If we ran America, we would read the article: “Goodbye, American Dream: The crisis of middle-class America”

The crisis of middle-class America

By Edward Luce

Published: July 30 2010 17:04 | Last updated: July 30 2010 17:04

This was an excellent article in this past Friday’s Financial Times.  Below is a list of my takeaways:

  • $70,000 is a third more than the median household’s annual income
  • “The slow economic strangulation” …. “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..”
  • “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.”
  • What is worse is that there is “declining income mobility” meaning you “have a smaller chance of swapping your lower income bracket for a higher one than in almost any other developed economy”
  • Also, there is a “steeply rising inequality.”  So in addition to “grinding income stagnation,” there is also “diminishing likelihood of escaping it”
  • “During the three postwar decades, which many now look back on as the golden era of the ­American middle class” … “Incomes grew in real terms by almost 2 per cent a year – almost doubling each generation. And though mass higher education drove it, “you did not need to have graduated from high school to make ends meet.”
  • “most economists” … “diverge on the causes. Many on the left blame the Great ­Stagnation on globalisation”
  • “Another group singles out the explosion of new technology”
  • “Then there are those, such as Paul Krugman, The New York Times columnist and Nobel prize winner, who blame it on politics, notably the conservative backlash which began when Ronald Reagan came to power in 1980, and which sped up the decline of unions and reversed the most progressive features of the US tax system.Fewer than a tenth of American private sector workers now belong to a union. People in Europe and Canada are subjected to the same forces of globalisation and technology. But they belong to unions in larger numbers and their healthcare is publicly funded. More than half of household bankruptcies in the US are caused by a serious ­illness or accident.”
  • Much as they disagree on what has caused the Great Stagnation, economists also differ on the remedies. Most agree that better education improves people’s earnings potential, even if it does not solve the underlying problem. Others point out that not everybody can be a bond trader, a software entrepreneur or a Harvard professor.Many of the jobs of the future will be in “inter-personal” roles that cannot be easily replaced by computers or ­foreigners – janitors, beauty technicians, home carers and landscape gardeners, for whom college is often superfluous. Furthermore, a large chunk of Americans who have been hit by ­stagnation over the past decade are college graduates. Even they are not immune. But more education, at the very least, will improve one’s chances. Paying for it is another matter.
  • “the cost of education is soaring”
  • “For years, the problem was cushioned and partially hidden by the availability of cheap debt.”…. “That cushion is now gone. Easy money has turned into heavy debt”
  • “To be pessimistic about the future is so new for Americans and so strikingly un-American,”

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