Saturday, February 26, 2011

Shattered Pillars of the Middle Class

Two and a half years into the biggest financial crisis since the Great Depression, we have gone backward instead of ahead. The pillars of the middle class aren't just crumbling. They're being eroded by systematic policy and failures to react.
  • Pillar 1 of the mass middle class was regular wage increases reflecting regular increases in labor productivity. Productvity has continued to increase, but wages have not.
The wealth produced by labor is not getting plowed back into the wages of labor. This was the core problem that Karl Marx addressed in his analysis of capital: exploitation consists of owners' taking the surplus-value produced by labor, or what we now call value-added, rather than splitting it fairly according to the actual contributions of capital and labor.  This critique is more relevant than ever in advanced economies, given data like this.

For more charts straight from ye olde class struggle, see the Bureau of Labor Statistics report - no doubt slated for defunding by the Republican House as a fountainhead of Socialist propaganda.   I can't resist this one:

Labor Share of nonfarm business sector output, first quarter 1947–third quarter 2010

While the causes aren't entirely clear, the result is: a smaller piece of value added for employees.

  • Pillar 2 of the middle class: home ownership, now eroded by the steady increase of the home's value, which became a necessity in recent decades because wages were not increasing.  These days, 1,000,000 families have their homes forclosed each year, with 2011's rate due to be higher than 2010s.  And you know all about the crash in prices (Case-Schiller index interactive is here, and Dean Baker's February Housing Market Monitor is here).  There is no housing price bottom yet.
  • PIllar 3 was stable pension and benefits.  Defined benefit pensions, based on a service formula that guarnateed a payout, have been destroyed by the private sector. The huge part of the middle and working classes who now depend on "defined contribution" pensions - 401(k) plans and so on, lost a huge piece of their retirement in the 2008 crash, and may or may not have gotten that back. That low private sector standard is now being touted as a benchmark by people wanting to get rid of public sector pensions. The Wisconsin protests are one example.  In the medical benefits arena, HMOs have responded to the coming of Obamacare with the highest price increases since 2006,  Aetna had proposed increases of 25% for 2011, and then withdrew them. Middle class poverty is set to increase even for the older workers who have for a few decades been well off.
  • Pillar 4 was public investment - infrastructure, low-cost, high-quality schools and universities, among many other things. These are getting cut everywhere. Higher education is being withdrawn right and left, if not in quantity then in quality. Students are paying more to get less, as public funding continues to plunge below historical norms. One cause is the Great Tax Shift from corporations and the wealthy to ordinary workers:

  • Pillar 5 was the proverbial rule of law.  The most powerful members of society don't need rules or justice to protect them, since they have power. In contrast, the middle class doesn't, and in the long run there is no middle class without accountability, due process, and equality before the law.  These are the only mechanisms that keep the middle class from getting crushed.  And yet, although the banking and mortgage industries destroyed trillions of dollars of wealth, much of it of ordinary investors, only one banker, Bernie Madoff, has gone to jail.  
Sorry, that's not quite true.  The UBS banker who blew the whistle on an international tax fraud conspiracy at UBS, Bradley Birkenfeld: He's in jail.

The protests in Wisconsin are a good start on a reaction to the attacks on all the pillars at the same time.  But they are only a start.