WHAT KILLED THE MIDDLE CLASS?

Everyone agrees the middle class is dying.  I don’t know anyone who disagrees with that, but trying to find an answer to what is responsible is a horse of another color.

The conservatives tend to just want to ignore the question.  The liberals are anxious to blame it on the natural outgrowth of capitalism and Reaganomics.  The Reagan administration has been gone for a long time and their actions to stimulate the economy by printing money doesn’t appear to have stemmed that tide very much either.

Let’s try to examine some facts and see if we can draw any conclusions.

The facts and figures which follow were primarily offered by Harry Dent of Dent Research who concentrates on demographics for his investment advisory services.

“Our middle class has been shrinking substantially since the 1960s and ‘70s.  Today, their share of wealth here in the U.S. is the lowest in the world, at a mere 19.6%!

“Could it be the outsourcing of manufacturing jobs to China and other Asian countries?  Maybe the flood of illegal and legal immigrants into U.S. jobs?  Or possibly the growing wealth of the top 1%, and the insatiable greed on Wall Street?

“All are viable candidates to take the blame.  But most other developed countries face the same competition from the emerging world, and many have some degree of influx of lower-skill immigrants and most are also seeing their rich get richer…yet they haven’t been losing nearly as much of their middle class.  So, what gives in the U.S.?

“Extreme political polarization and income inequality!  We’re the highest on both.”  Is that another contributor?

“Today real incomes of the middle class are 5% lower than they were in 1970 and 12.4% lower than in 2000…when they peaked!

“Here’s the big insight:  When we take out the affluent 10%, we see the bottom 90% average only $32,352 in income per year.  The top 10% skew the overall average dramatically, so the $55,132 you hear isn’t accurate.

“In the meantime, the top 0.1% have seen their share of wealth go up  four times, since 1975!  And, since 1970, the “super elite” 0.01% has seen their incomes grow a whopping 628%!

“Along with the most extreme political divide between red and blue parties, which makes it difficult to pass any effective legislation that would bring relief to the middle class, it’s no wonder we face massive civil unrest ahead and surprisingly strong candidacies from Trump and Sanders.”

The U.S. has the narrowest middle class in the world.  The only smaller middle class are in China, Brazil and India—all emerging countries.

Australia has the broadest middle class.  The Aussies have high immigration rates, but they’re being smart about it:

  1. The education and incomes of their largely Asian immigrants are much higher; many are affluent.
  2. They have very high home ownership and appreciation to benefit the everyday household
  3. The Australian government has a forced private retirement savings program instead of social security.

Residents enjoy higher appreciation which shows up on their household wealth.  Our social security in the U.S. and many other countries does not contribute to wealth.

Since 1975, the top 0.1% in the U.S. has seen their share of income go up four times while the bottom 90% have gone from a 68% share of income to a low of 49%.

The percentage of wealth of the middle class by countries:

  • Spain 50%
  • Netherlands 46%
  • Japan 45%
  • South Korea 44%
  • Italy 44%
  • Germany 40%
  • United Kingdom 39%
  • Canada 38%
  • France 38%
  • S. 19.6%

Dent says, “The Bottom Line… This level of social unrest sweeping across the middle class is at a breaking point…  Just like it was before the American Revolution against the British rule…  And just like it was before the French Revolution, where people literally lost their heads!  Our 250-Year Revolution Cycle has come full circle.  We may be due for the next major revolution…”

Let’s try to recap and summarize.

The reasons the middle class is shrinking and the top 1% are soaring appear to be a combination of factors:

  1. Our haphazard and unlawful implementation of immigration laws.
  2. The outflow of middle class manufacturing jobs to Mexico and Asia.
  3. The Mexico and Asia investment opportunities and growth are far more abundant here and have spurred the disparity in income equality.
  4. The disenfranchisement that fueled the campaigns of Donald Trump and Bernie Sanders will continue to fester and could lead to a revolution of sorts—or, with any luck, some better candidates.
  5. The growth of robotics, automation and technology has increased production in manufacturing and all areas of business while reducing employment.

If President Trump’s attempts to revise the tax code, standardized lawful immigration and fund infrastructure projects come about, it may help, or at least slow down, the decline of the middle class, but it’s hard to see that it’s reversible.

Sorry about that.  We need a strong viable middle class.  They spend money and keep the economy healthy.  There’s probably little change of bringing back what was.  We have to address and tune into a different economy.

ArtSchwartzSig

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2 Comments

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2 responses to “WHAT KILLED THE MIDDLE CLASS?

  1. Gary W.

    Hi Art,
    Don’t overlook the outsourcing of professional jobs to overseas services companies such as accounting, architecture, programming and the like. Overseas workers on average have a similar education as American workers (often educated in the US) and earn a middle class wage in India, Pakistan, etc. at about 25% the US wage. It’s difficult for a business to justify the difference especially if their competitor is going off shore thus able to offer comparable services at a significantly discounted price.

  2. You’re 100% right. Should have included that

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