warren/america-without-a-middle_b_377829.html "America Without a Middle Class" By Elizabeth Warren 12/3/2009
4 Center for American Progress: "Economic Snapshot" By Christian E. Weller 4/10/2008
5 ABC News: "Soaring Tuition Pushes College Out Of Reach" By Bill Weir, 12/3/2008
7 http://www.finance.yahoo.com/: Investing, Recession Related, By Heeson Wee: "U.S. Standard of Living Unsustainable Without Drastic Action, former Top Govt. Accountant Says." 3/31/2010
7 Dow Jones Newswire: "Energy Secretary Chu Says U.S. Must Decrease Energy Use." By Nour Matas 2/24/2010
8 The New York Times: "Transportation Department embraces Bikes, and Business Groups Cry Foul" By Leora Broydo Vestel, 3/26/2010