The middle class squeeze is nothing new

Well, the economists finally made it official this week: We’re in a recession. And, guess what? They said it began a year ago.

If you’re like the three-fourths of Americans who consider themselves to be “middle class,” this probably didn’t come as a surprise. Many people feel as if they’ve been losing economic ground for years. That’s because many of them have been.

America has been a generally prosperous nation since World War II, achieving the highest overall standard of living in the planet’s history. The reasons are many, including advances in technology and global economic trends that have made goods cheap and available. Americans have been innovative, entrepreneurial and they have worked hard. At times, the nation has made significant public investments in physical infrastructure, such as highways, and social infrastructure, such as schools.

But the pain being felt in this recession has brought new attention to a trend economists have been watching for years: The rich really are getting richer, the poor really are getting poorer and the middle class has been shrinking steadily since the late 1970s.

It’s a reality that government policy-makers and business leaders must deal with as they try to pull us out of this mess. The issue could be especially important for Kentuckians, who lag their fellow Americans in just about every measure of economic well-being.

At the Kentucky Long Term Policy Research Center‘s annual conference Nov. 20 in Covington, there was an interesting panel discussion about the shrinking middle class and what it means for Kentucky. The news, as you might expect, wasn’t good.

“I see, basically, that middle class dissolving,” said Ron Crouch, a sociologist who has headed the Kentucky State Data Center at the Universtiy of Louisville since 1988. “The issue is it probably takes two incomes to make it in today’s society.”

Middle class is hard to define, but a basic measure is income. A year ago, a study by the nonpartisan Congressional Budget Office reported big disparities in the growth of after-tax household income between 1979 and 2005, as measured in 2005 dollars.

The study found that the poorest 20 percent of American households saw their annual income rise by an average of $900 over that quarter-century. The second-poorest 20 percent, by $4,800. The middle 20 percent, by $8,700.

Things were much different on the high end. The upper-middle 20 percent of households saw annual income increase by $16,000. And the richest fifth, by $76,500. Among the wealthiest 1 percent of households, average annual after-tax income rose by $745,100, from $326,400 to $1,071,500.

Panelist Terry Brooks, executive director of Kentucky Youth Advocates, said Kentucky ranks sixth-highest nationally in the disparity between its richest and poorest citizens and 13th in the disparity between middle- and upper-income people.

Most people define middle class more broadly than just income; it’s more about a feeling of security, Brooks said. Do I feel secure in my job, my home, my health, my retirement and my assets’ ability to weather a setback?

For example, if every member of a family doesn’t have health insurance, “you’re just one bad illness away from risk,” Brooks said.

That could help explain why the Pew Research Center and the Gallup organization reported this year that 25 percent of Americans felt they hadn’t moved forward economically in the past five years, and 31 percent felt they had fallen back. It was the worst result in a half-century of polling on that question. Attitudes are important, because confident consumers spend more, and consumer spending is two-thirds of all economic activity.

Being middle class is an idea Americans hold dear, which is why many people think of themselves as middle class when, in reality, they are either wealthy or poor. It’s especially true for baby boomers, who grew up in the 1950s and 1960s, when most Americans really were middle class.

Paul Krugman, the New York Times columnist and Princeton University professor who recently won the Nobel Prize for economics, has written that, far from being the norm, a majority middle-class America was a relatively brief condition that existed between the 1930s and about 1980.

Over the next few months, we’ll hear politicians and ideological warriors debate how to fix the economy and what role government should play in that. My guess is we’ll hear less than in the recent past about making government smaller, privatizing Social Security and cutting taxes for the rich. After all, some of the pillars of capitalism are lining up for billions in taxpayer bailouts.

The huge post-World War II American middle class was created, in part, though public investment such as the GI Bill, better public schools, affordable home mortgages, good highways, Social Security and Medicare.

Growing the middle class and returning the economy to health again will require more public investment. And it will mean creating smart policies to address demographic trends such as an aging population and inequities among growing minority populations.

A strong middle class is central to America’s self-image, but the way to keeping it strong is hotly debated. Crouch breaks it down into two basic philosophies, which he describes as the John Wayne view and the Little House on the Prairie view. One symbolizes rugged individualism; the other, the idea of “take care of yourself, take care of your family, but also watch out for your neighbor.”

“We’ve got to get off this idea that John Wayne is who we are in America,” Crouch said. “Basically, we’re a country which was built on people helping each other. This society cannot afford to have winners and losers. We’ve got to make everyone a winner.”



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