What Killed the Middle Class?

Everyone knows the middle class is fading fast. I’ve covered this issue in depth for years, for example: Honey, I Shrunk the Middle Class: Perhaps 1/3 of Households Qualify (December 28, 2015) and What Does It Take To Be Middle Class? (December 5, 2013)

This raises an obvious question: what killed the middle class? While many commentators try to identify one killer cause (for example, the U.S. going off the gold standard in 1971), the die-off of the middle class is more akin to the die-off in honey bees, which is the result of the interaction of multiple causes (factors that increase the toxic load dumped on bees and other pollinators by modern agriculture).

Longtime collaborator Gordon T. Long and I discuss the decline of the middle class and other key topics in a new 29-minute video How did that work out for you?

So where do we begin this detective story? With the engine of all real prosperity, productivity. This chart reveals that wages stopped rising with productivity around 1980.

Here’s another look at the same phenomenon:

Productivity has been slipping since around 2003: Alan Greenspan:”Productivity is Dead”

Cause #1: declining productivity, which means the pie of real wealth is no longer expanding.

Exhibit #2: middle class wage earners have not received any of the gains.Wages as a percentage of GDP have been falling for decades, with occasional blips up in tech/housing bubbles:

Inflation-adjusted household income has dropped back to levels first reached in the 1980s:

More recently, wages have actually declined, regardless of educational attainment:

Income gains have all flowed to the top 10%, with most of the gains being concentrated in the top 5% and top 1%:

If the middle class didn’t receive any of the gains, who did? Corporate profits have soared to unprecedented levels:

Cause #2: all the gains in the economy have flowed to corporations and the top 10% of financiers, managers and technocrats.

But wait a minute–hasn’t the rising stock market enriched the middle class?Short answer: no. Middle class household wealth has absolutely cratered since the top of the housing bubble in 2007, and hasn’t recovered.

Why? Middle class wealth is based not in stocks but in the family home. The middle class does not own enough financial assets to have participated in the latest stock market bubble, while the majority did not recover the wealth lost in the housing bubble bust. This is the cost of allowing the financial sector to financialize housing and mortgages in the 2000s.

Cause #3: the middle class doesn’t own the “right” assets to benefit from systemic financialization and financial speculation.

How about rising costs? The federal agencies tasked with measuring inflation assure us inflation is near-zero. But these measures underweight big-ticket costs like healthcare and higher education, where costs have exploded higher, greatly increasing the burden on the middle class:

Cause #4: soaring costs of big-ticket expenses such as higher education and healthcare. Saving $10 on cheap jeans imported from Asia does not make up for 135% jumps in tuition and college fees, and $100 decline in the cost of a laptop computer does not make up for healthcare insurance and out-of-pocket expenses in the tens of thousands of dollars per household.

Correspondent Kevin K. submitted this article and accompanying note: Colleges with the biggest tuition hikes (my ala mater University of Hawaii-Manoa clocked in with an increase of 137% since 2004.)

“It looks like the article linked above didn’t do much research since:
University of California Davis
2004 in-state tuition $5,684
2015 in state tuition $13,951
Percentage increase 145.44 percent”

There is no way middle class households with declining real incomes can pay soaring costs imposed by state-enforced cartels and gain ground financially. If the four structural trends highlighted above don’t reverse, the middle class is heading for extinction, the victim of financialization, the glorification of financial speculation via central bank-central state policies, the decline of productivity and rising costs imposed by state-enforced cartels.

We need a new system, one we control from the ground up:
A Radically Beneficial World: Automation, Technology and Creating Jobs
for All
. The Kindle edition is $8.95 and the print edition is $20.82.

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  • This is playing a roll to destroy the counterfeiting Federal Reserve with ‘0’ reserves!

    February 8th, 2016 Golden Triangle: Iran, China, Russia to Drive the World Away From Dollar

    Stated plan to route the Silk Road rail infrastructure to assist the mining of new gold for currency backing of the Eurasian member states, including now Iran with its significant own unexploited gold.


    • Nexusfast123

      The US is destroying the US with its dumb globalist and finance centric policies. All the Chinese are doing is taking advantage of the stupidity.

      • Here they are! A surprisingly small number of corporations control massive global market shares. How many of the brands below do you use? It is a Small World at the Top, and the largest banks hold a total of $25.1 trillion dollars or enough to fund the federal U.S. government for over 7 years or roughly $3500 per person on earth.

        Here is the .01% list: Which Corporations Control the World?


  • Nexusfast123

    This article only points to the outcomes and does not explain why. Once Wall Street moved the US a consumer economy and ‘financialisation’ via debt funding the decline was inevitable and baked in.

    The first point is that increased productivity is totally irrelevant if you don’t produce competitive products. The middle class in the US is being eliminated as there are no quality jobs being produced and those White Collar jobs that are there are being offered to in-sourced labour. White and Blue collar jobs were lost their millions when tens of thousands of manufacturing facilities were off-shored. The US is not a producer economy and without being competitive you are unable to create new industries and jobs, reduce debt, impact the balance of trade, etc. Only the 1% benefit while the rest of the population increasingly relies on handouts which is blowing out debt.

  • HoHoHum

    QUESTION: What Killed the Middle Class?

    ANSWER: The HISTORIC 1980 shift of world economics from “regulation” to “deregulation”, coming from Thatcher & Reagan. More specifically: we are witnessing fallout from the 1980 switch to “free market” economics. That RADICAL change unleashed the corporate mind toward buying labor at the very cheapest cost worldwide. So, therefore, the bulk of U.S. manufacturing simply “chewed and screwed” toward the cheapest labor available located in the 3rd world. Guess what? The middle class eventually has been (shamefully) deleted/exterminated/abolished. Why is that? Simple. Replacement wages coming from Burger King, etc. will never ever restore the “former middle class wage level lifestyle” experienced since WWII beforehand. This corporate divorce from America has resulted in America’s economic BANKRUPTCY (chronic trade deficit, cancerous aggregate DEBT/GDP, etc.). The U.S. Dollar presently is RELATIVELY strong primarily BECAUSE the REST OF THE WORLD today is in WORST SHAPE. But, debt-ladened cancerous BALANCE SHEETS eventually come home to roost.

    • Nexusfast123

      You are just repeating article and not the root cause. One point you are wrong is about Reagan. Thatcher was a moron though. Go and look up Project Socrates. Reagan approved a study into why the US was becoming less competitive and this resulted in a powerful and profound system to turn the US economy back into a ‘producer economy’. it was running under Reagan’s administration and was delivering results. The point at which ‘financialisation’ really took hold was when Bush 1 stopped Socrates and the economy was turned over to Wall Street. The US still has this brilliant capability and the legislation in place to re-enact it.but the hold of the banks is strong.

    • JPVan

      See my answer to wunsacon. Nothing wrong with appropriate regulation but the Clinton administration’s wrongful deregulation was ten times worse than Reagan’s.

      • HoHoHum

        Oh, really? Not based on the chart above.
        Furthermore, what happened after Reagan created “deregulation” in 1980?
        The house was already on fire in 1992. Clinton just found more logs.
        Both parties are at fault.
        The corporate world leaves the country for cheap labor … and the politicians lower taxes on the rich. That’s called “chew & screw”.
        “Deregulation” is an economic capitalist problem. Not principally a “political” problem.
        Remember “QE”? US would not have printed money any if US could have found enough buyers of its IOUs.
        Note: CHART DOES NOT INCLUDE ANY DEBT RELATING TO DERIVATIVES. OUCH!!! (legalized in 1983).Ps. Current number is ~ +350% … BATTEN THE HATCHES when next recession starts.

  • wunsacon

    Removal of progressive taxation.

    Removal of progressive taxation shifted the burden from the top 1% to the rest. With that removal, the 1% used the savings to partially to spend but partially to acquire ownership of more assets. (Once your food and shelter are covered, you can save your first dollar. Once your kids’ schooling is covered, you can save more. Etc. The 1% are in the best position to “save” and “save” — continue acquiring rent-producing assets.) In turn, ownership of more assets yields increases to the rents they collect every year.

    Via the leverage of “title” to all these assets, the rents they collect are orders of magnitude greater than the value they personally create.

    • JPVan

      Not so. The gaming of the tax code and the influence of government policy using the two-party instrument of control is much more important than any benefit from progressive tax brackets. Fact is that the US has the highest corporate tax rates in the world (with the exception of Chad and the UAE). A simplified tax code, especially without the nonsense of payroll taxes only for the little people, and adjustments for other regressive taxes like sales taxes) would be more fair and more equitable even with a flat tax beginning after basic needs income was exempted. Anyway, that’s after the fact and secondary to reforming outside-the-market special preferences affecting income distribution.

      The real change in income distribution is a story that began in August 1971, the dawning of the Age of Financial Barbarism. That’s when the successful and self-regulating Bretton Woods system collapsed (the result of LBJ’s disastrous “guns and butter” spending). JFK’s supply-side tax cut (a $10 billion tax cut when the total federal budget was $100 billion) created 6% real economic growth and LBJ mistakenly killed that golden goose. Of course, the conditions where government can stimulate the economy are over; the dead goose has been roasted and its bones picked over with all schemes from all ideologies.

      With the collapse of Bretton Woods, the new volatility in commodity prices, foreign exchange, and trade balances was seen as a profit opportunity by the financial elite. The first derivative fund, Wells Fargo’s Stagecoach Fund, was launched within a year and the rest is history. Within years, exotic trading schemes and their markets grew beyond bounds and the real economy of labor, jobs, and production of tangibles had new competition for financial capital. Why bother with little people and their jobs when a small office and staff with a trading scheme could generate profits for your hedge fund while you played tennis in the Hamptons? Fast forward to 2006-present where the financialization of every material asset means 10-15 assorted trades leveraged against every underlying real asset, control over a political process with windfall profit carveouts for other sectors like US healthcare ( >$1 trillion in excess profits), the US legal-judicial-penal complex ( >$1 trillion in excess profits), and the national security state ( >$2 trillion in excess profits). In only the last seven years (even without accounting for some offshore/hidden gains), the 1% in the US has seen their share of national wealth increase from 38% to 45%. Is it any wonder they now support Hillary (Plan A) and Trump (Plan B), co-conspirators, for a continuance of their wealth accumulation project?

  • Bob Wallace

    Wages peaked in January, 1974.