The Shrinking Middle Class

¹²The Shrinking Middle Class

By Mark Category: Finance | 3 September 2010

The American middle class is on the verge of extinction. The gap is widening between the have's and the have not's. Look at the following disturbing statistics from the Business Insider.

•  83 percent of all U.S. stocks are in the hands of 1 percent of the people.
•  61 percent of Americans "always or usually" live paycheck to paycheck.
•  66 percent of the income growth between 2001 and 2007 went to the top 1% of all Americans.
•  For the first time in U.S. history, banks own a greater share of residential housing net worth in the United States than all individual Americans put together. [[Thomas Jefferson famously warned that if banks and bankers were not scrupulously controlled, they would eventually own all real property in the U.S.: normxxx]]
•  In 1950, the ratio of the average executive's paycheck to the average worker's paycheck was about 30 to 1. Since the year 2000 [[thanks to the "new" Republican mind set of "laissez faire" economics and reduced taxes on the rich: normxxx]], that ratio has exploded to between 300 to 500 to one.
•  The top 1 percent of U.S. households own nearly twice as much of America's corporate wealth as they did just 15 years ago.
•  More than 40 million Americans are on food stamps.
•  This is what American workers now must compete against: in China a garment worker makes approximately 86 cents an hour and in Cambodia a garment worker makes approximately 22 cents an hour.
•  Approximately 21 percent of all children in the United States are living below the poverty line in 2010— the highest rate in 20 years.
•  Despite the financial crisis, the number of millionaires in the United States rose a whopping 16 percent to 7.8 million in 2009.
•  The top 10 percent of Americans now earn around 50 percent of our national income.

The problem with the United States economy is that the middle class is rapidly being eradicated. The number of "haves" are decreasing while the number of "have not's" are increasing; the income and net asset share of the very rich is increasing dramatically while everyone else is losing. Middle class Americans are the backbones of the American economy and spend a greater share of their income on consumption. Yet now the middle class consumer is struggling for survival while the rich are getting even richer [[and the poor even poorer: normxxx]]. It is becoming increasingly apparent that the U.S economy will never recover without the return of the middle class consumer.

Here are 5 reasons why the middle class may soon be extinct [[and the U.S. may simply become another 'banana Republic' of the very rich and everyone else.: normxxx]]

1. Wages are shrinking.

Median wages are lower today than they were 40 years ago. Since there is more competition for every job in the country, employers are paying less than ever to these consumers. The bottom 20% of Americans have seen their incomes increase only 10.7% since 1975. The "middle class" have seen their wages increase 29.4% over the past 25 years. The top 20% have seen their incomes increase 73.8% since 1975 and the wealthiest 5% (ultrarich) have seen their incomes rise an astounding 108%.

2. Companies are outsourcing their jobs overseas.

Since wages are cheaper overseas, companies are employing more foreign workers and domestic workers are struggling to find employment. Cheap labor is increasing the bottom line for companies and driving working Americans right out of jobs. Fortune 500 companies are no longer the creators of jobs in the U.S. They have instead become the enrichers of corporate executives.

3. The United States no longer has a strong industrial base.

Our economy is a service economy and services are the first things that people cut during recessionary times. The biggest problem is that we just don't make anything in the U.S. anymore. So called "domestic" companies like Walmart buy all of their goods from countries like the Asian mini-tigers, China, and Korea. Walmart is the largest importer of goods in the U.S. The decline in manufacturing has led to huge trade deficits with countries like China.

4. Housing prices have plummeted.

The biggest financial asset for most middle class Americans is their homes. Home prices are how most American measure how wealthy they are. With housing prices in the toilet, middle class Americans are poorer today than they were just a few years ago. With limited access to capital and a horrific job market, more middle class Americans will drop into the ranks of poverty.

5. The rich get most of the government subsidies.

Tax cuts, farm subsidies, oil subsidies, bank bailouts have all mostly benefitted the rich over the past decade. Corporations use government assistance to pay large salaries and bonuses to company management while middle class Americans are left on the hook to pay for the burgeoning deficit. Corporations find it easier to lay off thousands of employees than for a few corporate execs to take a pay cut. [[Indeed, there is a marked positive correlation between pay increases for top executives and the number of layoffs at the larger companies.: normxxx]] The rich also pay a lower tax rate than middle class Americans. Business writeoffs and tax cuts kept the tax rate for the 400 richest Americans at just 16.62% in 2007. Warren Buffett refers to tax cuts for the rich as "class welfare" because it supplies 'major aid to the rich in their pursuit of still greater wealth."

How Would You Go About Getting The Middle Class Back And Strong Again?