Bankrupting the Common People

How the Middle Class Slowly Evaporated in the Last 40 Years – Loss of Manufacturing, Bank Deregulation, Hyper Consumption, and Short-term Profit Seeking from Wall Street

March 23, 2010

mybudget360 - Some like to think that the middle class has always been a fixture of American society. In fact, the rise of a steady and strong middle class didn’t happen until after World War II.

Clearly people can’t look at the economically painful Great Depression, which rampaged the nation from 1929 to 1939, as a good time for average Americans? In fact, even a few years after World War II the nation hit a few rough patches with price controls and millions of Americans rushing back into the workforce. But with many of the industrial economies in tatters in Europe and Asia, the U.S. had a well positioned spot for decades of strong growth ...

The middle class today has it very different from the same family in the 1950s. Back then, one blue collar income was enough for the purchase of a modest house, a car, and a bit of money for savings without going into massive amounts of debt. That is no longer the case. Even though in the last year debt loads have fallen (because of bankruptcy and millions of foreclosures), American households are still highly over leveraged with debt ...

Since the 1970s, strong regulations that were in place to keep the banking industry in check have come off, letting the wild hyena loose. Those that argue today that we have too much regulation are right, but it is weak regulation in agencies that have no power (obviously since this decade was a Wall Street Wild West). Simple regulations like usury, or even checking income before making a loan, were all removed.

So in 50 years, we went from very little debt and high levels of production to massive consumption fueled by easy money. But when things went bust the net was pulled for average Americans while Wall Street racked up trillions in taxpayer money.



As the manufacturing base slowly drifted away starting in the late 1970s, the financial and real estate part of the employment equation exploded. With massive amounts of deregulation, capital flowed to any industry regardless of the long-term implications to the U.S. We are seeing some of those longer term trends now hitting us. At this point, it is like reversing the Queen Mary in the middle of the ocean ...

Over Last Two Decades, as U.S. Workers Became More Productive, a Third of All Income Growth Went to the Top .01%

February 28, 2010

CBS News - Is the American working family being squeezed? The Obama Administration seems to think so. According to The New York Times, the White House is planning to use federal contracts to try to leverage higher wages and benefits for workers. Of course, just how squeezed the average paycheck appears depends a lot on where you sit . . . and where you work ...

The fact is, most workers feel overworked, under-appreciated and — most of all — under-paid.

"We're living through one of the worst times for wage growth ever," said Larry Mishel, an economist with the Economic Policy Institute, a non-partisan, non-profit Washington think tank. "From 2002 to 2007, the hourly compensation of a typical college graduate or a typical high school graduate went up zero — didn't grow at all."

Mishel says for most American workers, wages have been under assault for nearly 40 years.

"If you're in manufacturing, there's pressure from overseas," he said. "We've weakened the ability to have and keep a union, we've introduced privatization, we have a much lower minimum wage, in many industries, we've deregulated them."

And the current recession isn't helping.

"We've seen the steepest and longest rise in unemployment since the Great Depression," Mishel said. "This has a tremendous downward pressure on wages. Employers have all the leverage; they don't have to give you more money to get you accept a job.

"In a Great Recession, you don't have songs that say, 'Take this job and shove it!'" Mishel said.

He points to the fact that from the 1940s until around 1970, as workers became more productive, their salaries grew accordingly. But around 1970, things changed, and for the next four decades, as productivity skyrocketed 70%, hourly wages hardly budged, rising a mere four percent.

So, where did all that extra money go? Mishel points to the very top.

"Between 1989 and 2007, before the Great Recession, of all the income growth that was generated, the bottom 90 percent [of Americans] got only 15 percent of it. The upper one percent got 55 percent. And the upper tenth of the upper one percent, the one out of 1,000 households, got about a third of all the income growth."

"Hang on, hang on — over 18 years, a third of all income growth went to one tenth of one percent?" Axelrod asked.

"Absolutely," Misehal said.

(Economic Policy Institute)

In other words, the middle class was getting a raw deal.

"We know that CEOs in large companies make 270 times that of a typical worker," Mishel said. "It used to be around 20 times, 30 times, back in the '60s and '70s.

"Now the fact is, you don't have to pay someone that much to get out of bed and go to work and be productive."

"I call this the 'gloom and doomers,'" said Georgetown University economist Stephen Rose, who thinks the myth of a middle class squeeze is exactly that, a myth.

"That would imply an economy that we just don't have. The malls wouldn't be filled. The people wouldn't be rushing to spend $14 to go to 'Avatar.' They wouldn't have all the wiis, all of the iPods, the iPhones, etcetera, etcetera."

Rose uses a different set of numbers. He points out that the median income of American workers has been rising steadily, from about $49,000 dollars in 1970 to $62,000 in 2008.

"If you ask people, 'How do you compare to your parents?' about 50 to 60 percent say better," Rose said. "Thirty percent say about the same. And only about 15 percent say worse. So Americans think they're living better. The evidence seems to be overwhelmingly clear they're living better. And so I think it's a tall stretch to argue that 60 to 80 percent of Americans haven't moved forward over the last three decades."

Larry Mishel believes those numbers are misleading.

"It's really a low threshold to say families are a little better off than 30 years ago, when the pie grew by 70%," Mishel said. "They should be far better off."

Economic Policy Institute
Report: The State of Working America (EPI)