The Shrinking Middle Class

As I have written frequently on this blog, I really do live in two worlds. One world is the world of “business books,” books that show up on the Amazon “Business and Investing” lists, and the New York Times list of Business Best Sellers. Each month, my colleague Karl Krayer and I present our synopses of these books, and we have done so since April, 1998 (24 books a year; nearly 15 years – do the math, and we’ve covered a lot of books, with a lot of transferable principles). I love reading and presenting on these books!

But the other world I live in is one focusing on social justice, poverty, racism. I present two synopses a month for The Urban Engagement Book Club and each book reminds me of the human need all around us and the inadequate ways our society has responded.

You can argue that many of these people are in need because of their own failures, their own laziness, their own lack of “character.” But, many (I would argue “most”) are in need because of circumstances that really do sweep them away into a downward spiral. Some of these circumstances are short-term crises of one kind or another; others are longer-term, systemic, and genuinely difficult to overcome.

Well, at the Urban Engagement Book Club, I recently presented my synopsis of Plutocrats: The Rise and Fall of the New Global Super-Rich and the Fall of Everyone Else by Chrystia Freeland (The Penguin Press, 2012).  Let me put it simply: I can’t get this book out of my mind.  All of the books I read linger with me in one way or another, but this one is in my thoughts all the time.

It is a good book — One of Financial Times’ Best Books of 2012. A Booklist Editor’s Choice of 2012. The book is about the “New Global Super-Rich,” and they are rich indeed. But folks at the “other end of the spectrum” are facing a harder and harder time.

The book makes a compelling case that “Reuther’s Treaty of Detroit,” an agreement between Walter Reuther and the Big Three Automakers, reached in 1950, really did help create a true golden age of, and an actual rise of, the middle class. Everybody did better!

But, since 1980, the rise has shifted to a long-term fall for that same middle-class. Here are quite a few excerpts from the book. More than I usually put in a blog post, but please take the time to read them:

• Before the industrial revolution, we were all pretty equal. But that changed with the first gilded age.
• Alexis de Tocqueville, visiting America two decades later, returned home to report that “nothing struck me more forcibly than the general equality of conditions among the people.”
• Between the 1940s and 1970s in the United States the gap between the 1 percent and everyone else shrank; the income share of the top 1 percent fell from nearly 16 percent in 1940 to under 7 percent in 1970. In 1980, the average U.S. CEO made forty-two times as much as the average worker. By 2012, that ratio had skyrocketed to 380. 
• From the mid-1920s to 1940, the share of income going to the top 10 percent was around 45 percent.
• During the Second World War it declined to around 33 percent and remained essentially flat until the late 1970s. Since then, it has been climbing dramatically. By 2006, the top 10 percent earned 50 percent of national income, even more than it did in 1928, at the height of the Roaring Twenties. Almost all the gains are at the very apex of the distribution…
• During the economic expansion of 2002 to 2006, three-quarters of all income growth in the United States went to the top 1 percent of the population.
• The social gap isn’t just between the rich and the poor; it is between the super-rich and the merely wealthy (who may not feel quite so wealthy when they compare themselves with their super-successful peers).   
• “We may have democracy, or we may have wealth concentrated in the hands of the few, but we cannot have both.” —Louis Brandeis
• What separates successful states from failed ones is whether their governing institutions are inclusive or extractive. 
• Inclusive states give everyone a say in how their society is ruled and access to economic opportunity. Inclusive societies often find themselves benefiting from a virtuous circle, in which greater inclusiveness creates more prosperity, which creates an incentive for ever greater inclusiveness. The history of the United States, founded in a revolutionary bid for greater inclusiveness, can be read as one such virtuous circle.
  …virtuous circles can be broken.

In the book, the author highlights Henry George, “The most famous American popular economist you’ve never heard of.” He is credited with “ushering in the Progressive Era in American Politics.” During his 1886 mayoral campaign, two key questions were:

Question 1:  “Why should there be such abject poverty in this city?”
Question 2:  “What do we propose to do about it?”

Well, there is always need for help for the poor — short-term help, longer-term help. And the goal is to always help people move to some form of self-reliance. But as we remember the poor, this book points us to another concern that really needs our best attention and efforts. As this book focuses on the rise of the global super-rich (and they are global; and they are “super rich” – the UHNWIs, the Ultra High Net Worth Individuals), this book also chronicles the rise, and now fall, of the great middle class. I think it is time to ask:

Question 1: Why is the middle-class shrinking so alarmingly?
Question 2: What do we propose to do about it?

The book may offer little in the way of remedy, and much more in the way of diagnosis. It is a diagnosis worth reading.

As I said, I can’t get the book out of my mind…

Randy Mayeux