Is There any Middle in the Middle Anymore?

The Tea Party knows there’s something wrong with their lives, but they attribute it all to government interfering with the free market system. Most Democrats wonder what kind of tea is being consumed by their brethren to the right, because they haven’t seen a free market in America in the lifetimes of most of them. When the senior manager of a private equity fund, paid tens of millions dollars a year, is taxed at rate that is a fraction of the rate applied to his secretary’s pay, folks just shrug and say that’s the way it goes. When some rating agency tells you that a bundle of inferior debt should be A-rated, and it happens all the time even in the current market, and there really isn’t a regulation to stop this process because the SEC’s enforcement/regulatory budget has been cut and they don’t have the staff to manage new regulations, folks just shrug and say that’s just the way it goes.

But who’s right? Are the rich getting richer? Or is that just a lot of “Occupy Wall Street” propaganda? Enter the Congressional Budget Office (“CBO”) with research based on census and tax data: “[On October 25^th], the CBO released an analysis of America's distribution of wealth over the last three decades. Their findings were shocking: Among the top 1% of households, income grew by an amazing 275% over the last 30 years. In the same period, the middle 60% of households -- the heart of the middle class -- saw their incomes increase by less than 40%.

“But rising pay only tells half the story: As the rich have gotten richer, they have also gobbled up a bigger portion of the overall income pie. In 1979, half of all income went to the top 20% of households; by 2007, they were pulling in 60% of all income. Meanwhile, everyone else lost ground… While the middle class’ slice of the income pie has gotten thinner, the price of real-life pie has shot up. According to the Department of Agriculture, food prices have increased by 4.7% since September 2010 and are on track to go up by another 4.5% over the next year. For certain products, the rise has been even sharper: Eggs and oils, for example, have gone up by more than 11%, while dairy products and beef have increased by more than 10%.” DailyFinance.com, October 27^th.

The top 1% of Americans have 225 times the wealth of those in the middle! “While corporate performance has been on this sharp decline, executive compensation [CEO’s] has been increasing astronomically. Whereas in 1965, executive compensation was 24 times what the typical worker made, studies show that today executive compensation is a staggering 275 times what the typical worker makes.” Typepad.com, January 2011. With the major component of middle class wealth buried in the American dream of home ownership, the demise of real estate values has simply killed the middle class. Without the massive discretionary income to trade stocks and bonds on a meaningful level, most of us relied on wealth-building in our homes. With house prices crashing and burning, that middle class’ economic buffer is simply gone. “Half of borrowers with prime loans -- or loans made to borrowers with good credit and income -- will likely end up underwater anyway, according to a recent report… Already more than one-third of prime mortgage loan borrowers are underwater or owe more on their homes than they're worth and with home prices expected to drop by another 10 percent, half of prime borrowers will likely end up underwater, a Fitch Ratings report found. More than 12 percent of borrowers are seriously behind on their payments according to the report, putting them at risk of defaulting.” HuffingtonPost.com, October 7^th. Mortgage delinquencies have hovered around or above 10% for a very long time.

But the stock market reacted to better-than-expected retail numbers and the settlement of new European bank recapitalization required as a result of the concerted action of the European Union. So we’re not going to double dip! Yeah! Champagne! Oh… you referenced the big stock market rally, and middle class folks aren’t really that heavily invested in that sector of the market. They are actually the ones who make up the vast, vast majority of the unemployed and under-employed, and those with enough stock don’t derive their wealth from salaries or wages. Yet, “42 percent of financial wealth is controlled by the top 1 percent. We would need to go back to the Great Depression to see such lopsided data.” MyBudget360.com

So I am going to predict. The current “Occupy Wall Street” phenomenon will fizzle – unless the authorities are dumb enough to fire real bullets into one crowd or another (Oakland?) – if for no other reason that winter is around the corner. But unless someone figures out how to restore the middle class, the underlying unrest will be back… and back again… and again… and again… growing a bit at time. For those old enough to remember the progression of the Vietnam protests in the late 1960s and early 1970s, from a trickle to a raging fire that only was extinguished with American forces in fast retreat being pulled out of this most unpopular war. I remember how the protestors were referred to as “hippies” and “drug-users,” but in the end, they became just people like us. We’ve been here before, and ignoring the middle class is an invitation for an escalation of tensions from increasingly angry, massive group of people.

I’m Peter Dekom, and it is interesting to watch the birth of a potentially very large political movement that threatens to envelop us all.