Thursday, April 10, 2008

Goodbye to the middle

Three months ago, I opined that "GDP of the bottom 85-90% of the country may be in sharp decline." I have since revised my thinking on that topic; it's even worse than that, much of the country has been in recession for several years. (I don't know what the true percentage is. There's no doubt that the people at the very bottom have been hurt the most during the Bush years, but the pain is certainly spread into the upper middle class - 85-90% still sounds right to me.)

This is something that's hard to measure, I don't know how we would judge output, or GDP, of a segment of the economy. But when we see increasing economic inequality (a Gini index higher than any other comparable country, currently somewhere around 45, where 0 is perfect equality, 100 perfect inequality), increasing returns to certain small segments of the population, and the increasing amounts of family debt, it's hard to believe that the average American household is prospering in today's New Economy.

Despite my firm belief in this proposition, that vast swaths of the country have been in a years-long recession, I had little evidence to back it up...until now. Via Mark Thoma, David Leonhardt of the New York Times:
[T]he now-finished boom was, for most Americans, nothing of the sort. In 2000, at the end of the previous economic expansion, the median American family made about $61,000, according to the Census Bureau’s inflation-adjusted numbers. In 2007, in what looks to have been the final year of the most recent expansion, the median family, amazingly, seems to have made less — about $60,500.
This is an absolutely phenomenal result, one that is unprecedented over the time the government has been recording such things. Leonhardt expresses what he calls, "the most basic test of an economy’s health: does it produce ever-rising living standards for its citizens?"

Of course, that sounds good, but I don't see any evidence that anyone sees that as the basic test. We measure aggregates like GDP without understanding that much of that product is going into fewer hands. We rush to the newsstand to see the Forbes 400 or the richest celebrities, as if Oprah's vast wealth somehow reflects something about the nation as a whole. We hear eminent economists tell us that the fundamentals of the economy are strong, even as hope for the future, for our children, diminishes. We grab our national debt-increasing stimulus checks and toddle off to the store to buy a bigger Korean television set.

Oh, sure, when we're surveyed, as many as 81% of us say we're on the wrong track, but a lot of people think we're just one government program or lottery win away from fixing that. In part, that's a result of what's been called American Exceptionalism, the idea that we've been singularly blessed to stand astride the world and win all the prizes. But hubris is a poor substitute for actually building our economy.

Leonhardt offers a solution, "job-creating investments in biomedical research, alternative energy, roads, railroads and education." This is the sort of thing the candidates throw out on the trail, and they sound good.

But I ask my usual question, "What's the mechanism?" How are these investments going to take place in the current, free-market-rules-all system we have? And what's the guarantee that these investments will be made here? Isn't it far more likely that we will offshore as much of the work as we can, particularly in biomedical research (already firmly ensconced in other countries) and alternative energy (the engineers are mainly in China, last time I checked)?

I don't see any of the candidates we have bucking the basic system; they're products of the one we already have. At some point, I'm going to write a long post on education; suffice it to say that, when you're not losing jobs to a lack of education, but to a lack of willingness to work for $10/hour, more schooling isn't going to do much for you, especially if you have to go into debt to finance it.

Add to that the transfer of risk from institutions to individuals, and you have a recipe for continued decline. I see no trend that indicates that we are going to find a way to "save" the middle class, just a prolonged slide into meeting the rest of the world as it comes up. That may all be very egalitarian and all, but it's going to come as a huge shock to all Americans who believe it's ever upwards all the time.


Red Oak said...

Yeah, I'm getting really tired of all the recent gas about spreading the stupendous rewards of globalization more equitably. That "dear me, *we* wound up with all the goodies while *your* standard of living is circling the drain? Oh my goodness gracious, how did that happen?" posturing is getting tiresome. We all now realize (unless we're True Believing chumps) that this result was the whole point of the exercise.

I see you, too, have noticed all the smart economist types babbling about "adjustment cushions" and "wage insurance" and "really getting serious about national health care" and "investing in infrastructure and education" and "strengthening the safety net" blah blah blah blah blah. Uh, dudes? Those are things you have the luxury to implement when you're a wealthy nation with a large, strong middle-class. Your granny could have told you to start thinking about those things before, not after, implementing policies that gut the middle class, result in obscene levels of debt, and produce massive and well-nigh irreversible trade deficits.

Nothing makes me angrier, though, than the noise about great new infrastructure or Apollo-type national research projects. We can bet that any great "national" project, funded with whatever's left to suck out of the former middle-class, would be given over to the control of the trans-national greed-bags - who would of course immediately turn up in front of Congress whining about the absolute necessity of filling every goddamn position available with non-citizens.

Well, to be charitable, everybody knows that Them That Has have no intention of really promoting policies that will reduce the volume or velocity of the wealth being hoovered to the northerly regions of the wealth distribution, so perhaps we shouldn't take these little larks so seriously.

Red Oak said...

P.S. The Gini indices are interesting, no? I haven't run the numbers, but it looks like First World status tends to correlate with a lower index. (With some obvious exceptions.) The U.S. seems to be listing toward the "rathole" chunk.

Androcass said...

Yes, red oak, the U.S. has a higher Gini index than any other developed country, and always has been somewhat higher than most of the countries in Europe. That might, at one time, been seen as a strength, that we were providing proper incentives for people to work their way up.

But I'm not alone, I suspect, in believing that we've slipped over the other side, that the poles are growing farther apart. Wealth is generating wealth in a Gini-increasing cycle that is gutting anyone who didn't get on the exploitation train at the start of the trip.

I'd like to think that the American people are starting to recognize that no magic is going to come along to make it all better, but I fear that, even if we do wake up, it is probably too late to preserve a goodly fraction of what we have.

As long as the powerful people believe that the priority is to grow the pie (a fairly easy problem in the aggregate), and leave redistribution (a harder problem, at least politically) for later, much later, the politico-business coalition will continue to implement policies that generate returns for those who "deserve" them, and put all the risks on the people who can ill afford to take more.

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