The "Middle-Class Squeeze" ... It Has to Be Stopped in Order for Our Economy to Grow and Our Citizens to Prosper

The middle class represents the biggest and most influential number of American citizens, including voters. So if the middle class is being squeezed and isn't happy, then over the long haul nobody's going to be happy. And financially the "squeezees" definitely are not happy campers today, and aren't likely to become such anytime soon, for several very good reasons.

And those reasons include few good jobs, too much unemployment and part-time employment, too much debt, limited pay increases and an intrusive and too expensive big government, both at the state and federal levels.

The indebtedness issues are especially troublesome for individuals today. High levels of unemployment, small wage increases and the housing pricing and debt related debacle of recent years have combined to make a difficult situation worse.

But there's another big elephant in the room named globalization. Globalization's negative impact on competition for jobs and compensation, when combined with growing government, receding inflation, and historically high levels of debt make things tough for too many of today's Americans.

Throw in a growing level of student debt, and the high cost labor of developed countries (U.S. and Europe) compared to the low cost wages of developing countries (China, India and Mexico), and it makes for a troubling future scenario for America's younger and semi-skilled workers.

This all has to change if prospects for the middle class, as well as for the rest of us, are going to improve anytime soon.

Now let's look at some unpleasant but cold hard facts. The Middle-Class Litmus Test for the Economy is subtitled 'Inflation-adjusted median household incomes are 9% lower than they were in 1999:'

"The condition of the middle class—its size, income and self-confidence—reveals the extent to which economic growth increases opportunity. When the middle class is shrinking, when incomes of middle-class families are stagnating and when the heart of American society is losing hope in a better future, then the U.S. economy is in trouble. And so is the political system.

Recent reports underline the dimensions of the challenge. . . . during every expansion from 1949 through 1979 the top (10% of earners) received less than half the fruits of growth, while the bottom 90% received between 55% and 80% of total income gains.

                                                 

But starting in the 1980s, this relationship turned upside down. During the Reagan-Bush expansion, the top 10% received 80% of the gains. . . . In the first three years of the Obama recovery (2009-12), the top 10% received 116%. Affluent Americans moved forward while everyone else fell back.

Since the end of the Great Recession more than five years ago, wages adjusted for inflation have not budged, while median household incomes have fallen by 2.9% . . . . Inflation-adjusted median household incomes are 9% lower than in 1999 and about the same as in 1989. . . .

Nor does education inoculate against income losses, which have occurred in households headed by college graduates and by those with less education. However you slice income and earnings, the story is pretty much the same.

When we turn to middle-class expenses, the picture is no brighter. In a report issued last week, the Center for American Progress found that since 2000, adjusted for inflation, rents have risen by 7%, medical care by 21%, child care by 24% and higher education by an eye-popping 62%. The "middle-class squeeze," once a debatable slogan, is now a demonstrable fact.

Action is needed on multiple fronts, from an all-out effort to boost the rate of growth and job creation to incentives for businesses to share more of their gains with workers. At the same time, we must change the policies that are driving up the costs of leading a middle-class life.

Take public higher education, which for the past two generations has been a key gateway to the middle class. . . . The costs for families have soared mainly because states have slashed funding for higher education, forcing colleges and universities to raise tuition faster than costs.

Since 2008, according to the Demos public-policy group, state higher-education funding, adjusted for inflation, has fallen by nearly $2,400 per student—26.7%. The State Higher Education Executive Officers Association reports that real per capita funding fell in 2012 to its lowest level since 1980. As recently as 2002, net tuition (tuition minus state-funded financial aid) accounted for only 30% of total revenues. Today, that figure stands at 47%. No wonder middle-class families are emptying their pockets and taking out large loans. . . .

In the long run, we will all pay."

Summing Up

Globalization has changed the game. So has enormous debt combined with low inflation.

It's vital that our employees' productivity and skill sets become capable of justifying the wage and related product cost differentials between what's made in America and what's imported from low cost labor countries. Otherwise it's going to be game over for too many of America's workers and companies.

And on top of all that, our efforts to solve our economic growth problems by printing money and growing the government sector have made a bad situation even worse.

Here's the simple truth of the matter --- as goes the middle class, so go we all.

And things for the middle class aren't going so well these days --- not even close to well.

Less government, more incentives for private sector risk takers and a lower cost of higher education would be an excellent way to begin to repair the damage.

That's my take.

Thanks. Bob.