Meddling with the Middle

The United States is defined by its middle class, an educational system that is supposed to be the great equalizer and a tax and retirement system that is designed for the middle. But this recession has taken away the American dream for millions, pulling them voluntarily or involuntarily out of their homes in a foreclosure nightmare. The contraction of jobs has been primarily borne by those in the middle, and the literal death of consumer spending is a reflection of both of the above phenomena. When you look at the numbers, at exactly who’s making the big and the little bucks, you may be shocked at exactly how close to an endangered species the American middle class is today. Could we be a viable nation with a minuscule middle class? Really?

The October 17^th DailyFinance.com puts the numbers out there for all to see: “On the surface, the scenario sounds unlikely. But a growing cadre of economic analysts note the steady erosion of the middle class, and the loss of its massive buying power… [T]he top 20% of the American populace holds roughly 93% of the country's financial wealth, and the top 1% of the country holds approximately 43% of the money in the U.S. Meanwhile, the middle 20% of the population -- what would, officially, be called the middle class -- holds only 6% of the country's total assets. While disturbing, even this minuscule share of the wealth pie dwarfs the bottom 40% of the country, who control less than 1%.”

Why? In additional to the above realities: Declining educational values, people in debt up to their eyeballs and global competition providing manufacturing values that are so remarkably low that Americans have lost an incredible competitive edge: “When looking at the declining American middle class, a good number to start with is 42,400. That's the total number of factories that the U.S. lost between 2001 and the end of 2009. Put another way, this translates into the outsourcing of 32% of all manufacturing jobs in America… Other numbers illuminate the impact of this massive job drain. At the end of 2009, 15.7 million people were unemployed, while 12.6 million -- 20% fewer -- worked in manufacturing. This represented only 9% of the American working populace; at manufacturing's height in 1960, 29% of Americans were employed in the sector.” DailyFinance.com.

China’s economy is slated to overtake ours in 2040, and India should be right behind, moving ahead by 2050. Sure the per capita isn’t comparable, because both these nations have populations that are vast multiples of that of the U.S., but just three decades ago, these countries weren’t even on the radar! As past blogs have supported, we’re nineteenth in educational standards, fourth in productivity, sliding backwards every year. Our dollar is about to be part of a new blended reserve currency – a special drawing right script in which the U.S. dollar will be just one component – and the value of the dollar has no place to go but down. Our deficits are horrific and our trade imbalance has begun to return to the horrible days typified by over-consumption without off-setting exports.

We’re seeing political factions seething at the profits made by Wall Street, supported by U.S. taxpayers in what can charitably be described as financial blackmail; we restored these bankers and financial gurus to mega billions of profits as they threatened to take the recession down to a full depression if the financial system weren’t rescued. They’re rich – look at the numbers above – but most of America is terrified at the future. We’re watching Americans on the left, right and middle lambaste the government for any program it might embrace, from healthcare to social security, because seemingly nothing they have done has brought benefits to the masses, but rich folks are richer than before.

Whether you are aghast at the Tea Party movement or sympathetic, their message is clear: we don’t trust the government to solve our problems, so government stop spending and taxing, and leave us alone, because we can’t screw it up any more than you have and might if we let you continue. The left screams for more direct efforts, decrying the tax incentives and financial stimulus expenditures that somehow have eluded the pockets of anyone but the upper classes. Indeed, all these tax incentives and stimulus payments have resulted in massive stockpiles of idle cash, increased layoffs because there is no middle class willing or able to buy anything that we might want to sell or make, and a prolonged economic stagnation that could take more than a decade to undo… one that will leave the older Americans in the mix completely out of the real recovery, which will occur too late for most of them to benefit.

Well, we already know that cutting taxes for the rich results in hording cash. We know that giving banks almost zero interest fed loans results in their paying off their own debts, buying up their competitors and, of course, hording cash. Big Fortune 500 companies can borrow inexpensively as well, and more than a few are borrowing money at the lowest interest rates in decades… and, of course, hording cash. Trillions of dollars are sitting on the sidelines with virtually none of that horded money likely to be used to create needed jobs.

So while I understand the very real frustration of the Tea Party movement, I also know that some mighty rich folks seem to have convinced these believers that less regulation and lower taxes will bring us back. And oddly, even though the subprime mess and the over-leveraged derivatives marketplace that exploded and decimated our economy occurred precisely because of the absence of regulation, and even though the richest sectors of our economy have enjoyed the benefits of laying off workers and used tax cuts to horde cash, these tired and worn-out mantras are still being touted as having incredible economic benefits for the masses. Sounds very much as convincing as the medical profession might in threatening to bring back the “incredible benefits of being bled through the application of leeches” that was so common in the 1700s.

I’m Peter Dekom, and while we have massive economic problems, the solution is most certainly not to give us more of the same that caused this mess in the first place!