A Mirror for Modern Scrooges: US Middle Class Has Definitively Fallen Below 50% of Nation for First Time Since New Deal
A Mirror for Modern Scrooges: US Middle Class Has Definitively Fallen Below 50% of Nation for First Time Since New Deal; Decline Is Caused by Austro-Monetarist Deregulation, Privatization, Financialization, Tax Breaks and Tax Cuts for the Rich, Parasitical Speculation, Union-Busting, and Wall Street Gluttons of Privilege
UFAAUnited Front Against Austerity | TWSPTax Wall Street Party
Morning Briefing | Tuesday, December 22, 2015
“There ain’t no middle class any more. There’s only
rich and poor.”1
In the story “A Christmas Carol” by Charles Dickens, Ebenezer Scrooge represents the greedy, grasping spirit of the stockjobbers of his day. The Ghost of Christmas Present informs Scrooge that it is every person’s duty to walk abroad among his or her fellow humans and take an interest in their plight and their salvation. In this season, it is our responsibility to do the same. Since charity begins at home, it is right that we pay attention to the vicissitudes of the embattled US middle class.
Recent findings from the Pew Research Center indicate that the American middle class is no longer the numerical majority in this nation. Middle class people are now outnumbered by the upper class and superrich, and also by the growing mass of the misery rated and impoverished individuals at the bottom of the income scale. These findings are useful, because they will compel official Washington to accept this situation as the true state of affairs, apart from a few fanatical outliers like the Buckleyite National Review, and various Austrian or libertarian screeds.
At the same time, it should be clear that the middle class in America was turned into a minority some time ago. Definitions of socioeconomic class which depend on measuring income are notoriously controversial, since everything depends on setting the upper and lower limits in terms of dollar amounts for each of the income strata under consideration. We have included some material from Webster G. Tarpley’s Surviving the Cataclysm (Progressive Press, 1999-2009) to show that the collapse of the middle class has been at the center of the economic and sociological debate for many years.
The other element which deserves more emphasis is how the American middle class became the majority in the first place. The middle class became the numerical majority in the United States during the new deal of the 1930s and 1940s. This was the first time in all of known human history that the middle class had outnumbered the other strata in society. The growth of the middle class was not due to free markets, deregulation, or privatization, but rather derived from the comprehensive regulation of the US economy under conditions of economic dirigism. The Social Security Act of 1935 (with old-age pensions, unemployment benefits, and aid to destitute families with dependent children) and the various editions of the G.I. Bill Of Rights, the Wagner Act with its guarantee of collective bargaining as a human right, plus other legislation are the building blocks of the great American middle class, which emerged in the New Deal. These were later supplemented by food stamps, and by Medicare, Medicaid, and Obamacare (aka The Affordable Care Act).
The attack on the middle class has taken the form of an assault by reactionaries and austerity ghouls on the entitlements which constitute the hard-won rights of the American people, and at the same time, the pillars of the middle class. The Tax Wall Street Party is committed to rolling back the killer cuts imposed by the austerity fanatics, and to restoring and expanding the New Deal and Great Society to meet the needs of the 21st century.
Finally, if you want to understand the appeal of fascist demagogues like Trump and Cruz, you need to understand the pervasive impact of middle class decline.
Here is the Pew thesis in a nutshell:
‘After more than four decades of serving as the nation’s economic majority, the American middle class is now matched in number by those in the economic tiers above and below it. In early 2015, 120.8 million adults were in middle-income households, compared with 121.3 million in lower- and upper-income households combined, a demographic shift that could signal a tipping point, according to a new Pew Research Center analysis of government data… Over the same period … the nation’s aggregate household income has substantially shifted from middle-income to upper-income households, driven by the growing size of the upper-income tier and more rapid gains in income at the top. Fully 49% of U.S. aggregate income went to upper-income households in 2014, up from 29% in 1970. The share accruing to middle-income households was 43% in 2014, down substantially from 62% in 1970. And middle-income Americans have fallen further behind financially in the new century. In 2014, the median income of these households was 4% less than in 2000. Moreover, because of the housing market crisis and the Great Recession of 2007-09, their median wealth (assets minus debts) fell by 28% from 2001 to 2013.’2
But, as already noted, the decline of the American middle class has been ongoing for some time. Here are some relevant passages from Tarpley’s Surviving the Cataclysm:
DECLINING REAL INCOMES AND STANDARDS OF LIVING
These results can also be corroborated by other approaches, including a reading of certain government statistics. The following data make a first important point by showing that the rapid improvement of the American standard of living which marked the quarter-century after World War II has long since ceased:
MEDIAN FAMILY INCOME, 1950-1995
YEAR INCOME % CHANGE
1960 $25,220 +37.8%
1970 $34,523 +36.9%
1980 $36,912 +6.9%
1990 $39,086 +5.9%
[Money Income of Households, Families, and Persons in the United States, Income Branch, Bureau of the Census]
We see that the once robust improvement in family income has, at first glance, slowed to a crawl. The more recent story is told by the following figures, which diverge slightly from those above because of a change in the base year on which they are calculated. Here is median family income from 1970 to 1995:
1970 $32,229 1983 $32,160
1971 $31,923 1984 $32,878
1972 $33,284 1985 $33,452
1973 $33,941 1986 $34,620
1974 $32,879 1987 $34,962
1975 $31,999 1988 $35,073
1976 $32,548 1989 $35,526
1977 $32,727 1990 $34,914
1978 $34,011 1991 $33,709
1979 $33,901 1992 $33,278
1980 $32,795 1993 $32,949
1981 $32,263 1994 $33,178
1982 $32,155 1995 $34,076
[source: US Department of Commerce, Bureau of the Census, Current Population Reports, Consumer Income, “Money Income in the United States,” P-60 193.]
These statistics leave us with a disheartening first impression of stagnation, the appearance of a quarter century on the road to nowhere. But reality is much worse than stagnation, as we realize when we recall that these are median household incomes. They do not specify how many jobs are being worked, or by how many people, whether the wife and children are working, and so on. As these issues are factored in, our perception of stagnation turns into a sickening awareness of decline. We must also realize that minority groups are much worse off than the average. 1997 figures, which showed an overall family income of $37,005 also showed black households earning $25,050, Hispanic households earning $26,628, white households earning $38,972, and Asian households earning $45,249.3
To be more specific: Median income means the income of that hypothetical family which in income terms finds itself exactly halfway down the list of all families. Half of all American families earn more, and half earn less. These figures from the Census Bureau are supposedly expressed in constant dollars, meaning that they are adjusted for inflation. Pro-financier economists falsely claim that government statistic overestimate inflation. In reality, government statistics substantially underestimate the ravages of inflation. Inflation has always been greater than the government has been willing to admit. It is also very important to notice that the figures just cited do not even pretend to take increased taxation into account. These figure show gross income before taxes, not the earnings that you are actually able to keep. In these figures, no allowance whatever is made for federal tax increases, including the FICA payroll tax, for increased state and local taxation, bracket creep, and the diminished power of exemptions and standard deductions to protect part of earnings. All of these factors represent a very serious erosion of nominal income, and taken together, have cut the real median family income by 50%, as we discuss elsewhere in this chapter.
Even taking these numbers at face value, they represent a sweeping indictment of the globaloney economy: whereas median family income rose by about 37% per decade during the regulated 1950s and 1960s, in the deregulated world an entire quarter century has passed with only a miniscule 6% improvement. The average family might have been reasonably comfortable with an income of $32,229 in 1970, during Nixon’s first term. But that family was certainly a lot worse off on $74 less money a dozen years later, with Ron dozing in the White House and Paul Adolph Volcker running the country from the Federal Reserve. And 11 years after that, in 1993, when Bush was handing a ruined economy off to Clinton, the same family was theoretically just about $800 better off than it had been at the start, having progressed just 2% in 23 years, despite the fact that mom was now working and dad was moonlighting as well.
AVERAGE WEEKLY EARNINGS
Median family income has stagnated, but that is only the beginning of the story. Median family income means income from all sources, including the wages of wives and mothers who are now typically forced to enter the work force. When we get to the average weekly earnings provided by the average job, we are a little closer to the truth. As the following graph shows, average weekly earnings rose through the 1950s and 1960s and reached a small plateau in 1972-1973. Then they were quickly dragged down by the collapse of Bretton Woods, the oil shocks, inflation, and Volcker. By 1991, average weekly earnings were down almost 19% in comparison with the 1972-1973 peak. And they have stayed down during Clinton’s first term and into his second term, according to the government’s own figures. In 1996, the average wage for all private-sector employees in the Unites States was $400.14 per week, or $20,007 per year. This is about $5000 more than the poverty level for a family of four.
AVERAGE WEEKLY EARNINGS IN PRIVATE SECTOR, 1959-1996
Year 1982 Dollars
1959 $260.86 (McChesney Martin at Fed; recession)
1961 265.59 (Ike departs; JFK in White House)
1963 278.18 (JFK assassinated;
1964 283.63 LBJ president)
1966 294.11 (Vietnam War)
1967 293.49 (£ crisis)
1968 298.42 (gold and dollar crisis)
1969 300.81 (Nixon)
1971 303.12 (end of gold convertibility & Bretton Woods)
1973 315.38 (end of fixed parities)
1974 302.27 (Ford: recession)
1975 293.06 (End of Bretton Woods,
1976 297.37 7% pay cut, 73-75)
1977 300.96 (Carter malaise)
1979 291.66 (Volcker 22% prime, 11%
1980 274.65 pay cut, 79-82)
1981 270.63 (Reagan; “magic of the marketplace”)
1982 267.26 (Reaganomics recession)
1986 271.94 (stealth recession)
1987 269.16 (Greenspan-Bush, ’87 Crash, 6% pay cut 87-93)
1989 264.22 (Bush; deep recession)
1993 254.87 (Clinton ‘recovery,’ 74 cent
1994 256.73 pay hike, 93-96)
1997 260.89 (a statistical aberration?)
[1982 Dollars: current dollars divided by the consumer price index for urban wage earners and clerical workers on a 1982=100 base.]
[Source: Economic Report of the President 1997]
We see that, during the post-1973 floating rate era, the average American wage worker has taken a 19% pay cut. The real wages of an average job have been falling at almost 1% per year, year after year. In the thirty-nine years between 1959 and 1996, average weekly earnings had risen exactly three cents.
As the government notes, these data “are based on reports from employing establishments and relate to full- and part-time wage and salary workers in nonagricultural establishments.” These figures thus comprehend transportation, public utilities, wholesale and retail sales, finance, insurance, real estate, and services in general. They cover about 80% of the persons who are employed. The advantage here is that we are looking at the money that can be earned each week from a single job.
Ravi Batra is one of the few American economists who has called attention to the Average Weekly Earnings data series, which the monetarists studiously avoid. Batra comments: “Nineteen seventy-three marked a turning point in US history, because the legendary American living standard, which had begun its long upward march after the revolution of 1776, peaked that year. Ever since then, average real earnings of as much as 80 percent of the work force have been on the decline. Such a protracted fall is unique not only in the postwar period but in the entire history of the nation. That is why 1973 is a watershed year. It initiated something the United States had never faced before.” [Batra 1993, 31-2] Batra also points out that if rising Social Security and other taxes are taken into account, the fall in average weekly take-home pay from the average job is even greater. Wallace C. Peterson also highlights this data series in his Silent Depression, stressing that these data mean that “for large numbers of working Americans, dreams of home ownership, better cars and appliances, vacations, and college for the kids gradually slipped away.” [W. Peterson 37] Neither Batra nor Peterson identifies the collapse of Bretton Woods as the principal cause of the decline.
These statistics for average weekly earnings ought to suggest a new criterion for evaluating American presidents. If a candidate wants to be elected, he should be expected to specify the rate of improvement in average weekly earnings he or she proposes to bring about, describing in detail how this is to be done. If a President wants to be re-elected, the first the public should want to know is the change in average weekly earnings in that President’s first term. A President who has not been able to raise average weekly earnings by 10% could hardly argue that his first term had been a success; Wage growth during the period 1959-1965 averaged just under 2.25% per year. With the policies described at the end of this book, it would be possible to raise the level of average weekly earnings by at least 20% during four years.
REGRESSIVE TAXATION ON THE MARCH
In this age of barbarism, it is important to recall certain humanitarian principles of taxation which have fallen out of favor because they contradict the greed of the new plutocrats. There are three kinds of taxes: regressive, progressive, and proportional. Regressive taxes fall most heavily on the poor. If everyone were taxed a lump sum like $5000, this would be an unbearable hardship for the poor, but would hardly be noticed by the very rich. Regressive taxes must be condemned because they contribute to the destruction of poor families. In America over the past 30 years, the institution of the family has become weaker and weaker, and the orgy of regressive taxation has played a central role. Payroll taxes, user fees, sales taxes, and the like are all examples of regressive taxes.
Progressive taxation starts from the correct principle that those who have more can afford to pay more. In order to promote family formation and family stability among those of modest means, the income used to provide vital necessities like food, clothing, shelter, medical care and education should be shielded from taxation. The very poor should obviously pay no tax at all. But the rich family can very well give up part of its luxuries through taxation. Back when the US economy was well managed, tax rates increased gradually as we went from the upper middle class to those who were frankly rich. Even so, rich people sought help from their accountants and lawyers, and still found ways to avoid paying their fair share. A decisive turning point came when the former Hollywood actor Ronald Reagan assumed the presidency. Reagan had worked in the movies in Hollywood during the 1950s, when the top marginal tax rate was 91% on earned income over $200,000. Reagan whined that his ambition to make more money left him once he had amassed $200,000 (at that time a fabulous sum) in any given year, and he concluded that this slackening of greed under the impact of high marginal tax rates was the leading economic and social problem of the United States in the 1980s. And Reagan solved it: with the help of Dan Rostenkowski, he cut the top rate from 70% to 28%. Whatever progressivity there was in the US tax code went out the window.
There is supposed to be a third category – proportional taxation. This is what the so-called flat tax is supposed to represent. For purposes of argument we will leave aside the most glaring inequity of the proposed flat tax, which is the fact that it is levied only on earned income, including wages, and not at all on unearned income, like interest, dividends, and capital gains. Proportional taxation proves to be a mirage, a subterfuge used by supporters of regressive taxation to challenge the fairness of a progressive tax schedule.
Taxing everyone equally sounds very fine and egalitarian, but reality looks different. The problem is that if you take 15% of a rich man’s income, you force him at most to give up 15% of his extravagant luxuries, while leaving the rest of his luxuries, his amenities, and his necessities intact. If you hit the middle class with the same 15% tax, you begin to undermine their ability to pay for college education and home ownership. And if you take 15% of the income of poor families, you are slicing into food, clothing, shelter, medical care, and the basic necessities of life. So the only rational conclusion for tax policy is that proportional taxation in practice turns out to be regressive, and therefore anti-human and unacceptable. This is even before we get back to the fact that the Steve Forbes flat tax of 1996 is not even a proportional tax, since it does not tax the most wealthy categories at all. The Steve Forbes flat tax is nakedly regressive, even more so than a formally proportional tax would be.
THE CRUSHING OF THE MIDDLE CLASS
The middle class has not been around very long, historically speaking, as the most numerous and most important component of human society. The origin of a numerous, urban middle class engaged in trade, small and medium industry, and the free professions within European civilization goes back to the Medici of Florence and their international textile production, commercial, and banking operations. In the dark ages in Europe, there had been no middle class to speak of: there were the wretched serfs on the land, the lords in the castle, and very little in between, since a town of any size was a genuine rarity in the landscape. In France, towns and cities grew up under the Medici influence and provided the political constituency for the first modern nation state, the one created by Louis XI, who reigned from 1461 to 1483. Louis XI used the middle class of the towns as a base for attacks against the unruly barons and oligarchs of the French nobility. King Henry VII of England, the first of the Tudor line and the founder of the New Monarchy, did something very similar. So the modern state and the middle class have always gone hand in hand.
In post-1945 America, political conditions and union organization permitted a very large portion of prosperous blue-collar factory workers to own homes, send their children to college, and to otherwise acquire a middle-class standard of living. The middle class is the indispensable social stratum for a democratic republic. The small industrial concern with its middle-class owner is typically the interface between the scientific laboratory and the production line, the point where an invention becomes a machine tool. Old Karl Marx, that British-backed slanderer of industrial capitalism, saved his most bitter contempt for the middle class (what he called the petty bourgeoisie) because he sensed that this group was really the key to modern society. Machiavelli’s famous Discorsi show that he viewed a large middle class as a precondition for the stable government of a republic.
Historically, the hallmark of the middle class has been its independence. A small or medium industrialist, a doctor or lawyer in private practice, a small businessman, or a family farmer often owed their livelihood to no single power center, and were accordingly not easy to order around and oppress. As the family farm has been wiped out as a matter of government policy in the service of the food cartels, as the small and medium industrialist has been eliminated by conglomerates and leveraged buy-outs, as the independent doctor and lawyer have been swallowed up by the large law firm and HMO, and with expansion of low-level white collar jobs in corporate and government bureaucracies, the independence of the middle class has been eroded. As C. Wright Mills noted, the American middle class was structurally weakened after 1945. If you crush the American middle class, you are left with a vast and impoverished underclass and a tiny but opulent overclass making up about 1% of the population or less. Societies of this form cannot realize scientific and industrial progress, since too few people are sufficiently educated to be productive. Societies of this form cannot escape the destruction of class warfare and cannot be stable. All this explains why the statistics suggesting the rapid erosion of the American middle class compel our attention.
The New Yorker magazine recently profiled the Iowa working family of Bonita and Kenny Merton of Des Moines. This is a family which is going deeper and deeper into debt in a desperate struggle to maintain a standard of living. Kenny Merton’s comment surpasses reams of sociological analysis: “There ain’t no middle class any more. There’s only rich and poor.”4
Another hallmark of the American middle class was the possession of a savings account at the local bank. Today, there are almost no savers left, but more and more self-styled investors who turn out to be day traders and speculators in a crapshoot they cannot understand. A watershed in regard to America’s savings came when the Commerce Department announced that the savings rate had turned negative, with savings declining by 0.2% in September 1998. The savings rate measures the share of disposable personal income which remains after all purchases have been made. In that September, disposable personal income was $6.055 trillion, while spending hit $6.067 trillion, leaving $12 billion in red ink for American families. These were the families who filled up their credit cards to maintain their standard of living, and then re-financed the credit card balances with home equity loans, a fancy name for second mortgages. Now, the credit cards were fully loaded once again. Something had to give, and that produced what some accounts termed the first decline in the savings rate since 1959, when the government first began publishing this monthly data series. But that was deliberately misleading, since nobody believes the savings rate was ever negative during the late 1950s, despite the severe recession of those years. The Wall Street Journal reported with brutal cynicism that, in reality, this was thought to be the first decline in the savings rate since 1933, the year in which the Great Depression touched bottom for American wage workers. In short, the American standard of living was headed back toward 1933.
Insights into the political reflection of this same basic problem came from Stan Greenberg, Clinton’s sometime pollster. During the middle 1980s, Greenberg carried out a series of interviews in Macomb County, Michigan, the suburban area north of Detroit that includes cities like Warren and Centerline. This is an area of neat single-family homes, and represents one of the classic manifestations of American suburbia. Greenberg found what he later described as “A New Middle-Class Consciousness:” He chronicled “a middle-class consciousness built out of the wreckage of Democratic and Republican economic failures: First, the middle class, while the center of this new world, is poised for extinction. Second, the middle class is being crushed by growing bills, taxes, and the cost of basic necessities. Third, husbands and wives are working harder and longer hours, sacrificing family life, and putting children at risk, but only to pay for basics, not to really get ahead. And fourth, the wealthy are making out just fine.” When asked what they thought was happening to the middle class, people used words like “endangered,” “overtaxed,” “shrinking,” “fading away,” “declining,” and “there is none.” The dominant idea was that the middle class was disappearing, and that before too long there would be the millionaires on one side and the poor or the other, with nothing in between. “Everybody is going to be either very rich or very poor. There’s going to be the rich in their little towers, and there’s going to be everybody else floundering around trying to survive.” [Greenberg, 165] This was clearly realistic, but at the same time it was no future for America.
Susan Sheehan, “Ain’t No Middle Class,” The New Yorker, December 11, 1995
Pew Research Center, “The American Middle Class Is Losing Ground: No longer the majority and falling behind financially,” http://www.pewsocialtrends.org/2015/12/09/the-american-middle-class-is-losing-ground/
Washington Post, September 25, 1998
Susan Sheehan, “Ain’t No Middle Class,” The New Yorker, December 11, 1995