Middle-Class Americans Second to the Canucks?

With real wages adjusted for inflation flat since the early 1970's, there's long been talk of America's shrinking middle-class. Still, it came as a shock to most when a New York Times analysis recently showed that America – long the preeminent middle-class society in the world – had actually fallen behind our neighbors to the north. To understand why upward mobility is becoming less achievable in the land of the free, we need to look beyond the politics and ideologies to the realities of the 21st century.

When you ask people what has caused the decline of the American middle-class, the off-shoring of jobs is usually the very first answer, and quite often people view it as the paramount reason. To be sure, globalization has not been kind to most people in the United States economy. In fact, all the way back when NAFTA was being considered, I argued (in a high school civics paper) that being a middle-class worker in a top-tier economy was among the worst positions to occupy in an age of globalized trade and relaxed restrictions.

Simply put, American corporations were able to access a world of cheap labor that had been somewhat restricted in the past, sending high-paying manufacturing jobs to second and third world countries where they would be performed for pennies on the dollar and free from much of the health, safety and environmental oversight that added to domestic production costs.

The flip side was supposed to be stronger trade partners who could afford to buy increasingly high-tech American products, along with cheaper goods that would come here from abroad. The cheap goods did indeed come to fruition, as anyone who's ever walked through a Walmart or Dollar Tree can attest. However, the assumption that we would dominate new, higher-skilled markets proved flawed, and we experienced much greater competition from lower cost-of-living nations who'd invested heavily in educating their workforce (India, South Korea, etc.), just as we were cutting back on the percentage of our GDP that we invested in education.

Unforeseen developments in technology also played a big role, as lightning fast internet connections paved the way for the cheap and fast transfer of data across the globe. Suddenly, jobs once thought to be impervious to relocation – like customer service and other back office operations – could also be done on the cheap elsewhere.

While cheaper goods did inflate the average American's standard of living (did you ever think in 2000 that a decade later, flat screen plasma TV's would cost less than $500, kids would have smart phones, or a laptop could be had for as little as $300?), it didn't do much for their economic standing. The inflation rates among things like health care, energy and higher education so far outpaced traditional inflation (and more importantly wages) that Americans may have had more stuff, but their balance sheets surely didn't show it. Savings hit a 50-year low last decade, just as personal debt was at an all-time high.

At the same time, technology also put pressure on the job market. Most data suggests that we've lost at least as many jobs to automation as off-shoring. In the past, it's been an economic assumption that new technologies always lead to a net gain in economic activities. However, we're actually beginning to see evidence that such is no longer the case – a phenomenon that is compounded by the fact that many of the replacement positions can themselves be off-shored, such as our automated red-light cameras whose data is monitored and processed thousands of miles away.

It goes without saying that there is an efficiency to putting a camera on a traffic signal over hiring additional officers to patrol the streets; using them instead of people to man toll booths, or replacing grocery clerks with self-checkout lanes. But the fact remains that around 130,000 people enter the U.S. workforce on average each month. The more jobs that are performed through non-labor intensive technologies, the fewer of them who will find employment, especially when associated jobs can be outsourced.

At the root of the problem is an economic system that does not reward employees for an increase in productivity. Because of increases in technology, the American worker is vastly more productive than ever before in human history. There is nary a position in which the work cannot be done faster or with less people involved than it took 30, 20 or even 10 years ago, mostly because of computer-related technology.

From a purely mathematical perspective, the economy would function much better under these circumstances if this increase in worker productivity correlated to an increase in the average worker's value. However, our system is set up in the exact opposite fashion. As workers become more productive, demand for labor goes down, even as output goes up. Therefore, the profits increase for owners and return increases for investors, while the supply/demand function of the labor markets actually incentivizes the job seekers to work for less and less.

The obvious problem in a consumption-based economy is that stagnant wages and high unemployment depress consumer spending, a phenomenon that in recent years we managed to somewhat avoid, or at least delay the ramifications of, through all sorts of ill-advised credit schemes, nearly bringing down the world economy in the process.

This result has been historically consistent, as French economist Thomas Piketty points out in his exhaustive new book Capital in the Twenty-First Century. Piketty uses an enormous body of historical economic data to show that much of the 20th century's growth came during an uncommon period in which an isolated phenomenon – two closely occurring world wars – destroyed a great amount of dynastic wealth, narrowing the gap between economic growth and the growth of capital.

However, as the return of capital versus growth opens to Gilded Age levels once more, Piketty demonstrates through the data that we are on our way right back to the sort of non-meritocratic, family dynasty-driven plutocracy that defined that era. In most of the Western World, and in the United States in particular, the numbers are staggering, with the richest 1 percent bringing in a full 20 percent of all total income.

We can argue over the remedies, but these are the realities we face and I don't know of anyone who has attempted to argue in any sort of serious way that a consumer economy with high-unemployment, high rates of working poor and less and less upward mobility is one to be envied. While Piketty is mostly interested in the data, he does offer some policy options which tend to focus on taxing real wealth rather than income, via the property tax.

Perhaps most importantly, we now have substantial data that strongly suggests that capitalist economies, while providing for the greatest measure of overall prosperity and growth, naturally gravitate toward these negative dynamics unless they are kept in check by policy – something we also did better in the second half of the last century, when the tax code was more progressive and growth was greater.

I would suggest that another way to look at possible solutions would be in redefining quality of life metrics. In recent decades, the average work week has gotten longer, while things like vacation time, sick and personal days have gotten shorter. Pensions have been cut and average retirement ages in both the public and private sectors have risen. Social Security age has been raised once and there is perennial talk of raising it again. This has all been chiefly a response to the supply and demand of labor.

Yet doesn't it seem grossly counterintuitive that the end result of a vastly more technological world is more work and less reward on all fronts, except maybe cheap – non-essential – stuff? Isn't that the whole point of technological innovation, to reduce human workloads by subsidizing them with non-human labor in order to create a more rewarding existence in which less time is spent addressing basic needs and more can be dedicated to higher purposes?

Again, from a mathematical perspective, policies in which the working day got shorter and people retired earlier would go a long way in correcting the imbalance between productivity and compensation, allowing workers to share in the fruits of the output gains. After all, most of those gains have come at the expense of public investment. From the internet and television to pharmaceuticals, public money has often been the father of invention, only to see the financial byproducts exploited almost wholly by the corporate class.

If we were to accept that wages would remain largely stagnant, as they have for 40 years despite record growth among the wealth class, wouldn't a more comfortable life be a reasonable tradeoff? If we had 5-hour workdays and a month of vacation, we'd certainly be able to employ a lot more Americans, while reducing the need for such a robust social safety net. If we had universal health care and developed much more cost efficient energy/transportation systems, wouldn't that improve our life more than cheap goods from China?

The last thing this economy needs is people in their sixties competing with recent college graduates in the workplace. Shouldn't it be the goal of advanced societies to get their older population into their retirement years earlier? It would clearly make more sense on all fronts to scrap the cap on Social Security taxes than to raise the retirement age, yet there has been no talk about the former and near constant talk of the latter. If we can't even discuss this relatively small and simple measure, there doesn't seem to be much hope for the other more ambitious ones.

That brings us back around to another central premise of Picketty's work, which is that economies with enormous wealth gaps are not conducive to healthy democracies. Simply put, once too much wealth is concentrated in too few hands, the ability of the oligarchs to consolidate influence and shape outcomes inhibits the Democratic process. The richest 1 percent have long had a disproportionate impact on election outcomes and as more and more of that power is consolidated, the effects grow almost exponentially – just look at recent changes to campaign finance and the reversal of legal philosophies that have upheld them.

Every American on either side of the aisle who believes that nothing gets done in politics without big money has already learned this truth. That's why they've heard much more about eliminating the estate tax than scrapping the cap on Social Security, despite the latter being infinitely better for the economy at large, as well as the lot of 99 percent of individuals. Whoever thought we'd be telling our children that if they want a shot at the middle class they'd better move to Canada?

Dennis Maley's column appears every Thursday and Sunday in The Bradenton Times. He can be reached at dennis.maley@thebradentontimes.com. Click here to visit his column archive. Click here to go to his bio page. You can also follow Dennis on Facebook.