The Federal Reserve reports that the middle class has taken a financial beating. The report made the front page of the New York Times. The Times called it “much anticipated.” (Please stifle that yawn.) The Fed issues its Survey of Consumer Finances every three years; this survey is about consumer finances in 2010, so the report is already 18 months out of date. OK, it isn’t news. You knew it all along — the middle class is going down the drain.
Here are the basics. Most of the wealth of a middle-class family is bound up in its house. In general, a lower-class family doesn’t own a house; it pays rent forever and never gets to own the roof over its head. The upper class not only owns a house, it also has money in the bank and a portfolio of stocks, bonds and government securities. So when housing prices collapsed, it was the middle class whose finances collapsed. Now you don’t have to read the Fed’s report.
But a little background information is helpful and here it is. Sectors of the middle class began their long decline in the 1970s. The descent became general in the 1980s and has continued relentlessly since then. Middle class wages and salaries, when adjusted for inflation, have remained stagnant or declined for at least 30 years. The middle class standard of living didn’t appear to decline because married women streamed into the workforce, giving families a second earner, and when the continuing descent wiped out that, families used their credit cards to maintain their living standard, and when credit cards maxed out, they refinanced their homes which at that time had an inflated value. And when housing prices collapsed – well, you know the rest.
As for the upper class, the top 20 percent of US families also suffered from the collapse and consequent recession – their 401K plans and their brokerage accounts took a dive. Stock prices fell roughly 50 percent from peak to trough from October 2007 to March 2009. But since then equity prices have risen and, while fluctuating, they have essentially made up for what they lost. The upper class — have you noticed? — tends to do well, no matter what.
The Fed’s Survey of Consumer Finances also showed that our middle class is still mired in debt. The number of families able to put some money aside in savings has shrunk while the number not saving so much as a dollar has increased. Furthermore, the median amount owed has remained the same. Most people are not going to be able to retire their debts before they themselves retire
In conclusion, here’s the Good and Bad news. First, the absolutely bad news — the middle class is headed for a cliff. Now, the sort of good news — the looming catastrophe isn’t in the same category as a hurricane or earthquake or tsunami. It’s not an act of nature, an act of God or a force majeure. The 30-year decline of the middle class is largely the result of the US economic system with its peculiar structural defects. It’s a human artifact. It can be changed.
We would have given credit for the graphic illustrating this post, but our search provided neither the artist nor the origin of the graphic.