Can the Middle Class Be Saved?

This is very good and ties together a bunch of threads.

One of the most salient features of severe downturns is that they tend to accelerate deep economic shifts that are already under way. Declining industries and companies fail, spurring workers and capital toward rising sectors; declining cities shrink faster, leaving blight; workers whose roles have been partly usurped by technology are pushed out en masse and never asked to return. Some economists have argued that in one sense, periods like these do nations a service by clearing the way for new innovation, more-efficient production, and faster growth. Whether or not that’s true, they typically allow us to see, with rare and brutal clarity, where society is heading—and what sorts of people and places it is leaving behind.

Arguably, the most important economic trend in the United States over the past couple of generations has been the ever more distinct sorting of Americans into winners and losers, and the slow hollowing-out of the middle class. Median incomes declined outright from 1999 to 2009. For most of the aughts, that trend was masked by the housing bubble, which allowed working-class and middle-class families to raise their standard of living despite income stagnation or downward job mobility. But that fig leaf has since blown away. And the recession has pressed hard on the broad center of American society.

“The Great Recession has quantitatively but not qualitatively changed the trend toward employment polarization” in the United States, wrote the MIT economist David Autor in a 2010 white paper. Job losses have been “far more severe in middle-skilled white- and blue-collar jobs than in either high-skill, white-collar jobs or in low-skill service occupations.” Indeed, from 2007 through 2009, total employment in professional, managerial, and highly skilled technical positions was essentially unchanged. Jobs in low-skill service occupations such as food preparation, personal care, and house cleaning were also fairly stable. Overwhelmingly, the recession has destroyed the jobs in between. Almost one of every 12 white-collar jobs in sales, administrative support, and nonmanagerial office work vanished in the first two years of the recession; one of every six blue-collar jobs in production, craft, repair, and machine operation did the same.

Autor isolates the winnowing of middle-skill, middle-class jobs as one of several labor-market developments that are profoundly reshaping U.S. society. The others are rising pay at the top, falling wages for the less educated, and “lagging labor market gains for males.” “All,” he writes, “predate the Great Recession. But the available data suggest that the Great Recession has reinforced these trends.”

Given current trends I expect the US middle class to disappear in my lifetime. This is 100% a political choice, by the way; Germany, by contrast to the US, has made the decision to counteract the distribution changes with explicit government policy and has had much smaller increases in inequality.

Do I think the middle class will disappear? No.

Will it shrink? It certainly is looking that way.

At some point I think a balance will be reached where the existing middle class at that time will be able to hold its own. When that will be I can’t tell you.

Isn’t the postwar conception of a wage-earning middle class pretty much a historical aberration? iirc insofar as there was a middle class before WWII it consisted of small businessmen, &c., rather than wage earners.

As 21st Century as we are today, the economies that are steady and stable are manufacturing and resource extraction. The handful of bright spots in American business are related to (internal) manufacturing and resource extraction. American high tech still does well, but all around the fringes the rest of the world is chipping away. Apple is essentially a shell company, for ex,. with a California based HQ, the majority of it’s first world employees “clean shaven” retail workers (ie, disposable chaff), and the vast, vast majority of it’s labor outsourced to China. Consumer and service economies are just going to be less resilient to declines going forward; at the end of the day, you really don’t need Service X or Product Y, or only a fraction of it. Service economies rely on constant growth to maintain the status quo and provide jobs in industries and companies whose existence is dependent upon luxury, marketing, or perceived value.

The problem (from my perspective) is that we’re rapidly reaching the point (in the US, in the world) where there is not enough work for too many people. I’m i’m talking 100,000 feet high, macro over hundreds of years, vantage point. In fact you could probably “get rid” of – i’m mean, this sounds absolutely horrible, but is probably accurate enough though completely out of my ass – 25% to 33% of the US population, and have the results, once things adjusted accordingly, be a net positive economically speaking.

I’ve got a little list…

We’ve gotten really good at Making Stuff. It used to take 50% of the population just to produce enough food. Now it takes 5%. A similar trend is happening with the Things We Want such as cars, tvs, microwaves, etc. I wonder what people are going to do to buy all the Thing We Need and the Things We Want if they aren’t a part of the creation of such things…

We have to destroy the middle class in order to save it. - Ronald Reagan

Can it be saved? Sure. Will it be? I very strongly doubt it.

Or we could just create a hellish amount of bureaucracy, we seem to be pretty good at that.

Why? There’s very little benefit to the individual in investing in job creation, and enormous benefits to investing in rendering jobs obsolete. Even in a situation where those mechanisms have concentrated wealth so narrowly that wealth generation slows to a crawl, it still remains true.

Basically, to the individual, the system rewards the destruction of every class but the upper class.

So far we’ve mostly sidestepped the problem through technological advances, but I see no evidence this will remain the case. Indeed it appears the opposite is happening.

Whatever… I think these & similar questions are better phrased as “what do we require of an economy?” Because once you have the answers to that, you can tweak or replace existing systems with ones that actually do what you require of them.

Issue doesn’t appear to be related to American skill at manufacturing, but rather, how manufacturing (and many other) jobs have all been exported to China, India, and other foreign countries. Great for cheap socks at Wal-Mart. Not great for a growing pool of American unemployed.

Not sure this is the quote that most middle-class citizens want to hear right now…

If this happens, we will have communism come back in some form. We’ll have a large amount of people, some of whom will have enough talent and resentment to do something.

I’m rather surprised at the income data Peter Frase claims to have extracted from the Luxembourg Income Study. Everything I’ve previously read indicates that Germany has a considerably narrower “market” income range than the UK or US, due to lower salaries for top managers as well as fewer low-income service jobs, whereas taxation is not much different. Transfer payments may be higher, though, which makes me wonder if these graphs include the unemployed (at zero market income).

Some of you guys are surely midde-class though - how do you see this affecting you, if it does indeed happen? Or is the theory that the current middle-class will become working-class and be replaced by a new middle-class?

So far, the greatest effect seems to have been on minority communities:

The net worth for whites decreased by 16%.
Blacks -53%
Asians -54%
Hispanics -66%

The Atlantic is holding a symposium regarding the article. Tyler Cowen has posted so far, I’m sure there will be others.

edit: Cowen’s post is pretty hilarious. Summary version: “Nobody’s starving, and at least we have the internet to keep us busy while we’re jobless!” He’s a really, really smart guy, but Christ what a moron…


[Postscript for income inequality nerds only: the income variables are equivalized for household size using the square root of the number of persons in the household as the equivalence scale. The variables are then topcoded at ten times the equivalized mean and bottom-coded at 1 percent of the equivalized mean.
Note that the transfers included in disposable income are only cash transfers and “near-cash” benefits (like food stamps), not in-kind services like health care. So you could argue that this data actually understates the extent of redistribution.
If you’d like to look at the data, including a bunch of countries I didn’t include in the post, it’s here. For help interpreting the country codes, go here]

I based my opinion on two ideas…1). That there will always be the small/medium business owned by partners/families in every neighborhood. Most of them will continue to be middle class. 2). I believe I have seen stats that small business employs a large percentage of the working class and so as long as those business’s stay intact there will be a middle class working around them.

I could be wrong of course…:)

Small business employees a large amount of the working class because big business has shipped most of them away.

So I am right…:)