The Collapse of the Middle Class

The Elizabeth Warren "Collapse of the Middle Class" video from 2007 has shown up in several diaries lately, as the debate over who will head the new Consumer Protection Agency begins.  I have no intention of re-litigating her case here, but would like to address some of the substance of her remarks, in light of economic developments since she made them.

She outlines the increased pressures on families in the past thirty years.  Income for adult males has actually decreased in inflation-adjusted dollars, and though she doesn't give the reason, I'd be willing to bet the loss of union jobs, and offshoring of manufacturing has resulted in reduced earning opportunities.  She also notes that thirty years ago, it was possible to enter the middle class with only a high school diploma (my note: via union jobs, again) but now it requires a college education, the costs of which are borne by the individual, not the taxpayers as a whole.
Noting that these burdens fall disproportionately on families with children makes me wonder about the future of our country.  If families with children are more likely to live in poverty, if it is increasingly more difficult to afford the education necessary to gain access to jobs which provide economic stability, what does this mean for our future?  For Social Security?  

She talks about how the United States of the future will have an upper class and a lower class, with those in the middle being squeezed into one of the other categories.  She says the upper class will expand, taking in people who haven't suffered a family breakup, medical crisis or job loss-the three major causes of bankruptcy.  Those of us unfortunate enough to experience one or more of these events will perforce become part of the lower class.  The great unwashed.    

The job losses since 2008 have put many of us into the high-risk category, and even if we aren't poor now, our savings have been decimated between the stock market crash and raiding them to pay for day-to-day expenses.  Our economy is 70% fueled by consumers.  We cannot and will not consume if we are afraid for our future.  This behavior, even among those who still have their jobs, is slowing, perhaps stalling economic recovery

Warren also notes that the increased pressures on those currently in the middle class make them more worried about their own problems, and less sympathetic to those of the people below them on the economic ladder.  Can you say "teabagger?"  I knew you could.

If we continue down this economic path--the one Warren says will lead to the collapse of the middle class-there will be no economic recovery for most of us.  The fortunate will rise upward into the new upper class, while the majority of us will, in the words of Henry David Thoreau:

Lead lives of quiet desperation and go to the grave with the song still in them.

What a waste of human potential we are fostering through these policies.  Will the United States be the latest empire to die in the mountains of Afghanistan?  

What could change the future?

1.  Moving back to defined benefit pensions, or at the very least strengthening Social Security.  When retirement programs moved from defined benefit to defined contribution, the risk shifted from corporations to individuals, and exposed them to the vagaries of the market, offering no guaranteed pension.  In periods of increased market volatility, this makes a secure retirement less likely than at any time since Medicare was enacted in 1965.

2.  Real healthcare reform.  Removing the link between employment and health insurance.  As we have seen, periods of high unemployment correlate with many people losing their employer-based health insurance, and even with the COBRA subsidies, it is prohibitively expensive to maintain coverage on unemployment.  Tying health insurance to jobs also acts as a disincentive for people to become entrepreneurs.  Starting a small business is a risky enough proposition without the added costs of buying individual health insurance in the marketplace.

3.  Removing the income cap on Social Security.  Making all income and bonuses subject to Social Security taxes would secure its future in perpetuity.

4.  Reinstate Glass-Steagall.  By separating commercial banking from investment banking, the "too big to fail" problem would take care of itself, as banks would be forced to split their business into separate entities.  Small banks are failing at an even faster rate this year than last-2.6 per week in 2009, 3.4 per week to date in 2010.   Instead of absorbing these banks into larger entities, they need to be supported, and the government needs to step in and help the consumers with underwater loans directly, which would not only help the consumers, but also the small banks which made the loans.  No more privatizing gains and socializing losses.  If the banks screw up, let them fail.  They need to suffer the consequences of their risky behavior, not the taxpayers.

5.  Re-think the wisdom of spending as much on our military as the rest of the world combined.  Our defense budget is  $1750 per person, per year-higher than any other country in the world.  Is it really being used to defend us?  

What will happen?  None of the above.  But as critical as I am of the Obama administration's run to the middle, I am confident that our slide to the bottom would be greased if the Republicans were in charge.  Their obstructionism, blatant corporatism and anti-regulation brand of free-market disaster capitalism would exacerbate our problems exponentially.

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