Sunday, August 1, 2010

Financial Times on the Shrinking American Middle Class

There is a very good article by Edward Luce in the Financial Times. The article tells the story of specific familes, but I find the statistics to be more compelling:
The slow economic strangulation of the Freemans and millions of other middle-class Americans started long before the Great Recession, which merely exacerbated the “personal recession” that ordinary Americans had been suffering for years. Dubbed “median wage stagnation” by economists, the annual incomes of the bottom 90 per cent of US families have been essentially flat since 1973 – having risen by only 10 per cent in real terms over the past 37 years. That means most Americans have been treading water for more than a generation. Over the same period the incomes of the top 1 per cent have tripled. In 1973, chief executives were on average paid 26 times the median income. Now the multiple is above 300.

The trend has only been getting stronger. Most economists see the Great Stagnation as a structural problem – meaning it is immune to the business cycle. In the last expansion, which started in January 2002 and ended in December 2007, the median US household income dropped by $2,000 – the first ever instance where most Americans were worse off at the end of a cycle than at the start. Worse is that the long era of stagnating incomes has been accompanied by something profoundly un-American: declining income mobility.


Statistics only capture one slice of the problem. But it is the renowned Harvard economist, Larry Katz, who offers the most compelling analogy. “Think of the American economy as a large apartment block,” says the softly spoken professor. “A century ago – even 30 years ago – it was the object of envy. But in the last generation its character has changed. The penthouses at the top keep getting larger and larger. The apartments in the middle are feeling more and more squeezed and the basement has flooded. To round it off, the elevator is no longer working. That broken elevator is what gets people down the most.”

Unsurprisingly, a growing majority of Americans have been telling pollsters that they expect their children to be worse off than they are. During the three postwar decades, which many now look back on as the golden era of the American middle class, the rising tide really did lift most boats – as John F. Kennedy put it. Incomes grew in real terms by almost 2 per cent a year – almost doubling each generation.
Here is a very good video interview by FT's Edward Luce with the Obama administration's Jared Bernstein, Chief Economic Advisor to the Vice President, and who head's Obama's "Middle Class Task Force" (read the Feb 2010 report on the committee's work). It is good to hear what Obama's administration has done and intends to do. The media in the US spends far too much time slinging mud and not enough covering facts.

The task force report has this very telling graphic showing how the Bush years were devastating for the middle class:

Click to Enlarge

What I can't believe is that people would vote the Republican bozos back in office. The above shows you that they devastated the middle class while giving huge tax cuts (and got rid of the estate tax, the so-called "death" tax for billionaire families). The tragedy is that money talks and the media in the US is monopolized by the Right so it is very hard for typical Americans to get unbiased and factual information about the current situation and what Obama's administration has done.

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