Saturday, January 21, 2017

The American Middle Class Is No Longer the Majority and That's Dangerous

If you’re still looking for the reason that Donald J. Trump is now the 45th President of the United States, look no further than the tattered remains of the once-proud American middle class. Pocket-book issues are typically the defining issues in most elections, and that was certainly the case in November.

For decades, politicians (mostly Democrats) have focused on the economic woes of America’s large cities. However, the majority of America’s poor no longer reside in inner-cities. They live in the suburbs and rural areas.

A report by the Brookings Institute found that:

"Between 2000 and 2011, the number of poor residents in the suburbs of the nation's largest metropolitan areas grew by 64 percent — more than twice the growth rate in cities. For the first time, suburbs became home to more poor residents than America's big cities. Today, one in three poor Americans — about 16.4 million people — lives in the suburbs."

The plight of millions upon millions of Americans can’t, and shouldn’t, be ignored. Perhaps the politicians are now listening, since the election of Trump has resounded like the shot heard ‘round America.

The suburbs used to be the land of the American middle class. Sadly, that is no longer the reality. In fact, our middle class has become a faded memory.

A Pew Research Center study on the decline of the middle class found that its members no longer make up a majority of Americans. An equal share of us are in the top and bottom tiers.

This has created an enormous drag on our economy. Wage and income stagnation is at the root of our economic problems because ours is a consumption-based system. If the majority has less to spend, there is less overall demand and consumption.

The good news is that nearly twice as many people rose up and out of the middle class as fell downward into the lower tier. Though the share of people in the middle-class group fell by 11 points, half the country is still in that group, while 29 percent are in the upper income tier and 21 percent in the bottom tier.

However, the middle class lost even more wealth than it lost members.

The share of Americans in the middle class dropped from 61 to 50 percent, but their share of wealth dropped more. In 1970, the middle class had 62 percent of income. That dropped to 43 percent in 2014, while the share going to the upper tier rose from 29 percent to 49 percent.

In short, the rich have gotten richer, while the middle class has gotten poorer… to the point that the middle class has shrunk considerably.

Researcher and demographer Harry Dent wrote the following about our predicament:

Our middle class has been shrinking substantially since the 1960s and ’70s. Today, their share of wealth is the lowest in the world, at a mere 19.6%!

Extreme political polarization and income inequality is at the root of this. We’re the highest on both. Today real incomes of the middle class are 5% lower than they were in 1970 and 12.4% lower than in 2000, when they peaked!

When we take the affluent 10% out of the picture, we see that the bottom 90% average only $32,352 in income per year. That top 10% skew the overall average dramatically, so the $55,132 [median household income] you hear about isn’t accurate.

In the meantime, the top 0.1% have seen their share of wealth go up four times since 1975! And, since 1970, the “super elite” 0.01% has seen their incomes grow a whopping 628%!

Income inequality is higher in the United States than any wealthy nation, and the gap between the top of the bottom is widening. This was a primary theme in Bernie Sanders’ long-shot run for the White House.

Though this problem has made headlines for several years now, inequality in America is steadily worsening.

The mega wealthy — the top 1 percent — now earn an average of $1.3 million a year. That’s more than three times as much as the 1980s, when the rich "only" made $428,000, on average, according to economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman.

Meanwhile, the bottom 50 percent of the American population earned an average of $16,000 in pre-tax income in 1980. Adjusted for inflation, it remains essentially the same more than three decades later.

The wealthy’s share the economic pie wasn’t always so large. In the 1970s, the top 1 percent of Americans earned just over 10 percent of all U.S. income. However, the top 1 percent now take home more than 20 percent of all income.

As you might expect, this corresponded with the rest of us taking home less income. The bottom 50 percent went from collecting over 20 percent of national income during much of the 1970s to about 12 percent today.

What’s perhaps most striking about this trend is that it occurred even as the nation’s economic pie was getting bigger. In other words, there should have been more than enough for everyone, not just the elite few.

As the New York Times wrote:

In 35 years, the U.S. economy has more than doubled, but new research shows close to zero growth for working-age adults in the bottom 50 percent of income.

This group — the approximately 117 million adults stuck on the lower half of the income ladder — “has been completely shut off from economic growth since the 1970s,” the team of economists found. “Even after taxes and transfers, there has been close to zero growth for working-age adults in the bottom 50 percent."

The glaring result is that America is no longer the land of opportunity it once was. If you're born rich, you're likely to stay that way. Sadly, the same is true if you are born poor.

The U.S. now has less economic mobility than Canada and much of Western Europe. In fact, when it comes to economic mobility (the ability to climb the economic ladder), “the United States is very immobile,” according to a report from the Pew Charitable Trusts.

Fewer Americans are earning more income than their parents, which was the norm for past generations. The "American Dream" is dying a long, slow death.

Those born in 1980, or today’s 30-somethings, have just a 50 percent chance of making more money than their parents, according to a research team led by Harvard and Stanford professors.

By contrast, a kid born in 1940 had a 92 percent chance of earning more than their parents at the same age. For kids born in 1950, the likelihood of achieving that version of the American Dream had fallen to 79 percent. By 1960, that figure had dropped further to 62 percent.

This is not an attempt to vilify the top 1 percent of earners. It should be noted that there is a huge difference between the top 1 percent and the top 1/10th of 1 percent.

For example, to be part of the top 1 percent, you’d need to earn at least $450,000 annually, according to Census Bureau data. That's a far cry from the select group of America’s mega wealthy.

The top 9,600, or so, US wage earners make over $10 million per year (2015 is the latest data available); 773 people earn between $20-$50 million annually and 202 Americans earn more than $50 million a year.

So, fewer than 10,000 Americas earn as much as $10 million annually. It's a small and privileged few in a nation of 324 million.

Many experts argue that policies could be enacted to ensure that income is more equitably distributed to all workers, and not continually siphoned off to those at the very top.

Don’t expect that under a Trump administration, which, aside from being headed by a billionaire, is staffed by a horde of millionaires and billionaires. Politico suggested the new president’s team could be worth $35 billion.

The Achilles heel of capitalism is greed. If those in power, and their ultra-wealthy cronies, ignore the needs of the masses for too long, this could all end in tears. It's is how revolutions are started.

As billionaire Nick Hanauer recently warned his fellow plutocrats: Beware, “The pitchforks are going to come for us.”


  1. First it would be good to see data for the last three decades, say 1990-2000, 2000-2010, and last five years..
    Further as for the prediction, of dire consequence, is no stretch. Or nothing more people begin to go hungry, they're or shall I say we are going to get angry...theyres no romance in communism, just look at what happened to the czar, his minister's and Rasputin for evidence.

  2. great read. The economy is fundamentally unsound, and will, eventually, collapse under its own top heavy weight. gonna be a bumpy road ahead, thats for damn sure.