Elizabeth Warren, the Leo Gottlieb Professor of Law at Harvard and Chairperson of the Congressional Oversight Panel on TARP, is convinced America's middle class is disappearing and outlines her case on the matter here. After reading her piece, I was instantly struck by something G.K. Chesterton wrote about 80 years ago in The Outline of Sanity. It is perhaps the best definition of capitalism I've ever come across:
When I say "Capitalism," I commonly mean something that may be stated thus: "That economic condition in which there is a class of capitalists, roughly recognizable and relatively small, in whose possession so much of the capital is concentrated as to necessitate a very large majority of the citizens serving those capitalists for a wage."
Warren, for her part, has been the lone voice of that very large majority crying in the wilderness of TARP. Her efforts toward transparency in the program have been obstructed time and time again by the Treasury Department, and the dismissive lack of respect shown to her in her communications with Treasury are nothing short of an outrage. Her Congressional Oversight Panel was set up as a condition for the funding of TARP and, once that funding was in place, the Treasury's attitude toward her and her panel became, "We got our money, lady, now piss off."
Her numbers are frightening and accurate. Real income has stagnated since the 1970's (adjusted for inflation) while the cost of living has risen exponentially. Real unemployment is near 20%, despite today's better-than-expected report. One in eight Americans is on food stamps. Foreclosures are at an all-time high and 25% of U.S. mortgages are currently upside down. This squeeze on the middle class is leading to a sort of modern day feudalism. People are fed up and, whether we want to admit it or not, they have a right to be.
Pundits talk about "populist rage" as a way to trivialize the anger and fear coursing through the middle class. But they have it wrong. Families understand with crystalline clarity that the rules they have played by are not the same rules that govern Wall Street. They understand that no American family is "too big to fail." They recognize that business models have shifted and that big banks are pulling out all the stops to squeeze families and boost revenues. They understand that their economic security is under assault and that leaving consumer debt effectively unregulated does not work.
I know I generally try to post something funny to send us into the weekend, but something like this has to be noted. Are we prepared to live in a country with no middle class? Can we afford as a nation to allow the lower classes to lose the illusion of prosperity?
I grew up in a single-income middle class family (my dad was a mailman - something else Lloyd Blankfein and I have in common). I caught a lot of breaks in my life and stuff usually worked out. But I know for a fact that a mailman's family of 5 can't survive on just his salary any longer. I don't want to preach, but I think we need to ask ourselves what kind of country we want to be.
There is no representative democracy without a strong middle class...this has many ramifications to seriously consider.
Thanks, Edmundo.
I'm not entirely sure how you go about fostering a middle class. Western European and especially Nordic countries seem to have vibrant middle classes (that doesn't necessarily mean happy), probably thanks to the safety nets in place from a social welfare standpoint.
In France for instance, the minimum wage is comfortably above the poverty level, but there are very, very few people making over 60k euros/year, something that is crazy to think about here. Most people's wealth is inherited, usually in the form of real estate. Makes for a somewhat different kind of social rift, between people who've been living in France for a while and have accumulated wealth, live in nice neighborhoods vs. recent immigrants who start from scratch, often living in the projects.
The thing is, to picture this country moving to that kind of social welfare is hard to imagine, let alone pay for.
The problem is that the game is rigged. We don't necessarily need to move to a socialist type welfare state, but we do need to cut out all the corporatism and associated corporate welfare that exists in this country. That's the bigger problem. Too much power put unfairly and unjustly into the hands of too few large players.
I'm not saying that this is completely incorrect, but it seems like fearmongering to an extent.
Anyone who has taken a macro course knows that poverty, both in absolute terms and as a percentage of population, has been falling consistently over the past 100 years, worldwide
We have had consistent economic growth and even if income disparity has grown somewhat at a local level, that is not enough to offset the growth of income per capita
Income disparity has actually decreased dramatically at the worldwide level over the past 100 years as well
Pretty much everyone I know (and I don't come from a wealthy background) is doing much better today than they were in the 1970s. There was a huge increase in productivity especially in the 1990s which made everyone richer, not just big companies. Right now we just happen to be in a bad recession during which quite a few people lost everything. Unemployment rate is at 10%, which is normal for France but we don't have the safety nets that the French do
All of these good things happen pretty much because we have a capitalist system. Of course anyone who is not a complete fascist will agree that there must be some regulation to combat excesses, abusive behavior toward consumers and workers, etc. But in general our system of capitalism and incentives has done incredible things to make our quality of life better ever since the industrial revolution.
I definitely agree zykke. But it seems like the 'traditional' middle class Elizabeth Warren sees as disappearing, and that can be argued is essential to democratic governance, has lost a lot of traction recently. It's probably more the fruit of where the U.S. is in its industrialization (or informatization I guess) process. China seems to have a middle class that is rapidly growing thanks to its turn to capitalism and industrialization. The U.S. is focusing more and more on professional services and high-tech, stuff that has typically been considered upper-middle/lower-upper class, while the traditional middle class is still in the throes of creative destruction, essentially due to technological change.
Europe might be further along that cycle of informatization, with the middle-class being essentially involved in govt/tourism/low-level executive positions, but only marginally better off than those towards the bottom of the pyramid.
The problem I see with the U.S.' focus on professional services is that the industries requiring them don't seem to be growing at the same pace. Just look at London where finance became by far the most important industry during the credit boom. Things are looking pretty bad there these days.
Agree on all on counts. But, again, the problem is that the numbers are disproportionate between the upper class and the middle class. The numbers of people included in the middle class have been falling consistently. While few climb up the ladder, majority falls behind. Associated problem is that, while it is quite easy for those who have been rich to keep being rich, it is very hard for those people in the middle or low class to become rich. If people who think in this kind of manner keep increase, there will be a big backlash. And, I think that is exactly what is happening right now. We’ve always maintained a delicate balance between these issues, presumably, but it seems that things are going crazy and fierce since the “new economy” starting from the 90s. I think we will never revert to the happy old days, even though I’ve only heard about it.
And for those who want more information about her works, the following clip with an interview with Charlie might be helpful.
http://www.charlierose.com/view/interview/10292
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