Where Art Thou Middle Class?

In every city and every state the dilemma of income disparity is becoming more and more apparent. The boom years from the 1980’s on to 2005 are over. The Great Recession has demonstrated powerfully that we are not as well off as our middle class parents.

Many people have written and spoken out about this.  Timothy Noah, writing for Slate, calls this income inequality the Great Divergence.  It is not caused by the black/white race disparity nor having more women in the workforce.   Not even the infusion of immigrants can explain it. Since the 1970’s the foreign born share of the US population has risen from 4.8% to 11%. This has had an impact on depressing wages on the lowest skilled native population and accounts for only 5% of the change.Where Art Thou Middle Class?

From 1980 to 2000 the gap between the middle class and the upper fifth grew by 70%. It used to be that the middle class was composed of moderately skilled people like factory workers and secretaries. With the advent of computerization, those jobs disappeared. Still, it is not computers, (no more so than earlier technologies) and the education needed to use them, that have caused the divergence.

Big changes during the Reagan years accelerated the Great Divergence. Reagan lowered the tax rate on the rich significantly (they used to pay as much as 90%).  Also during those years was the decline of labor to overseas sources, the trade deficit, and the lessening power of unions. These factors account for at least 30% of the Great Divergence.

Also, what of these Stinking Rich people at the top 0.01 percent of the population? These folks average seven million dollars in annual income. Wow.  Timothy Noah proves that these people can find legal ways to dodge the system and not pay their share of taxes.  That also contributes to income disparity. Athletes and celebrities are thought of as one-of-a-kind people and thus so rare that they deserve ridiculously high pay. CEOs are brought in to increase a company’s bottom line. Therefore, competition drives up their salaries and perks.

Economists today believe that the changes started to happen when K-12 education did not produce the graduates to meet the needs of American businesses. It used to be that children after WWII got 2 years or more education than their parents. Now it is less than a half-year more. Yet the needs of the market today require far more specialized skills. If you are lucky enough to get 4 years of college you get rewarded financially  over a lifetime. Claudia Goldin and Lawrence Katz, economists at Harvard, contend that this “college premium” accounts for two thirds of the increase in income inequality during the Great Divergence.  That people may not be able to enjoy this premium is due to failure to educate students well in lower schools and inflated tuition in universities.Where Art Thou Middle Class?

So, in summary, here is how the series by Timothy Noah in Slate broke down the possible causes of the Great Divergence and their relative contributions:

  • Race and gender are responsible for none of it, and single parenthood is responsible for virtually none of it.
  • Immigration is responsible for 5 percent.
  • The imagined uniqueness of computers as a transformative technology is responsible for none of it.
  • Tax policy is responsible for 5 percent.
  • The decline of labor is responsible for 20 percent.
  • Trade is responsible for 10 percent.
  • Wall Street and corporate boards’ pampering of the Stinking Rich is responsible for 30 percent.
  • Various failures in our education system are responsible for 30 percent.

So why should we care about this disparity? Noah’s bottom line is that he doesn’t want to live in a banana republic where there are the elite few and the destitute masses. That would be depressing and morally repugnant to most of us.  The loss of human potential  affects all of us.  When people had no hope they give into despair. If you felt you couldn’t own a home, get ahead, and do better things for your children, what’s the point? You might as well stay home and collect welfare.

Looking at the numbers, possible solutions seem clear. We need to improve our education system to better prepare graduates for jobs that are currently going unfilled. This means tougher standards, longer school days and years and better qualified and paid teachers. It also means revamping universities so administration is pared down and they are paid closer to what classroom instructors are paid. Tuition needs to be more affordable and allowed to raise only as fast as inflation.

Also it seems we need to lean on our lawmakers and corporations to not reward unethical behavior and greedy gouging for the sake of investor profits. Hard work and measurable gains should be rewarded but, again, more in line with how employees are rewarded.

We live in a special democracy with a big American spin. We believe we can get ahead given a fair chance. When our educational systems, lawmakers, and institutions fail us, we are responsible. We need to be vigilant.