Re: America's disappearing middle class

On Nov 14, 7:28 pm, Marco <andymarcos...@xxxxxxxxx> wrote:
America's disappearing middle class
By Martin Hutchinson
The Asia Times
November 14, 2007

It is already clear that one of the great US election issues of 2008
will be the relative impoverishment of the American middle class,
defined in the American rather than the British sense to include well
established blue-collar workers with families and mortgages.

Republicans who ignore this problem will find themselves talking only
to the winners, the top 1% in the income scale - laughably inadequate
as an electoral base. Democrats who propound the usual socialist
nostrums to cure it will find themselves ardent proponents of an
economics that doesn't work. A new intellectual paradigm is required.

The declining share of low and moderate income workers in the American
pie is undeniable; the relative share of such workers peaked as long
ago as 1973. For those with only high school qualifications or less,
their absolute earnings peaked in 1973 and have declined substantially
since then. From 1973 to 1995, this appeared to be simply a case of
the rewards for skills increasing, with low skilled workers suffering
increasingly in terms of earnings and job losses compared to those
with a bachelor's degree or better. Since 2000, however, the paradigm
has changed, with all sectors of the workforce losing ground in
absolute terms, except for the top 1% who have gained essentially all
of the modest gains in employee incomes under the George W Bush
administration.

A Center for Economic and Policy Research study released this week
shows that the share of "good jobs" in the US economy has fallen
substantially during the 2001-07 business cycle, where a "good job"
was defined as one that pays at least $17 an hour (the median wage
rate in 1979) and offers employer-provided health insurance and a
pension. While most of this deterioration has arisen from employers'
increasing failure to provide health care and a pension, the share of
"bad jobs" with pay below $17 per hour and neither health care nor a
pension has also increased in this business cycle, by 1.6 percentage
points.

These statistics are pretty clear, and cannot be ignored, whatever
one's policy disagreements with the left-leaning CEPR. Blue-collar
workers lost bargaining power catastrophically following the peak of
the 1973 cycle, and since 2000 their failure has been accompanied by a
more generalized loss of bargaining power by white-collar workers and
all toilers below the level of top management. Employers no longer
feel compelled to offer their workforce either a decent wage or the
most basic of health care benefits, benefits that were considered
sacrosanct in the social contract of 1945-73. The American dream, in
which hard work can propel ordinary people into a comfortable even
affluent lifestyle, is becoming ever more distant for all but a small
fraction of the population.

There appear to have been a number of causes of this. One is
technological change, that old chestnut, which has not made production-
line workers obsolete, as had been thought would happen, but instead
has compelled their children to get jobs in the service sector of the
economy, generally lower paid, since fewer of the employee's skills
are used. In the service sector itself, technology has de-skilled a
number of routine tasks such as retail-level credit analysis, so that
respectably paid lower level bank officers have been replaced with
casual-labor clerks.

A second cause is the increasing ease of world trade, and the new
possibilities the Internet has brought of outsourcing to Third World
countries where labor costs are a small fraction of those in the US.
Overall, this has been a thoroughly benign development; it has brought
new wealth to a number of poor countries. Equally important, it has
demonstrated to poor countries with large populations that the way to
new wealth is not through socialism or religious-driven hostility to
the outside world but through openness to world trade and investment,
in order that their surplus labor can be used to best effect in an
increasingly integrated world economy.

Naturally, the increased access to the US economy of a much larger
workforce with lower pay scales has had a depressing effect on US wage
rates, particularly at the lower skill levels. The doctrine of
comparative advantage, beloved by free trading economists as a
rationale for opening borders, works much less well when the poorer
country through opening to world trade can work itself up the value
chain and expand its comparative advantage to an increasing proportion
of the richer country's business. The increasing salience of
protectionism among the US electorate and the political classes is not
an accident; it is a rational reaction to trends in US labor
remuneration that are only dimly understood but are harshly felt.

Another cause of middle-class immiseration is unquestionably high
immigration. Business lobbies want high immigration to reduce the
bargaining power of their workforce. This puts pressure on workforce
remuneration, particularly at the lower skill levels, since the glut
of labor in the world economy is most intense at low levels of
education and training. In a well ordered society, the workforce's
resistance to this demand would be entirely accepted by the
politicians, since there are obvious economic consequences to allowing
mass immigration. Even if there are economic gains to allowing in new
workers to depress wage rates, they are entirely at the expense of the
domestic workforce's living standards, and responsible politicians
would emember who votes for them. In the US currently, the question is
bedeviled by accusations of racism which, whether or not valid, in
some cases are used illegitimately to obscure the unquestionable
economic rationale for voter resistance to immigration.

Finally, and most relevant to the increased post-2000 inequality,
which has been of a different type to that of 1973-95, there is the
interest rate policy of the Federal Reserve, which since 1995 has been
persistently far too loose. This has allowed the benefits of the
deflation that has naturally occurred due to the Internet to flow not
to the living standards of the average US worker, but to asset values,
concentrated at the top end of the income scale and the boom in which
has provided jobs largely for the upper middle class.

The lack of an adequate process of "creative destruction" on Wall
Street has allowed housing finance, for example, to be routed through
a securitization mechanism that provides ample livings for Wall Street
and the hyper-energized salesmen known as mortgage bankers, but has
actually increased the relative cost of home mortgages to the consumer
compared to the old savings and loans.

The standard centrist and conservative response to inequality, that
increased investment in education will solve the problem, is mostly
tosh. A substantial percentage of the workforce, while perfectly
capable of supporting themselves, are wholly unable to benefit from
higher education at a sophisticated level, while "community college"
higher education often provides them with skills that are marketable
for a few years at best. Thus, increased investment in education is
likely to have little effect at the lower end, beyond perhaps a few
rare cases of successful remediation, while delaying inordinately the
entry of those with high-end skills into the workforce.

There is however a need for investment in mid-career education, as
well as in adjustment of those mechanisms of finance and social
cohesion that make it difficult for people to retrain in midlife. Most
degrees obtained at 21-25 are of little use at 50, and will be even
less use in late career if working life-spans are extended to 70 or
beyond, as seems inevitable they must be. If the new globalization
prevents the stability that the US employees of large companies used
to enjoy, then mortgage companies, tax authorities, school districts
and credit card companies will have to get used to gaps in payment,
bearing some of the costs of that instability, as workers retrain
themselves for the exciting new world of their second career.

A second essential is to reduce the pace of change, not of cutting-
edge technological change, which in any case occurs relatively slowly
most of the time, but of Schumpeteran "creative destruction" which
destroys jobs and, more important, destroys the employee security
brought by decades of experience in a particular function. In general,
low interest rates accelerate destruction, as does a labor market open
to immigrants from countries with much lower wage levels. A world in
which money is tight, new projects are undertaken only when they
clearly provide a clearly superior avenue to reward and labor is
secure against competition based solely on price, is a world in which
careers can be built, seniority attained and workers at 55 can feel
relatively secure that they will not be thrown onto the industrial
scrapheap. There is no need whatever for additional government
spending to achieve this; it simply requires tight control of the
money supply and immigration.

Protectionism itself is not the answer. For one thing, as US and EU
agriculture subsidies have amply demonstrated, it merely enables the
lobbying rich to entrench themselves still further from their less
affluent countrymen. Free trade provides a useful spur to competitive
effort; at the same time its effect differs from that of free
migration, because much of the economy is not readily transportable
around the globe. Retailing, hotel and resort services, personal
services, domestic transportation and construction are all substantial
areas of the economy that require mostly labor of modest skill and, if
protected from foreign immigration, are little if at all threatened by
free trade. If labor in those sectors is allowed to attain a
respectable degree of bargaining power, it will raise wages not only
in those sectors but in the rest of the economy as well, allowing only
the most overpriced operations to lose out to foreign competition.

A world of tight money, tight immigration controls and greater
stability is unattractive to Wall Street, if only because it will tend
to reduce the share of corporate profits in gross domestic product and
the opportunities for creative (albeit in the long run destructive)
financial juggling. However corporate profits and the stock market are
not an end in themselves, they are only a means to an end, by which
investment is adequately remunerated and labor is permitted to improve
its living standards over time with adequate protection from excessive
turnover.

A world in which few if any have security in their livelihood is not
conservative, it is anarchist. It is also deeply repugnant to the
average voter. That will ensure that, if the noise and struggle of the
free market is allowed to become too destructive, it will be replaced
by the eternal silence of the socialist tomb.

Martin Hutchinson is the author of Great Conservatives (Academica
Press, 2005) - details can be found atwww.greatconservatives.com.



human nature defines a race to the bottom, then desolation... then a
reboot from the ashes to do it all over again.... in between is
rational thought such as this article, wholely ignored exxept after
total desolation, then adopted but only because a worker for instance
starved to death cannot fix ones toilet so to speak.

this drives a culture to its peak, which lasts in its glory about half
a generation, no longer, then decline, taking 20 years to the pits....
the reboot takes one or two generations.


can reason prevail prior to total collapse? no. thats because the
vested interests, driving the collapse and benefiting in the process
hold the money and power (lately including a very flush civil servant
class, retiring oten at more money than a physican nets for his 60
hour weeks)....so no...it does not support change.

change happens by default when the productive class under them starves
to death.


Phil Scott, the eternal optimist. :)
.

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