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How the
Middle Class Lost Its Affluence
Paul A. Heise, PhD,
Emeritus Professor of Economics, Lebanon Valley College
"Mass
affluence," the age of the great, American worker-consumer class, "is
over." The first affluent middle class in history has been declared
irrelevant by no less an authority than Advertising Age. That's bad;
it means the marketers, whose job it is to know, recognize that the
middle class has no money. The middle class did not lose its
affluence by accident: it was taken from them. Until the workers again
get their fair share of income and can buy the product of their labor,
America will stay mired in recession and decline.
In the
post-World War II era, America spread the wealth to the working class.
Our system of market-based democracy awarded the huge productivity
gains of that era proportionately to owners, managers and workers.
Everyone got their share. Their share meant an "Annual Improvement
Factor" based on productivity gains. The theory is called the
"principle of marginal productivity" and it worked.
Competitive markets provide a reasonable distribution of income but
only so long as no private or political power is manipulating them.
That's the point, beginning in 1980, something happened to shift
income distribution away from its long-term trend and away from the
outcomes that were predicted by economic theory.
After1980,
productivity and output continued to increase so wages should also
have increased. After all, GDP per capita increased by 65 percent
between 1980 and 2000. Unfortunately for workers, all of that increase
in output, including the workers' share, went to owners and managers
in the form of soaring profits and huge salary/bonuses that continue
to this day.
What
happened over the past 30 years is not the result of Adam Smith's
invisible hand. If we look at the major changes in law and government
over these years we see a strong and clear bias redistributing power
from workers to management and owners. The loss of income results from
that loss of bargaining power by the workers. Trade and investment
patterns, political power structures and economic institutions were
all reconfigured to take power away from workers and redistribute it
to the rich. This was deliberate.
BusinessWeek reports, unfortunately, that: "Over the past two decades,
corporate America has perfected its ability to fend off labor groups."
As a consequence there is no longer any countervailing force to
balance corporate power in our economy and politics. This loss of
worker bargaining power is probably the most important factor holding
down wages and working conditions for the entire middle-class. We just
have to look at where government has been taken over by the rich and
used to crush worker power.
Trade
agreements and treaties such as NAFTA and WTO are explicitly intended
to push down American wages in exchange for raising the return to
American capital. The theory being implementing so successfully is
called the "factor price equalization model." The price of labor in
America is being deliberately and successfully pushed down to equal
the price of labor in countries like Mexico, India and China.
Taxes have
been slashed with the express purpose of "starving the beast." The
intent being to close down ever more programs for lack of revenue and
to make our government look inefficient and incompetent. As a result,
government provided public goods such as the air we breathe, the water
we drink, our safety in the workplace or on the road, and our use of
the entire infrastructure now costs increasingly more for the worker
to use. The rich can afford an exponentially increasing cost of
education and health care. The middle class cannot.
This
privatization of the commons and of functions such as the student loan
program and home mortgages or the sell off of utilities and resources
such as natural gas, highways and schools are really intended to take
control away from the people, put it in the hands of the rich and then
blame government.
The Bush
tax cuts for the wealthy are the major cause of the present and
projected budget deficits which are the reason given to make the
workers pay higher taxes. The tax burden is also being pushed further
down the economic chain so that more of the school and local needs
must be provided by increases in property and consumption taxes.
Where
workers have remained strong, as among service workers, a union maid
in New York can stand up against one of the most powerful men in the
financial world. Her union contract guaranteed her that right.
Bargaining rights really matter. That's why the service workers and
public employees are under attack.
The Great
Recession and the end of middle-class affluence are a direct result of
the middle-class loss of power and income. It all goes back to a loss
of worker bargaining power, taken away by a bought and paid for
government. Little wonder that there is a revolt against government.
Paul A.
Heise, PhD
Emeritus Professor of Economics
Lebanon Valley College
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