Middle-Class Flatline

By Roger Niesen

We were not told that World Peace – at least the end of the Cold War – would produce globalization and its consequences for American life.  But that ‘peace dividend’, along with some other factors, did just that.  Sadly, we thought we could have it all.

Some years ago I saw a post on Facebook that showed a graph as evidence that Reagan destroyed the middle class with his economic policies. You’ve probably all seen it. It depicts income from capital and wages rising together, until about 1980, when the wages line flattens out and the capital profits continue to soar exponentially. While I am no fan of “Reaganomics” (aka supply-side, voodoo, trickle down economics) I thought, “Wait a minute”. An alternate explanation of the curves occurred to me. It seemed to me that that 1980ish break was also about the time of the collapse of the Soviet Union and the Cold War. I realized that such an outbreak of World Peace opened up the whole developing world (and much that had not been developing until then) to vast and lucrative opportunities for Capital. At the same time it opened up vast and devastating competition for U.S. Labor.

This was the beginning of what we now refer to as “Globalization”. Transportation became cheaper, computers and the internet came into general use, and much of what America had been making and others buying (in lesser amounts) got made elsewhere and we started buying it for cheaper. We, who had been the wealthiest country in the world, who had exploited so many other countries for years, were now bound to pause while the rest of the world got a chance to catch up a little. But none of us quite recognized at the time that there would be this painful price to pay for World Peace. Nobody told us this is what we could expect. I have looked around for anyone researching or presenting this concept, and have found very little. I’m not sure anyone foresaw that dynamic, or that anyone sees it now. And if they did, what politician is going to stand up and say “Sorry folks, but that’s the way the world works and you’re going to have to suck it up for a while, until transportation costs and the price of labor overseas get up to a level where we can make our own stuff again. And everyone can then share and enjoy the benefits of World Peace. And even though there’s not much I or anyone can do about it, vote for me anyway.”

This is in no way a defense of Reaganomics.  Demand is what fuels growth. John Maynard Keynes figured that out. What businessman invests to produce what people have no way of buying? How would more capital help that? In this case, supply-side economics made things much worse. The “job creators” took this tax-break gift with glee and created lots of jobs- overseas- building brand new factories full of low-cost workers there to compete with our aged ones with their dwindling unions. And selling back to us here as well as to the newly employed foreign workers.

Since that time this country has lived on those capital profits processed through the financials, and the product of our booming tech industries serving the world. And these monies have been trickling down. Not much. Not enough to replace high manufacturing wages with Starbucks tips, not enough to replace the retirements that evaporated, not enough to pay for educations. Not even enough for people to keep their houses. Robert Reich talks about how the middle class has maintained itself by burning through the various assets they once had (now depleted), and how that has served to mask the true extent of the decline, and the pain. 

The World Peace dynamic I describe here is only one part of the larger complex system in play. It is an important one I think, and an under-recognized one. Besides that dynamic there are others. I mentioned the supply-side policies factor. And there is the fundamental nature of Capitalism rolling toward wealth polarization, the rich getting richer and everyone else getting poorer (which Thomas Piketty details well). And there is automation: the production coming back to the U.S. is performed by an astounding array of robots. These don’t replace the food on many tables.

It seems to me that these factors have combined in a “perfect storm”, in creating the “middle class flat-line” which, thankfully, is not a heart monitor. I am quite happy that the “starving children in China” I heard about as a child have been able to become richer than my family was. Viewed from a world perspective, this has been a tremendous stride toward prosperity. And despite the conflicts in the middle east (where they have always been, and are now in a bloody process of resolution) and a variety of other places, the world is approaching much greater stability in the process. It’s just that nobody warned our middle class of what the true price of World Peace would be, so nobody understands it, nobody prepared for it, nobody can accept it, and the “discomfort” (as dentists call it) has led to some very serious polarization in the U.S. We will just have to get past it. In time. With some very different policies that take some of these dynamics into account.  With some much more sustainable economic practices.