Middle Class

What’s Killing the American Middle Class?

When the wealthy 1 percent grows, the middle class begins to shrink and suffer significantly.

By Richard Eskow

A new study by the Pew Research Center spurred a rash of headlines last week about “the dying middle class.” But the word “dying” might be more appropriate if we were watching the regrettable-but-inevitable effects of natural forces at work. We’re not. We’re seeing the fruits of deliberate action – and sometimes of deliberate inaction – at the highest levels of power.

The great American middle was never large enough, even at its height. It always excluded too many people – sometimes, shamefully, merely for their skin color. And now, instead of growing and becoming more inclusive, it’s fading away instead.

It’s true that the middle class is dying, but not from natural causes. It’s being killed. What – and, for that matter, who – is responsible for its slow death?

Code Blue

It’s important to understand just how dramatic this decline has been. The Pew study found that the size of the middle class fell in virtually all parts of the country between 2000 and 2014. Nine out of 10 metropolitan areas showed a decline in middle-class households.

In a related study, Pew also found that the median income for middle-class households fell by nearly 5 percent between 2000 and 2014. Their median wealth (assets minus debt) declined by 28 percent after the housing market crisis and subsequent Great Recession.

Battleground electoral states like Indiana and Michigan saw the greatest decline in middle-class incomes, a finding that may help explain this year’s widespread dissatisfaction with the status quo among some voters.

It’s true that some households moved into the upper-income tier, even as others fell into the lower-income range. But that doesn’t necessarily make them oligarchs. There is also considerable inequality among the top 20 percent of households, and even among the top 1 percent.

Pew’s middle-class range went from an average lower income (in 2014) of $44,083 to $144,250 for a family of four. Households whose earnings were higher than that (adjusted for regional costs) were considered higher-income.

$144,251 sounds like a lot of money – and it is, especially when 47 million Americans are living in poverty. But that doesn’t even qualify for the top 5 percent in household income, much less the top 1 percent. A household needed $423,000 in annual income to make it into the top 1 percent in 2014.

It’s even worse than it looks

The middle class isn’t what it used to be. Lower- and middle-income wages have been stagnating for a long time. Middle-wage hourly wages only rose 6 percent between 1979 and 2013, while low-wage workers’ wages fell by 5 percent, At the same time, very high-wage earners saw a 41-percent increase in income. What’s more, figures like these substantially understate the long-term decline in disposable income and quality of life experienced by so-called middle-class Americans.

In fact, families today can be in the “middle” in terms of income and yet still not make enough to live on. The Economic Policy Institute calculated the amount of money needed to maintain a four-person household in different parts of the country and found that it took between $49,114 and $106,493 per year. $44,083, the lower end of Pew’s middle-class income range, was not an adequate income anywhere in the country.

Costs have risen dramatically for many large-dollar items that affect middle-class families, including college tuition and out-of-pocket costs under employer health care plans. Retirement security has evaporated as corporate retirement plans offer less in benefits.

Household income figures are also distorted by the fact that an ever-increasing percentage of homes have moved from one-income to two-income families. In 1960, 72 percent of two-parent families with children under 18 had a single earner (typically the father). That figure fell to 37 percent by 2010, while the number of two-earner families rose to 60 percent. (Single-parent households face an even harder struggle, with a much greater risk of falling into poverty.)

The everyday tasks of child-rearing become even more stressful when both parents are working. Two-earner families also have higher expenses for items like clothing, transportation and child care.

In other words, many families are “middle class” and still don’t make enough to get by. And these numbers don’t take into account the decline in quality of life that many families have experienced. Americans work more hours than citizens of any Western European country, a burden that keeps them away from their families, friends and personal activities.

Where has the money gone?

Our total national wealth has continued to grow, even as incomes stagnated for most Americans. Where did the money go? The short answer: to the wealthiest among us.

Economist Emmanuel Saez found that the top 1 percent of Americans captured more than half of the total income growth from 1993 to 2014, the last year covered by the Pew report. What’s more, the top 0.01 percent – some 16,500 families – were capturing more of the nation’s income than they had since the run-up to the crash of 1929 and the Great Depression.

The top 0.1 percent – just 160,000 families – owns as much wealth as 90 percent of the country as a whole, or about 145 million families. Just 536 people had a shared net worth of $2.6 trillion at the end of 2015.

Corporate profits, although they’ve taken a hit in recent months, have nevertheless grown at a healthy clip while wages lag behind. Those profits have increasingly been used to pay high executive salaries, which has led to an explosion in the gap between CEO salaries and worker pay. (Fortune 500 CEOs earned about 42 times as much on average as the typical worker in 1980. Today they earn 373 times as much.) Profit-taking in the form of dividends has increasingly taken the place of long-term investment in workers and business growth.

Millions of jobs have been sucked out of the US economy by trade deals that let corporations replace American workers with low-paid, often mistreated workers in other parts of the world. Deals like the China/World Trade Association agreement shipped jobs to that nation without leveling the playing field by allowing it to keep manipulating its currency.

Wages and benefits have fallen because American union membership has declined, leaving unions without the leverage they once had to demand better deals for working people. The growth of the banking sector has taken investment away from job-producing segments of the economy. Rampant poverty and economic discrimination against people of color, in addition to being inherently evil, has robbed their economy of their productive potential.

Who’s behind it?

That’s the “what” in the question, “What’s killing the American middle class?” But the question remains, who’s doing it? The answer to that question includes corporate executives who bend the rules and Wall Street bankers who break the rules; their lobbyists, who work to change the rules; and the politicians who change in their favor – in state houses, the halls of Congress and in the executive and judicial branches.

Virtually all Republicans fit this description. Sadly, so do many Democrats. The rule bending takes the form of deregulation, a tolerance for ever-larger corporate mergers, an unwillingness to enforce the law against bankers and a plethora of tax breaks for corporations and wealthy individuals. Then there are those terrible trade deals, the defunding of public institutions, the neglect of our infrastructure and laws that make it harder for workers to collectively bargain on their own behalf.

What do we need a middle class for, anyway?

Why do we care about protecting the middle class? First and foremost, it’s a simple matter of fairness. Our national wealth, along with our democracy, has been hijacked by a small number of privileged people. That’s wrong.

We want to eliminate poverty, not allow more people to fall into it. And everybody can’t be wealthy (no matter what illusions are maintained in the popular media). A robust middle class is the ladder that leads out of poverty.

Middle-class Americans are the economy’s largest group of consumers, which makes them engines of economic growth.

The middle class also keeps the economy balanced. Without a healthy middle class, income continues to accumulate at the very top, creating a kind of black hole that sucks up ever-increasing percentages of national wealth. That leads to an ever-growing drop in consumption, increased use of social services and an unstable economy. Over time it also leads to an unstable society where the risk of social unrest, extremism and political violence begins to grow exponentially.

Saving the middle class

If we want to reverse this trend we’ll need to attack the problem on a number of fronts. These include: increasing the minimum wage; expanding social programs; rebuilding our infrastructure; renegotiating those bad trade deals; promoting union growth and demanding that corporations and wealthy individuals pay their fair share (while ending rewards for bad behavior).

We’ll also need to explore ways to expand the role of public ventures and communitarian institutions at all levels.

We know what, and who, is killing the middle class. It’s time to stop those forces in their tracks, take back our democracy and create a middle class that’s more vibrant and inclusive than ever.