April 6, 2011
-- by Dave Johnson
For most people the "American Dream" is to be in the middle class, or to raise yourself up to be in the middle class. And people used to expect that things would get better over time for all of us. But today more people are going the other way. Many people are finding it harder just to get by and stay even, and expect that things will get even worse for their kids. This is because more and more and more of the income is going to few and fewer and fewer people. This is called income inequality and it affects almost all of us in a bad way. Budget cuts just make this worse.
The Engine That Drives Our Economy
You have probably heard that the middle class is the engine that drives our economy. We have a consumer economy, so when more regular, middle-class people have more money to spend it is better. The money circulates to the businesses and manufacturers that provide the jobs that keep things going. So the country needs a strong middle class or things start to fall apart.
Middle Class Dying Off
But the middle class is slowly dying off because wages no longer keep up with the cost of living. Every one of us can see that the cost of a middle-class existence is getting to high for so many of us to keep up. And you can just look around you to see that things have been falling apart.
In the New York Times this weekend, Robert H. Frank writes about this. In Gauging the Pain of the Middle Class, Frank talks about measuring the work hours it takes for a family to live in an average home where children have access to an average school. He calls this the "Toil Index,"
It measures the number of hours that median earners must toil each month to be able to rent a house in a school district of at least average quality.
How long must the median earner work to achieve that goal? During the immediate postwar decades, when income distribution was relatively stable, the toil burden for meeting the rent of that median-price home actually declined slightly, from 42.5 hours a month in 1950 to 41.5 in 1970, according to my calculations.
But once inequality began rising sharply, the toil burden began rising in tandem. The median new single-family house in the United States grew from 1,570 square feet in 1970 to more than 2,300 square feet by 2007, an increase that can’t be explained by the paltry growth in median earnings during those years. What changed was the context that governed housing choices.
By 2000, the median worker had to work 67.4 hours a month to put his or her family into the median home. The toil index thus fell by 2.4 percent from 1950 to 1970, but rose by 62.4 percent from 1970 to 2000. Yet all the while, steadily rising per capita G.D.P. painted a substantially rosier picture.
So in 1950 the "toil index" was 42.5 hours. That dropped to 41.5 by 1970. But then it started to rise -- a lot. By 2000 it was 67.4 hours, an increase of 62.4%! Yet this was at a time when the country as a whole got ever wealthier. And since 2000 it has obviously gotten much worse.
How can this be?
The Money All Goes To A Few At The Top
While the country as a whole grew richer the amount of work required just to stay even in the middle class went up 62.4%! Why? Because the richest one percent now enjoy almost all of the benefits of our economy. It's great if the rich get richer, but not when it is at the expense of the rest of us!
Why is this happening? Look at these two charts. The first shows how corporate taxes have declined, the second shows who owns those corporations.
So the tax burden of the corporations -- owned by the wealthiest few -- declined dramatically On top of that the income taxes of the top few have also dramatically declined, both from cuts to top tax rates and from cuts in taxes on capital gains and dividends.
Look at this chart of concentration of income at the top:
In the same time period as the middle class was forced to work longer and longer just to maintain a middle-class existence, the share of income going to a few at the top grew and grew.
Budget Cuts Just Make This Worse
As it became harder and harder for people to reach or maintain a middle-class existence government took up some of the burden. Medicare provided health care for seniors. Social Security kept them out of extreme poverty. Other programs helped in various other ways.
But all of the tax cuts meant government had less revenue to pay for this help to the middle class and those aspiring to join the middle class. For a time the loss of revenue to the government was made up for by borrowing. We all know what happened after the election of Ronald Reagan, made worse by George W Bush. Deficit upon deficit added up to a huge national debt.
Now, with the revenue to government cut so far, combined with the effects on the economy of this destruction of the middle class, the borrowing has reached a very high level. The currently proposed solutions to the borrowing -- caused by tax cuts and military spending -- is to cut back on the very programs that have helped people reach or maintain a middle-class existence.
With the middle class working as the engine that drives our economy, and the middle class falling further and further behind in their ability to stay in the middle class, what do you think will happen to all of us as the programs that help people reach or maintain a middle-class existence are cut back?
Posted by Dave Johnson at April 6, 2011 5:39 PM
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