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What Happened to the American Middle Class?

What happened to middle class Americans? They were bought off, run over, and forgotten; pushed aside, laid off, and stripped of benefits and securities. What used to be a nation dominated by the middle class is now one split between the rich and the poor. Jeffrey Sachs, in an article in Time magazine, calls for the comeback of the American middle class. Today, the top 1% of Americans takes home 25% of household income — that is a greater amount of inequality than any other high-income democracy, reminiscent of the 1930s.

Globalization and capitalism turned their backs on middle-income America. An increase in globalization forced the means of production and coinciding labor out of the country. Capitalism’s push towards “free” and liberalized markets eroded the power of the unions and worker’s rights to keep that production on U.S. soil. Both contributed to the current demise of the American middle class.

Globalization does have some worthwhile qualities, namely the redistribution and increased efficiency of technology and goods, which allow global civilization to flourish. Globalization is not only an economic force, but a cultural one as well. The increased interconnectivity of culture and values brings greater understanding and acceptance on a world scale. However, pressures of globalization and increased capital accumulation force governments of all nations (poor and rich alike) to open their markets. Many times, nations become trapped by a need for access to international markets (which, in effect, are “governed” by those who have controlled Washington for the past 40 years — namely, investors), in order to “keep up” and continue economic growth at the expense of providing for their citizenry.

To combat the risks associated with unregulated capitalism (and as a way to stimulate growth during the Great Depression), components of Keynesian economics became popular. The idea was to deficit spend by lowering taxes and increasing investment in social programs during an economic downturn to help society feel less of the pain. However, faced with economic stagnation, the Keynesian welfare state became a thing of the past. The efficient and profit-driven model of capitalism the world has seen since the 1970s eroded much of the social programs and welfare benefits provided by the New Deal. This led the way for deregulation in the form of outsourcing, poor worker conditions, and decreased power of unions. 

So, as national governments scrambled to liberalize their markets (bringing with it austerity measures to combat the almost unavoidable inflation and private sector debt), in order to comply with the WTO and the IMF, ordinary people were left in the dust. Without regulation, jobs and manufacturing were outsourced.

Capitalism is a cyclical process; history can attest to numerous downturns and upturns. For capitalism, what goes down must come up. 

The U.S. economy, however, is distinguished between a series of "cyclical trends and secular trends," or short fluctuations and more enduring structural changes. For example, though the 1930s were marked by the distress of the Great Depression, the decade also accounted for an enormous leap in technological invention. Cyclically, the decade was the one of the worst in history, but secularly, one of the best. So, once the fluctuation in the short-term ended, new industries were available to pick up and take off from there. The structure was still sound.

Today, we aren’t so lucky. According to New York Times journalist David Leonhardt, this particular crisis is exemplified by both short-term financial woes but also less pronounced long-term problems. The U.S. today struggles from a decade of sluggish new business accumulation, increased growth of industries with less potential for sustained economic gains such as medical care and finance, as well as low educational gains. Unfortunately, this means sustained high unemployment for years to come.

Photo Credit: Kasia Broussalian

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