In my book I look at the numerous factors - globalization, hostility towards labor, OPEC-induced inflation, favorable legislation for corporate America, the financialization of our economy, etc. - that led to the steady collapse of middle class incomes in America after the 1970s. I explain in detail how these developments contributed to deliberately skewed income patterns in America.
The impact of these developments on middle class America has been a wholesale redistribution of wage wealth from one group of Americans to another. And it hasn't been pretty.
Unfortunately, most Americans don't understand the story behind these developments. Many are angry over what has happened to "their America." What they're really upset about is that they don't know what happened to the idyllic one income middle-class family storyline that Father Knows Best / Ozzie and Harriet / Leave it to Beaver helped inspire many Americans to embrace.
To help us understand what's happened to America's now debt drenched middle class over the past 30 years we need to take a look at the forces - some natural, others deliberately contrived - that have disrupted the American economy.
First, an aggressive American foreign policy and the success of the post-war Bretton Woods institutions helped make globalization possible. While global trade has boomed, this also brought product competition from low wage regions around the world. Sending American jobs overseas soon followed.
Related, a rather weak immigration enforcement program has allowed many low skilled workers in to America. Low skilled workers pushed many traditional blue collar workers out of construction, agriculture, and other areas. Anemic responses to immigration virtually guaranteed that there would be sustained downward pressure on wages in America. Declining support for unions - which Ronald Reagan accelerated when he fired air traffic controllers - effectively undermined the post-war bargain with labor, which further depressed wage levels.
As well, skill based technology placed an emphasis on brains over brawn, and removed many laborers from traditional union supporting jobs (telecommunications comes to mind). Finally, bouts of OPEC-induced inflation during the 1970s ate away at real incomes in America, and encouraged the financial industry to become creative with debt, interest, and credit instruments (and executive pay scales), which further drained American workers of what they earned.
To deal with the macro-level pressures that began to depress wages in America we saw an increase in the number of two income families beginning in the 1970s. Both males and females were expected to work to maintain the household.
Then we increasingly saw individuals take on more than one job. To be sure, roughly 20% of these job holders did so to get experience, or because they enjoyed the work. But almost two-thirds said they wanted the extra money or needed the money to make ends meet.
In yet another effort to make ends meet by the mid-1990s American families began tapping into - or gave up on - family savings. America's savings rates effectively collapsed below zero after the 2008 market meltdown (savings are higher today because of record bankruptcy filings and because Americans are spending less).
A significant increase in the use of credit cards, not surprisingly, shadowed all of these developments.
The end result? At the same time that incomes stagnated in America, and more families were forced into two (or more) income situations, the amount of personal credit card debt skyrocketed in America.
Another way to think about all of this is to think of credit card use in historical terms. If we take what all Americans owed to the credit card industry in 1969 and average it we learn that each household owed $37 in credit card debt. If we do the same thing for 1980 we find that each household owed $670. By 2010 the average household owed $7,800 (but slightly less in 2012).
Latchkey children, record debt, higher divorce rates, soaring bankruptcies, and increased societal dysfunctions are some of the ugly byproducts of these dynamics. Not all of these dysfunctions can be attributed to stagnant wages, but there's no doubt that it played a big part in making these activities a normal features of American life. Worse, many of these market developments were contrived and deliberate, as I point out in my book (and here and here).
By the end of the 20th century few Americans understood why these developments were occurring. This is unfortunate because this lack of understanding set the stage for the next round of wealth extraction games orchestrated by Wall Street and the biggest financial institutions in America.
At the end of the 20th century wages began to climb (slowly), but Americans were still confronted with soaring personal debt and declining savings. Then the wage gains stopped. Americans had to find a new way to increase disposable income during the 2000s. Enter Wall Street and the bankers.
After getting Congress to rewrite the rules so that shadow bankers and Wall Street didn't have to abide by previous underwriting standards (under the guise of "deregulation"), Americans found that they could use their homes as a personal ATM to extract money (via home refinancing). Home equity withdrawals (blue columns below) surged so much during the aughts (from 2000 through 2009) that "disposable personal income" approached 10 percent of all middle class "income" by 2006.
So, what does all this mean, you ask? If you listen to the right wing noise machine, and the political Oompa Loompahs who follow their lead, you learn one thing. The people who got richer are just that much smarter, harder working, and all around better people who deserve everything they have. Those in the middle and on the bottom of our economic ladder, however, are simply dumber and lazier. They are moochers and deserve their station in life.
End of story.
But it's not the end of the story. Far from it.
What these people don't understand, and will never understand, is that since the 1970s there has been a series of forces at work designed to build up, sustain, and bailout corporate America.
State managed globalization (which facilitates shipping jobs overseas), political hostility to labor initiated by the Reagan administration (which artificially restricts wage flows), record deficit spending (which distort financial flows) and the unaddressed economic setbacks caused by OPEC price hikes in the 1970s (which caused uncertainty and chaos in financial markets and among households) have worked to skew and undermine the "free market" in America.
In fact, these developments have compelled Wall Street and other corporate interests in America to do what they can to protect and guarantee their interests, at the expense of America's middle class. The subsequent income inequality has been devastating.
Today the American consumer is effectively tapped out (as I've pointed out many many times) because of these trends. We will not see a vibrant economic recovery any time soon without addressing the skewed market forces that contribute to income inequality in America.
On this one, let's be very clear. Debt driven consumption is no panacea for what ails America. Only consumers with viable disposable incomes can create demand.
If we fail to address this issue, as economist Robert Skidelsky suggests, growing inequality will ultimately kill capitalism in America, and then around the world.
- Mark
UPDATE: I didn't see it when I posted this, so I'm adding this link ... http://www.washingtonpost.com/business/economy/poverty-was-flat-in-2011-percentage-without-health-insurance-fell/2012/09/12/0e04632c-fc29-11e1-8adc-499661afe377_story.html
One of the interesting article i came across these days. Loved it.
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