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Will the Middle Class Dance the Plutocracy Polka at the Doomsday Ball?

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Labor Day has passed. Has the American Dream passed as well? What are the chances for laboring men and women to improve their standard of living? How much of the middle class will find themselves to be the new working poor?

Increased wages, increased family-household income, at a rate in excess of inflation is the only means of attaining an improved standard of living. Such an increase is possible only in the event of a tight labor market or management's willingness to share increased productivity gains with labor.

No one anticipates a tight labor market. Furthermore, factors such as technology, immigration, and the off-shoring of jobs preclude there ever again being one. The lowered costs and increased margins from improved productivity have not been shared with labor since the mid-1970's. Soaring pretax profits were shared with senior executives and soaring after tax profits went to business owners.

This is the nature of capitalism and, to quote Economics Professor Richard D. Wade, "it has hit the fan."

Following WWII, the great middle class was established. Returning veterans utilized the GI Bill to further their education and buy houses. Pent up demand existed for consumer goods of all types. Workers in private production shared in productivity increases. In real terms their wages increased by almost two-thirds between 1947 and 1973 from an average of $412 to $663 per week in 2009 dollars. There they peaked, almost four decades ago. By 2005 weekly wage had dropped by $42 dollars and it has dropped by even more since.

Median income for working-age households dropped 3.4%, from $60,597 to $58,518 in current dollars between 2000 and 2007. It is difficult for college graduates as well. Job offers for 2010 graduates with bachelor degrees are running about $10 thousand below the above median income above when they are lucky to receive an offer. More than 2 million are still looking for jobs.

During this long period of stagnant to declining wages, two basic factors are key to understanding the struggles of the middle class to maintain their standard of living.

First, more and more wives left the home and entered the workforce. The increase in two worker households enabled, for a time, the "good-life" despite increased taxes, childcare costs, and automobile expenses. Until such time as polygamy is legal the continuation of more working wives has pretty much run its course.

Second, households took on more and more debt. Consumer debt consisting primarily of credit card, auto and other non-home financing increased six-fold in a single generation; from $0.4 trillion in 1980, to $1.7 trillion in 2001, to $2.5 trillion in 2009.

In housing, the WSJ's Market Watch reported "During the housing boom earlier this decade, U.S. consumers borrowed against the value of their homes in record numbers. Home equity withdrawals grew at an annual rate of $300 billion to $400 billion. There's now roughly $2.2 trillion of home equity lines." In early 2008, home equity dropped below 50% for the first time since 1945.

More workers per household and more accumulated debt supported consumer demand and sustained GDP growth until the housing bubble burst in late 2007. Then, major banks found they were holding more "play-money-gambling-chips, their derivatives," than their insurers could cover except through direct assistance from Congress and the Federal Reserve.

More than 3 million jobs had been offshored since NAFTA was implemented in January, 1994. With the bursting of the housing bubble, the Great Recession accompanied by large increases in unemployment, personal bankruptcies, home foreclosures, and increased use of food stamps and charitable food banks had begun. The burden of the recession would be borne by the middle class.

The rich do not have to work. In 2008 for example, only 19% of the income reported by the 13,480 individuals or families making over $10 million came from wages and salaries. In the 21 year period from 1983 and 2004, 42% of all of the new financial wealth generated by the economy went to the top 1% and 94% went to the top 20. Defeat of labor unions and tax cuts for the wealthy were responsible for much of their gain. The rich did leave behind 6% of the newly created wealth for the lower 80% of Americans, most probably with some remorse.

For this largess, the owners of production handsomely rewarded the top managers of their various businesses. In the decade from 1993 to 2003, the CEO's of Standard and Poors 500 had their compensation increased by $5.9 million annually, from $4.0 to $9.9 million, an increase of 148%. At the same time, the next 4 highest paid executives of these same firms more than doubled their compensation from $1.6 million to $3.3 million. Since, the numbers are even more grotesque.

The above increases required a decade. To improve their livelihood at an earlier time by much less, wage and salary workers required more than one and a half decades.

Last year, the top 25 hedge fund managers earned, on average, $1 billion each.

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A retired MBA, I am a former corporate ideologue, former 3rd party advocate and current curmudgeon. While a continued supporter of a 3rd party, I have concluded their efficacy cannot be demonstrated until our form of Government is changed to (more...)
 
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It has certainly shrunk. Will it recover? ... by Harold Hellickson on Friday, Sep 10, 2010 at 4:25:36 PM