If the American middle class slowly sinks into financial and political irrelevance, will anyone care? Those in power should care, because middle class spending is what drives the U.S. economy.
While one political party half-heartedly defends programs to help the underclass, the other makes no bones about its loyalty to and sympathy for the wealthy. Meanwhile, the middle class continues to shrink while becoming more politically and economically impotent.
Our Republican governor and Democratic president each aim to create jobs, though they differ on the methods to achieve their goals. But each must understand the role of the middle class in boosting the economy as a whole, and they must understand why it is in the current anemic state.
Robert Reich, labor secretary under President Clinton, has been preaching about the endangered middle class for years. Now, in a 2-minute, 15-second long video produced by the political action group MoveOn.org, he puts numbers to the problem.
“Since 1980, the U.S. economy has doubled in size,” he says. “But adjusting for inflation, most people’s wages have barely increased.” That fact alone should be alarming to policy makers, but it is rarely mentioned in debate about the economy.
Mr. Reich has noted that in the 1970s, when middle-wage earners failed to see gains, women began entering the work force in large numbers which cushioned the blow to household budgets. Later, in the last 15 years, middle class households began taking equity out of their homes to off-set the lack of income growth.
His second point is that the gains in the growing economy have been reaped by the super rich. “The top 1 percent used to take home about 10 percent of total income. Now it takes home more than 20 percent,” Mr. Reich says, “and the super rich have 40 percent of the nation’s wealth.”
That wealth translates into political clout, and the rich use it to lower their tax rates, he asserts. “Before 1980, the top tax rate was over 70 percent. Now it’s down to 35 percent.” Much of the income of the wealthy comes in capital gains, and that is taxed at 15 percent. According to the IRS, the wealthiest 400 Americans pay an average rate of 17 percent.
The result of such tax reductions is the huge budget deficits we saw at the end of the George H.W. Bush and George W. Bush administrations. As a result, public services such as education, roads and bridges, health care and the social safety net have been cut.
And the kicker is that “instead of joining together for better wages and jobs, many people are so scared that they’re competing with other working people for the scraps left behind,” Mr. Reich said, so union and nonunion workers feud, as do public and private sector workers, and native-born and immigrants.
Without access to greater income, the middle class is unable to goose the economy to life, he posits, which leads to his conclusion: “The only way we can have a strong economy is with a strong middle class.”
This is neither a Republican nor Democratic view, and should be embraced by both parties.