Capitalism is failing the middle class

By Chrystia Freeland
April 15, 2011

Global capitalism isn’t working for the American middle class. That isn’t a headline from the left-leaning Huffington Post, or a comment on Glenn Beck’s right-wing populist blackboard. It is, instead, the conclusion of a rigorous analysis bearing the imprimatur of the U.S. establishment: the paper’s lead author is Michael Spence, recipient of the Nobel Prize in economic sciences, and it was published by the Council on Foreign Relations.

Spence and his co-author, Sandile Hlatshwayo, examined the changes in the structure of the U.S. economy, particularly employment trends, over the past 20 years. They found that value added per U.S. worker increased sharply during that period – 21 per cent for the economy as a whole, and 44 per cent in the “tradable” sector, which is geek-speak for those businesses integrated into the global economy. But even as productivity soared, wages and job opportunities stagnated.

The take-away is this: Globalization is making U.S. companies more productive, but the benefits are mostly being enjoyed by the C-suite. The middle class, meanwhile, is struggling to find work, and many of the jobs available are poorly paid.

Here’s how Spence and Hlatshwayo put it: “The most educated, who work in the highly compensated jobs of the tradable and non-tradable sectors, have high and rising incomes and interesting and challenging employment opportunities, domestically and abroad. Many of the middle-income group, however, are seeing employment options narrow and incomes stagnate.”

Spence is neither a protectionist nor a Luddite. He prominently notes the benefit to consumers of globalization: “Many goods and services are less expensive than they would be if the economy were walled off from the global economy, and the benefits of lower prices are widespread.” He also points to the positive impact of globalization on much of what we used to call the Third World, particularly in China and India: “Poverty reduction has been tremendous, and more is yet to come.”

Spence’s paper should be read alongside the work that David Autor, an economist at the Massachusetts Institute of Technology, has been doing on the impact of the technology revolution on U.S. jobs. In an echo of Spence, Autor finds that technology has had a “polarizing” impact on the U.S. work force – it has made people at the top more productive and better paid and hasn’t had much effect on the “hands-on” jobs at the bottom of the labor force. But opportunities and salaries in the middle have been hollowed out.

Taken together, here’s the big story Spence and Autor tell about the U.S. and world economies: Globalization and the technology revolution are increasing productivity and prosperity. But those rewards are unevenly shared – they are going to the people at the top in the United States, and enriching emerging economies over all. But the American middle class is losing out.

To Americans in the middle, it may seem surprising that it takes a Nobel laureate and sheaves of economic data to reach this unremarkable conclusion. But the analysis and its impeccable provenance matter, because this basic truth about how the world economy is working today is being ignored by most of the politicians in the United States and denied by many of its leading business people.

Consider a recent breakfast at the Council on Foreign Relations that I moderated. The speaker was Randall Stephenson, chief executive officer of AT&T. Mr. Stephenson enthused that the technology revolution was the most transformative shift in the world economy since the invention of the combustion engine and electrification, leading to a huge increase in “the velocity of commerce” and therefore in productivity.

One of the Council of Foreign Relations members in the audience that morning was Farooq Kathwari, CEO of Ethan Allen, the furniture manufacturer and retailer. Kathwari is a storybook American entrepreneur. He arrived in New York from Kashmir with $37 in his pocket and got his start in the retail trade selling goods sent to him from home by his grandfather.

Here’s the question he asked Stephenson: “Over the last 10 years, with the help of technology and other things, we today are doing about the same business with 50 per cent less people. We’re talking of jobs. I would just like to get your perspectives on this great technology. How is it going to over all affect the job markets in the next five years?”

Mr. Stephenson said not to worry. “While technology allows companies like yours to do more with less, I don’t think that necessarily means that there is less employment opportunities available. It’s just a redeployment of those employment opportunities. And those employees you have, my expectation was, with your productivity, their standard of living has actually gotten better.”

Spence’s work tells us that simply isn’t happening. “One possible response to these trends would be to assert that market outcomes, especially efficient ones, always make everyone better off in the long run,” he wrote. “That seems clearly incorrect and is supported by neither theory nor experience.”

Spence says that as he was doing his research, he was often asked what “market failure” was responsible for these outcomes: Where were the skewed incentives, flawed regulations or missing information that led to this poor result? That question, Spence says, misses the point. “Multinational companies,” he said, “are doing exactly what one would expect them to do. The resulting efficiency of the global system is high and rising. So there is no market failure.”

This conclusion is a very big deal – Spence is telling us that global capitalism is working the way it should, but that the American middle class is losing out anyway. Since global capitalism is the best way we’ve come up with so far to run our economy, that creates quite a dilemma.

Spence is honest enough to admit that he has no easy answers. But he has posed the right question. American politicians in both parties are focused on a budget debate that is superficial, premature and ultimately about something pretty easy to figure out. Instead, we should all be working on the much bigger problem of how to make capitalism work for the American middle class.

60 comments

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As the this article states, a rather unremarkable conclusion. India and China have the fastest growing middle class in the world thanks to outsourcing. Another significant problem is the shrinking of skilled labor therefore making us dependent on other countries for manufacturing or whatever. This could pose problems for the US in the event of any disagreements or having be to be self sufficient. Even having advanced degrees does not guarantee you a high paying job unless it is technology related, bio science or other limited specializations. America was built on the middle class embracing the American dream which is saddly not the case anymore.

Posted by hmon | Report as abusive

Mikeymouse03, I think you are missing the point of the study and article. Nobody argues the fact that our parents and grandparents worked harder and were satisfied with less material luxury. the ppoint is that the income gap is rising, meaning that fewer people partake in America’s economic success while the majority of the middle class is left out. As the broad middle class also carries the political system in a nation, this can lead to some very nasty political and social backlash in the future.
Plus, you complain about the rising expectations of the middle class but do not mention the increasingly ridiculous lifestyle of the wealthy. Their expectations did not rise then?
Lastly, American economic success depended on the rising expectations of the middle class. It was their ability to afford consumer goods and plastic junk that kept the wheel of capitalist growth turning. So were do you think this is going to go when their money runs out?

Posted by hollow | Report as abusive

@mikeymouse03:

It is nice for you to have such fond recollections of your hard-working great-grandfather and grandfather. No doubt they worked hard, like most people do. I wish you had shared your own heartwarming life story with us…

But 2011 is NOT the 1918 of your great-grandfather, nor is it the 1940 of your grandfather.

There are the small matters of globalization, off-shoring, outsourcing and the internet. We are burdened with an enormous military-industrial complex that provides little benefit and healthcare costs that are almost double the OECD average. The rules that applied to your ancestors’ success no longer apply, no matter how nostalgic you make it sound.

Business has moved out of the US because government policy facilitates these decisions, by awarding tax breaks for companies that send jobs overseas. Add to it WTO and Free trade. The billionaire class has no allegiance to this country — those parasites and bloodsuckers are bankrupting us and destroying the middle class.

Your suggestion that Americans should take the below minimum wages paid to illegal immigrants is ridiculous. Do you own a stoop-labor farm or something? Illegal immigration happens because the government ALLOWS it — business loves a compliant workforce that asks for no benefits and works for peanuts. ICE should visit every farm, hotel, restaurant and construction site and fine employers $10,000 for every illegal they employ. Like you say, GET OUT AND JUST DO IT!

Posted by upstater | Report as abusive

You write … “Taken together, here’s the big story Spence and Autor tell about the U.S. and world economies: Globalization and the technology revolution are increasing productivity and prosperity. But those rewards are unevenly shared – they are going to the people at the top in the United States, and enriching emerging economies over all. But the American middle class is losing out.”

With that said, you should read the new M.I.T. report “The China Syndrome: Local Labor Market Effects of Import Competition in the United States” written by David H. Autor, MIT, Professor Hanson, University of California, San Diego (UCSD) and David Dorn, CEMFI and IZA, in which they and clearly report that increases in negative social costs to the USA can be directly attributed to America’s increased uncontrolled trading with Communist China. The study further indicated that the professed financial benefits claimed by those importing from China are cancelled out by the increases in negative social costs and therefore uncontrolled China trade is simply bad for American society.”

Click here to learn more and view the full report. — http://www.americanmadeheroes.com/hanson -gordon.html

Posted by TankMan | Report as abusive

Middle class people didn’t decide to move factories and transfer technology to China and other low wage countries. The already wealthy management and bankers did so in order to to maximize their wealth. But sooner than you think, much manufacturing will be forced back to the huge US market by unimaginably high transportation cost caused by declining total world oil production. That will change our civilization faster than anything since the dawn of the industrial revolution. Look for it to begin between 2016 and 2022. Nothing can now stop it. Study a graph of USA oil production. No amount of drilling could stop the decline, only slow it a bit with new extraction technology. Oil moves nearly everything and is finite. And then there is new oil demand from China & India, 1/3 of humanity.
Bill Simpson in Slidell

Posted by Discovery451 | Report as abusive

The headline should read ‘Crony Capitalism is Failing the Middle Class’.

We’ve seen decade after decade of bigger, more centralized, unconstitutional government in the United States.

Consider the tentacles that intertwine Goldman Sachs and the U.S. Treasury Department. Or General Electric and the Department of Health and Human Services.

The free market hasn’t failed “the middle class” (whoever that is – which, by the way, is prototypical Marx-Alinsky class warfare rhetoric).

Monstrous government programs have failed Americans: from disastrous housing debacles like Fannie Mae and Freddie Mac; the control of more and more elements of the energy sector in the name of a “global warming” fraud; “financial reform” authored by the likes of Barney Frank and Chris Dodd; further centralization of the health care industry; the failing welfare state; open borders; and dozens of other programs that are little more than Ponzi schemes.

If Americans can ever restrain the government to its constitutional duties, the “middle class” might get back in the game.

What we have today is an out-of-control leviathan of a federal government, mandating our light bulbs, electric cars, low-flow shower heads, what kinds of insurance we must buy, and controlling literally every aspect of our lives.

It’s not capitalism that’s at fault. It’s crony capitalism — and a failure to abide by our nation’s highest law: the Constitution.

Posted by directorblue | Report as abusive

What “mikeymouse” drivel. Imagine your grandfather, who was a draftsman, then engineer, had his job shifted to India for a fraction of labor cost no matter how “hard” ‘ol grandpa worked. Would you be able to recite this nostalgic story?

This article rightly states that it isn’t the lack of hard work; rather, the dynamics have to do with the commoditizing of labor by using low-wage offsore areas. Being a hard-worker has no more to do with it than Indians or Chinese being somehow inherently smarter. It is all labor cost as a commodity.

Since you profess to have an interest in history, it was America that invented the transistor and then the integrated chip (IC). These led to the huge technological advancements that were indirectly funded by the US government which in turn was funded by….drum roll…the middle class taxes.

In effect, it was the middle class of the United States of America that have made China and India what they are today. They got all that technology that came from America …gratis. Lose the American middle class and you have a hollow shell of financial instruments which are just worthless bits in a computer storage.

Posted by my2cents_jgeoff | Report as abusive

All the concerns are addressed in one simple concept no one wants to confront: our system of finance using debt/interest constantly skims the wealth gains provided by the productivity improvements implemented by the middle class. So, we no longer have true capitalism to much of a degree, i.e., the application of labor and materials to capital to create real wealth. Just making money in some enterprise that will give gain is NOT necessarily capitalism. We have been taught that it is; it is NOT.
You see, the level of debt under our current system rises to the level of aggregate productivity percentage increases plus an additional small administrative percentage. Otherwise, the 5 cent soda of 1955 would cost, with productivity improvements since then, much LESS than 5 cents now. Instead, the increases are taken, skimmed, each year in financial growth. That is, the debt level grows to take off that wealth increase in interest, for the debt-mongers, as it occurs. That feeds the financial-connected classes, and slowly starves the productive classes. Communist doctrine !, you say. No, I hate communism, but I also hate usury mercantilism, which doesn’t have to cross borders to occur. It’s simply the math. Explain the 5 cent soda problem to yourself, and you will have it. Everything else is attempting to treat symptoms. Take away the skimmers making money only on debt ( abt 35-45% of the economy is financial now ), and you will return to growth of producers and the productive, who are then funding new capital and investment with their savings, not with ginned-up money. Their yearly productivity increases will go to increasing their prosperity, instead of the prosperity of the lenders who make up their money from thin air, and demand its return with interest, skimming the gains yearly.

Very few want to think about it like this, as their concept of the structure of society is shaken. But how shaken will it be if we allow this to play out to its end ?

Posted by gletto | Report as abusive

Hey “mikeymouse03″ … I suspect that your intentions were genuine when you wrote the story sharing the history of your grandfather. Unfortunately, the destruction of THAT form of “bootstrap” success and the middle-class American legacy is exactly the point of the article. Both are evaporating at unprecedented levels.

Today, essentially I am your grandfather. My dream was his dream. I have three boys and wanted little more than a warm house, sufficient food, a single working car, and money enough to afford health-care should one of us become sick or require dental work.

I am 52, have a college degree, and worked non-stop for over thirty years (often 100 hours a week) to the point where I owned a small technology-based business and was doing OK. But pile on two major economic recessions in less than ten years, globalization of product manufacturing, Government squabbling–apathy–arrogance in both parties, corporations ruled by self-indulgent–myopic–CFO–gods, de-regulation of the financial sectors, unfunded wars, blah-blah-blah….and HERE we are.

Add to that the wonder of being over 50 years old–the hardest hit employment demographic of all, since businesses save lots of money hiring younger, lower paid, recent college grads, or have out-sourced the labor…and voila–you have Me, or perhaps your grandfather, had he been born in 1957, as I was.

Today, I am unemployed, homeless (I lost my modest house to foreclosure two years ago), have no health, dental, life, or auto insurance, no 401K (wiped out trying to save my house), etc, etc, etc. I don’t even have enough money to file for bankruptcy–it costs almost $2500. The last job I got, after sending out over 600 resumes, was driving part time for a rental car company. After taxes, I took home $105 a week.

American Dream anyone?? I don’t want a handout–I don’t want sympathy–I don’t want pity. I want a job that pays more than $8/hour.

But what I also DON’T want is another out-of-touch, conservative, well-paid, commentator or political-pundit throwing me a bunch of BS about how cutting social services is good because only dead-beats and do-nothing losers are unemployed. Nice try, but that’s the biggest lie of all!

For the sake of all the hardworking, disenfranchised, unemployed people in this country, let’s take our heads out of the sand and admit how big and how real this problem really is, and do something sustainable that will fix it. I sincerely believe that your grandfather would have some great solutions. I wish he were here, and in charge.

Thanks. Zen

Posted by Zen | Report as abusive

Chrystia,

As a middle income person with a doctorate degree and a spouse (teacher) with a masters degree, it is encouraging to at least read about Spence and co’s work, and that it was discussed at your meeting.

My humble analysis of the situation is that the reality of the economic situation is lost on those that pay themselves astronomical sums of money, and choose to pretend that everyone in the ranks, middle class workers of all types, is benefitting from the crumbs that trickle down after their large take off the top.

The CEO’s and VP’s of corporate America are simply out of touch with reality in middle class America, and have their minds closed to the truth, as much as Marie Antoinette when she said “Let them eat cake.”

As we have recently read, the record profits of the American top corporations is totally shielded from any income tax, and is also now free to fund, buy and sway, the election campaigns of the Republicans that protect the corporations from taxes, and to the best of their ability, from regulation.

It is ironic that the use of other social issues by the right wing campaign strategists in the last three decades, including religion, guns, and others, the Republicans have propaganized their way into the hearts and minds of many of the voters being hurt the most by American corporate greed.

It would be interesting to know what percentage of the middle class really understand the depths of the lobbying of the insurance industry as a whole, the health insurance industry in particular, using the large chambers of commerce as store-front propaganda outlets.
It would also be eye-opening to many of those who have voted for the right wing to know the ultimate effect, if not plan, the right wing has for the free public school system; to know the real effect of class sizes and that computers are indeed not the answer to effective education, despite Bill Gates’s opinion that class size doesn’t matter (and I presume, that computers are the end-all, ultimate answer to education. Computers in fact are the cause of much waste of time for some teachers).

The middle class of the red states has largely bought in to the “anti-socialism” fervor, yet depend on their social security checks for at least part of their income.
We know of good, well-meaning teachers who voted against the current POTUS because of the lack of exposure to people of color and who forgot their Christian teaching of love for all, and were swayed into voting for those who would destroy the system they work in, and are vested in with a defined benefit plan, because of the fear of voting for a black person. This is not an attempt at inciting anything, this is simply the truth, just as in Spence’s work. One such teacher, since the presidential election, has come to see the light that the Republican party is not at all the friend of public education, as well as not the friend or supporter of American middle class people.

Thank you for your article. Please continue this work.

Posted by ayesee | Report as abusive

Citizens Under Attack

Everything Obama, Geithner, & Bernanke do, they do it all for The Banksters.

Many people have lost their homes. Many more are paying inflated rates on inflated properties which the banks refuse to refinance. Savers are getting lousy rates on CDs, but are charged 10%-24% on a credit card. From the top of the credit menuboard to the bottom, The Banksters have FREE REIN to suck as much blood out of the middle class as they possibly can. It’s a criminal plan that TARP was paid for by The Taxpayers to save the banks from extinction, only for them to revive and viciously attack the hands that feed them. Henry Paulson should be charged with Treason for using The Taxpayers’ Money to re-arm The Banks of Mass Destruction. Everybody is a victim, even the homeowner without a mortgage, his equity is dropping in its entirety; he’s losing more than the guy with a mortgage. Condos sit empty because banks don’t want to pay associations’ maintenance fees, while those fees rise for the rest of unit-owners to make up the shortfall. The Banking Cartel is waging a war against every American Citizen, and it won’t be happy until every savings account is drained, every homeowner is broke & evicted, every credit card holder is “paying” 24.9% + $88/ mo. in overlimit and late fees, and every house is in their possession. Even the foreclosure process is financially draining for the owner, with insurance and electric payments continuing until property is taken out of owners’ name, an average of 2-3 years. (Upon repossession, the bank doesn’t book the loss until resale, artificially covering-up insolvency issues). Wake up people, its not us against each other, its Us vs. The Banksters who run their operation with impunity.

Further details of the covert TARP program, “Where the Bailout Went Wrong”, by Neil Barofsky:

http://www.nytimes.com/2011/03/30/opinio n/30barofsky.html?_r=1&scp=1&sq=barofsky &st=cse

Posted by LarryOkarski | Report as abusive

I wish someone would give a uniform, hard and fast definition of the middle class. It would make the debate much clearer. Of course technology displaces workers, as it has since the beginning of the industrail revolution. So far it has worked out. We need fewer miners, farmers, fisherman, steel and auto workers than ever before, and that is a good thing, since all these jobs are very strenous and relativel dangerous. We have just undergone a transforming technology leap, computers and the internet, and I am hopeful that this will work it’s way out in the end, just like it did in agriculture, mining etc.

Posted by zotdoc | Report as abusive

@drectorblue
Referring to the “middle class” is Marxist?! What planet do you live on? Are we supposed to pretend that we live in a classless society and therefore not have any terms to describe people living in one set of particular circumstances as opposed to another set of circumstances? I suppose “homeless” or “wealthy” would be Marxist terms as well, eh? It’s not Marxist rhetoric, it’s a way of describing a readily observable phenomenon. I love the notion that speaking about or critiquing the existence of gross wealth disparity is class warfare, but the simple existence of those things is not.

But anyway, to the extent that larger corporate powers are robbing America of its democratic principles, I agree with you. However, I think you’re mistaken to attribute this to environmental and health regulations in production. I hardly think you want to go back to the days when there was no guarantee of not having rats and their feces ground up in your meat, or being unsure whether you would contract salmonella from your eggs. If you are unconvinced of this you need to read Sinclair’s “The Jungle.” As dangerous as our “crony capitalism” (better called “plutocracy”) is, rampant libertarian capitalism also allows for the exploitation of public health and freedoms.

Posted by cameronorr | Report as abusive

Not sure the above rant got the point either, which is globalization.
Though globalization may be raising some into the middle class in India and China, the poor in those nations are being left behind as well. At least that is the latest information I have. The world’s bottom two income quintiles, those making

Posted by KentA | Report as abusive

The failure is not in the capitalist, globalized system, it is by the complacent American workers. Their living standards aren’t keeping up because they don’t feel like gaining the basic math skills needed to fill the slightly more complex factory jobs poping up all over the rust relt. The only failure of capitalism is that, for a time, it made things too easy on the middle class. For 40 years, you could graduate high school, get a nice union job and earn your house and boat. Now you have to actually educate yourself to get these things. So who/what is failing?

Posted by Upstate184 | Report as abusive

My other thought on this article has to do with the plight of the middle class and which timeframe we need to consider.

Household income data from the US Census shows that all income groups (low income >25k/yr, middle income 25k to 100k/yr, and high income >100k/yr) have held fairly steady over the last decade (steady meaning each group has stayed about the same size). This period of steady follows decades in which lower and middle income groups have become smaller and high income families have grown, i.e. households across the board have become richer.

I think when looking at economic data, you need to consider longer term trends to draw meaningful conclusions as shorter term data can lead to erroneous conclusions. I think the sample space viewed should include periods of growth and periods of decline to give a balanced picture.

For whatever reason, people dig gloom and doom stories especially when it comes to the plight of the middle class.

My takeaway here is that people need to be willing to adapt and change and continue to learn. School doesn’t stop. If it does, that person jeopardizes their employability.

Posted by jambrytay | Report as abusive

If you’re looking for the “Market Failure” in America you’re looking in the wrong place. The reason that the middle class is slowly being hollowed out is a matter of government failure, specifically the failure to provide adequate and affordable education at all levels. I know from personal experience, having gone to a high school that had an appalling 50% drop out rate, that the U.S. is not properly educating its poor. The middle, upper, and lower classes in America used to be much more fluid (from shirt sleeves to shirt sleeves in three generations as I’ve heard it said). In other words as people in the Middle Class who did not properly invest in themselves or the children fell into the lower income brackets there were plenty of those in the working class who were willing and able to move up to replace them. I can tell you that the majority of my class mates will not be joining me in the middle class as I am the only one of my circle of friends attending college. I stand to benefit from the improving productivity of globalization and will most likely be well paid, but I am the curve breaking outlier. For the rest poor teachers, polarized education spending benefiting only those in the wealthier suburbs, and the anti-intellectual culture being propagated in todays society that makes reading or being smart uncool, is dragging educational attainment down. The earnings bonus received by those with a Bachelor’s degree or better will continue to grow so long as these problems are left unresolved which will continue to widen the gap between the haves and the have nots.

Posted by hindumuninc | Report as abusive

This conclusion should be a shocker to no one, whether you’re an expert on the labor market or not. Most Americans still live with the idea that we are an exceptional nation, and as such we will weather all storms that confront us, and weather them with style.

This simply isn’t true.

In a way we are the worst of both worlds. We have the expectations for living akin to European nations, but we have so very little of the safety net those nations have, which allow the majority of their people to enjoy a homogeneous standard of living. Rather, we have this ridiculous ideal that everyone should have as much (or increasingly, as little) as they can get, by almost any means necessary.

We have first world material demands, and increasingly, a third world ideal of wealth collection and distribution. And when the govt should be making P-12 education better and Higher Ed more affordable, it does neither, yet we continue to expect that somehow, magically, we’ll maintain our global superiority.

Posted by Adam_S | Report as abusive

The headline states, “Capitalism is failing the middle class”. That may be true if one expects others to provide for them to provide for them.

If, however, one expects people to provide for themselves, then the headline should read “Middle class is failin the middle class”.

Today’s middle class skills are not so difficult that poor people cannot master them. The more formerly poor people acquire those skills, the more competitive the market for those skills become.

The failure is born of middle class complacency – as epitomized by the American K-12 industry.

Unpleasant as it may be to acknowledge, note that complacency does not exist in the C-suites.

Posted by PhiscalPhocus | Report as abusive

Let’s face it – Democracy has lost it’s effectiveness.

The financial players and global corporations now control most every countries government. Greedy people need poor people to prosper. They will not willingly lessen their pot.

We have so much better technology now and people should not have to work as hard as our grand parents. Instead people still work longer hours with more stress with no stability. At least our grand parents had community and a sense of ownership.

True leaders will emerge to pull us together to fight for a new social structure that rewards innovation, humanitarism and enjoyment of life. We’ll still have celebration of fame, talent, and elitism while hopefully painting greed as despicable, shameful and disgusting right from when a child is very young (similar to how we did that with polluting).

If you could define greed and make it a criminal offense – life would be 1000% better for all and corporations would be kept in check.

If this does not happen – well – radical groups will naturally emerge to even things out by force. Not a threat – just an observation of many repeated events in history.

Posted by Butch_from_PA | Report as abusive

Americans have no special talent absent in the rest of humanity nor a divine right to be more wealthy than anyone else. Empires rise and fall with the tide of history according as transient advantages favor them. America had a transient advantage when a virgin continent was exploited by by a new population with a technology advantage over the residents. Nice party, but it’s over now; a lot more people here now and a lot less stuff than there used to be. People overseas used to get rich by immigrating to America and working hard wile the current residents got rich by using them; now overseas populations can get richer just by working hard without emigrating, and (as usual) the already rich can get even richer by using them. Historically middle classes have been comprised of talented individuals using their talents, not the uneducated and unenterprising demanding more for doing less. The anomalies that enabled this are passing away, and relative income levels are reverting to the norm.

Adam Smith said that Labour is the source of all Wealth; if labour alone were sufficient for wealth then horses wd be richer than men, for as anyone can see, a horse can work harder than a man. Clearly, it’s the intelligent use of labour that produces wealth from known resources, and intelligent exploitation of chance that finds new ones. Further, it takes willing cooperation between men to get wealth, for a man by himself can’t even make a pencil. Just try going into the hills by yourself and building a toaster. What does it take to get willing cooperation between men? A fair deal is the usual way; talent, hard work and fair dealing is the best way to wealth, in the sense it is the most reliable way. Notwithstanding, there will always be robbers, poachers and parasites; so it goes.

To the enterprising, an open road is an opportunity, to the vulnerable, a threat. The classic solution to this dilemma is a gate, used with prudence.

Capitalism, by itself, is insufficient a philosophy to form an adequate response to America’s (or any group’s) global challenge. Capitalism requires social cooperation and the right of property; property is not possible without law, and law is ineffective without both justice and good government. Even then, capitalism without innovation is mere hoarding, subject to raiding and piracy.

A society that encourages fair dealing, risk acceptance, thrift, tolerance, cooperation and self improvement can well combine these with capitalism and its requisites to face the harsh new world that’s coming and won’t go away.

Posted by NQE | Report as abusive

I don’t know why it takes so long for the “experts” to figure these things out. We people who talk to “Main Street” people every day, who teach in the schools and who have children going into the work force have been well aware since the late 1980′s of the situation, economically, with the middle class in this country. We, the great unwashed, knew 25 years ago that our children would not be as well off as we were. Glad the experts finally caught on.

Posted by neahkahnie | Report as abusive

Good article – and yes, it does confirm the obvious. Unfortunately, what this country needs – large numbers of decent-paying low skill jobs – is not going to happen. It happened once – in the unique, never to be repeated post -WW II era, when the U.S. was the only country left standing with virtually no competition. At that unique time, a high school grad (or dropout) could go down to the factory and get an at least modestly livable wage, and perhaps much more in some places. What makes matters more concerning is that there appears to be upward creep in the disappearance of jobs – now the new college grad is facing what the new high school grad faced some time ago. The answer – obviously that’s the tough one – somehow, spur growth at a rate that does not seem anywhere on the horizon or a true welfare state with very high taxes, family allowances, etc. as in some European countries – the latter requires virtually permanent high unemployment and a widespread social consensus, less difficult to achieve in a small homogeneous country, say, like Finland. Since we are large and heterogeneous, with the concomitant lack of social/political/cultural consensus, that does not seem likely either.

Posted by SayHey | Report as abusive

Congratulations!

Only took u guys 20 years to figure it out. We need to limit outsourcing at least. And equate labor conditions to fairly compete in the global market.

What this “equate” means? Support of our domestic manufacturing.

Posted by robb1 | Report as abusive

What we have here is–

Socialism for the rich.
Capitalism for everyone else.

Posted by Yellow105 | Report as abusive

Globalization is a fancy name for the process of implementing free trade that began in 1947 with the signing of the Global Agreement on Tariffs and Trade (GATT), forerunner of today’s World Trade Organization. At that time, free trade advocates got the upper hand of trade policy and convinced world leaders that we’d all be better off if each nation put aside trade policies based on their own self-interest and put to the test on a global scale the unproven “principle of comparative advantage,” a free trade theory developed by British economist David Ricardo in 1812.

Basically, Ricardo said that each nation benefitted if it concentrated on what it did best and traded that product for others made best by other nations. A key stipulation was that each nation had to maintain full employment, and that workers displaced from inefficient industries would find employment in others.

What Ricardo failed to incorporate into his theory was the effect that extreme population densities could have on eroding per capita consumption, driving up unemployment to such an extent that a nation could become completely dependent on exports to sustain its bloated labor force. Ricardo could be forgiven for that, since no one could envision such a situation in 1812. But today’s economists cannot.

Today’s economists choose to remain ignorant of the full ramifications of never-ending population growth because none dare to risk being labeled a “Malthusian,” a derogatory term arising from the theory of another British economist named Malthus who, in 1798, theorized that mankind’s population would forever be held in check by food shortages. The theory led to the field of economics being mocked as “the dismal science,” and to this day economists steadfastly refuse to ever again consider the possibility of overpopulation.

That’s a pity because if economists considered the full implications of population growth – not just the strain on resources and stress on environment, but other economic ramifications too – they might recognize the effect that population density has on per capita consumption.

What does that have to do with trade? Free trade between two nations – one less densely populated like the U.S. and another more densely populated like China, Germany or Japan (4X, 7X and 10X as densely populated as the U.S., respectively) – results in the spreading of manufacturing work evenly across the combined labor force. But consumption patterns between the two nations are badly skewed by the extreme population density and low per capita consumption in the more densely populated nation. The result is an automatic trade deficit and loss of manufacturing jobs for the less densely populated nation.

It is a fact that the U.S. consistently runs trade deficits in manufactured goods with more densely populated nations like China, Japan, South Korea, Germany and a whole host of other nations, many of them very wealthy nations with high incomes (thus debunking the myth that trade deficits are caused by low wages). At the same time, the U.S. consistently runs trade supluses in manufactured goods with less densely populated nations like Canada, Australia, every single South American nation, Russia, and so on.

In fact, if the nations of the world are divided evenly around the mean population density, in 2009 the U.S. had a trade surplus of $102 billion in manufactured goods with the less densely populated nations. With those more densely populated (same number of nations), the U.S. had a trade deficit in manufactured goods of $422 billion!

The data is there for all to see and the correlation between population density and balance of trade in manufactured products is absolutely undeniable. This is the reason that, since our last trade surplus in 1975, our cumulative trade deficit is approaching $11 trillion and is rapidly getting worse. Yet not a single economist has the courage to even consider the subject.

Global capitalism has failed America because of this missing ingredient – the role of population density in eroding per capita consumption and the role of disparities in population density driving global trade imbalances. Capitalism should be our servant, not our master. Boundaries need to be applied to make that happen. In the early 20th century we learned that a boundary was needed to protect against the abuse of labor. In the latter half of the 20th century we had to set boundaries regarding abuse of the environment. Two boundaries remain to be discovered and implemented. First, measures must be taken (regardless of whether they are tariffs or import quotas or whatever) to prevent trade imbalances that will surely persist otherwise. And, secondly, capitalism cannot be allowed to rely upon population growth as an engine for economic growth, as rising unemployment and poverty will be the inescapable result, which is precisely where we’re headed.

Posted by Pete_Murphy | Report as abusive

What this article fails to mention is the disastrous effect of a marginalized middle class on politics, specifically democracy. When you consider that the children of middle class families are finding college increasingly beyond their reach one problem just makes another even worse. Eventually democracy will be very difficult to sustain.

Posted by gangof4 | Report as abusive

The real question in all this is, that if the bulk of the American people are worse off with the new social and world order, why should they not opt out of it? As a democracy, we certainly do not have to accept degradation in order to attract more billionaire immigrants. We have plenty of billionaires already, perhaps too many.

Billionaires bring demands on the Government and they also presume to think it is their country, as in property. What good are they to Americans as a whole? Why should we cultivate them? Don’t we have all the war we can handle already? And police agencies?

Posted by txgadfly | Report as abusive

I love that quote “Socialism for the Rich”
This is so true. They get every opportunity, safety net and loops holes under the current and future laws.

Laws were meant to keep a civil society. Now they are used so socialism for the rich can prosper and not be touched.

Posted by Butch_from_PA | Report as abusive

One rough and ready, but useful, definition of the “middle class” comes from the source of their income and how it is calculated.

Middle class people are generally paid by the month, while working class people are commonly paid by the hour or by the day. Some working class people are also paid by the job. Mostly, both classes are paid by others in their organizations.

While there are a number of gray areas, this division more or less gives a picture of the USA that most of the population can agree with. Most small businessmen are also “middle class” provided their business has revenues below a certain point and employees below another point. Perhaps outside the highest quintile.

Of course one can quibble over these definitions. But in general, an unhappy middle class will mean a sharply different Government unless the ballot is even further manipulated. And that brings the danger of an even great degree of change happening abruptly.

Posted by txgadfly | Report as abusive

What we have here is a grossly overvalued dollar.

If the currency were properly valued, the middle class would benefit while the rich would not. The high dollar makes it cheap for the rich to buy assets overseas at below value while making it expensive to “sell” American labor to the rest of the world.

Devalue the dollar by half and most of these problems will go away here. But the rich and the corporations who have invested massively overseas will scream because suddenly they will be the ones priced out of the market.

Posted by txgadfly | Report as abusive

I have lived in a place where there was no middle class. This is what happens. The rich blame the poor for being poor and on top of that they attribute the poor with every negative attribute imaginable, laziness, dishonesty, etc. The poor, with nowhere to go, eventually fulfill the description. They get really angry and lie and steal from the people who have such a low opinion of them and see no need to help them. Remember, the poor have children who are in jeopardy every day. A healthy diet and doctors cost money. The rich live behind walls for safety. This is class warfare and it is ugly!
The middle class is the part of a society that maintains the values and social order of the culture. Anyone who grew up in the middle class can attest to this. ( I now live in a middle class neighborhood.) Where are you going to find the most honest most generous people? Where would you look? Schoolteachers! Social workers! People with steady jobs who feel that there are opportunities out there for their children and a secure future for their family! What erodes the middle class? Lack of affordable healthcare, lack of educational opportunities, lack of job security, lack of social services, disability, layoffs, illness or disability caused by lack of safety in food, medicine, environment etc. and finally, no upward mobility for those who have nothing to start with. And now there is this phenomena that Chrystia explains to us. I was wondering how it came to be that so many people are jealous of teachers’ salaries.. Well there’s a shortage of middle income jobs.
There is a practical need for a large middle class beyond the tax base provided and the purchasing power. It’s the buffer. It’s what makes us civilized. It’s what makes us different than third world countries. If readers don’t think it’s eroding they must already be living behind walls with an expensive security system. Ms. Freeland thank you for explaining how this has happened. One can only hope that it will be read and understood by millions of people whose first reaction isn’t to stick their heads in the sand.

Posted by Sue4 | Report as abusive

People: Please look at SayHey’s comments above. They are thoughtful and accurate. Your complacency is bringing all of America down. I am a Lawyer, an MBA and a software entrepreneur: 15 years ago my first job as a software developer was to figure out how to make customer service jobs as easy as possible for a high school drop-out with no skills and minimum wage. That day is now here by: (1) total automation with voice dialing systems (no operators to pay; no ability for the customer to talk back or complain); (2) change in laws so that customer service people don’t even have to call you back and there is no way to complain (no privacy laws and contracts of adhesion are no problem in the U.S. anymore); (3) outsourcing (forget U.S. minimum wages, I now go to India and China for minimum wages, which are about $0.05, yes, five cents an hour); (4) computer systems that provide so much information you don’t even need an elementary school degree (I don’t worry about job fulfillment anymore and that is not an issue at all anymore because all I have to argue with are a bunch of elementary school dropouts — ha, get back to work, you cretins!). Anyway, I’ve tried to help you out in the past, but if you vote Republican, you are so shooting yourself in the foot (actually more like your face), but thank you for letting me roll all over you. Wallow in it, losers!

Posted by NoMoreUSDream | Report as abusive

Some who are lower class and resigned to their lot in life would advocate a socialist or communist system that divides up the spoils of the economy into “equal shares.”

The fact is there is no middle class in a capitalist system, for class structure is irrelevant and outdated. There are degrees of wealth, and degrees of poverty… and the mean average only seems like the “middle”!

A Google search turned up an article American Middle Class an Illusion (http://socialismmarxdeleonforarealunion .org/) and here’s a quote to leave you all with:

”So what does “middle class” mean today? Usually those that aren’t on the lower rungs of the wage scale, but they still retain the same economic quality of their lower paid colleagues. Both must present themselves to an employer to get a job for their existence. As a class there is no distinction. That distinction only exists in their fantasies. But rungs on the wage-scale ladder sometimes collapse to the lower rungs. Losing higher paid positions to lower ones from outsourcing is an example-but more on this later.”

Posted by DisgustedReader | Report as abusive

Has anyone seen Idiocracy? I wonder if the middleclass work ethic and intelligence has changed? Being 26 I lack the proper vantage point of experience so I ask out of curiosity. Harsh truth of employment is if you are ever getting paid what you think you are worth your generally about to be fired.

I do think government tax policy should reward companies that don’t outsource labor. The language of business is money, offer money, business listens. Simplistic, yes a little. However much more logical than saying you should stay here so you can pay more in labor and taxes because I deserve atleast 5k more a year than I make now.

Posted by Eddiebaso | Report as abusive

It seems that we use the term “middle class” too loosely. Is it an income level or associated with an education level? If the expectation is that we should be able to continue to earn (inflation adjusted) as much with a high school degree back in the 1950s as in 2011, it is a delusion. It is not a RIGHT to have a decent wage, a boat, 2 cars, 2000 sq ft house and all the middle class clap-trap at home – like most union workers at the big 3 in the 80s and 90s. It is a PRIVILIGE to be earned. This country was founded on hard work and a great work ethic. The “middle class” lost its work ethic along the way. Creating new markets overseas comes at price. Gone are the days of imperialism at the expense of colonial populations. It means competing with another “middle class” in those countries with a higher motivation to learn and contribute to the bottomline. That is the essense of capitalism. We cannot have it both ways – want capitalistic ambitions on GDP growth and “protect” a “middle class” such that they never have to adapt to the changing world.
My apologies to all who have been affected by recent downturns. This is a VERY generalized view of the situation and not intended to disparage individuals.

Posted by balancedcitizen | Report as abusive

PhiscalPhocus: You might possibly be correct that complacency does not exist in the C-suites, but it is blatantly obvious, to anyone willing to admit the obvious, that greed does. The current greed of American corporate leadership is well documented, and observed. It is undeniable, and unrestrained. That corporate greed is the driving force behind the moving of American manufacturing jobs out of the country to cheap, very cheap, labor. Unions may occasionally have overstepped reasonable boundaries, but if it were not for unions, we would not have the middle class that from the late 1940′s to the 1990′s could afford to buy the products that made the bulk of the money that the corporate world now stands on.
Your view denies the truth of the Enron travesty, the Enron outright lies that cost hundreds of thousands their retirement, that laughed in the face of elderly pensioners, those living on a small social security check, when they were struggling to pay an astronomical electric bill in California because of the market manipulations of the Enron executives who were found guilty on many counts involving fraud. Enron is only one example of many, need we list all of them for you?
Should we tell you about the UnitedHealthcare CEO whose salary was $125 million, so you can tell us that is because he worked harder? He worked hard at deceiving the American public to believe that his industry has their best interests at heart, all while they took in premiums that are a very high percent of income for many families, so that one person can have that $125 million per year. Merril-Lynch paying $1.3 million to re-do his new office is another example of abuse of customer’s trust and money, all for ego and greed.

No Phiscal, there are indeed many of us that see through the smoke screen that attempts to degrade the U.S. public school system, as you have done. We know it is another guise to lead to control over the masses: controlling thinking, controlling earning power, through controlling education. Pretend it is the victims’ fault and get others to believe the ruse. Like many public school critics, it is likely you never went to one. If you did, you probably have no clue what social challenges a public high school teacher has to deal with while attempting to teach 135-140 students per day in 40-45 minute class periods.

The other truth you don’t or won’t see and acknowledge is that there are indeed many college educated middle class workers in this country that are doing a job, a career, that is relatively low paying because they wanted to do something with their lives that they felt is worthwhile, that was helping others, and where money is not the prime motivator. People in your corporate suites do not understand that, and do not care. To them, money is all, money is everything, and they will put up any lie, any deceit, to obtain more money and more power to get more money, no matter the cost to the quality of life of a majority of our society. No, we don’t believe your bunk.

Posted by ayesee | Report as abusive

Hello Upstate184,

Along with those such as PhiscalPhocus, you choose to believe and propagate the myths about the complacent, spoiled, even lazy, middle class American workers being their own worst enemy. So explain this, besides the example of Enron execs basically stealing the retirement of thousands of electrical workers through forced participation in a captive retirement fund, highly invested or 100% invested in Enron, let me show you another example of pure corporate head-shed greed taking from the worker: just Google Arrow Trucking of Tulsa, Oklahoma and Doug Pielsticker. This son of the company founder totally sucked dry a company that his father developed, to the point of hundreds of drivers being stranded around the country at Christmas a year ago, all so he could have his many exotic cars, multimillion dollar house, etc. Even after filing for bankrupty it is reported that he just bought a house in Dallas for $3.9 million, with his ill-gotten money by which he hurt many people, from employess to creditors. So it is true that their was not complacency in his corporate suite, there was the pinnacle of greed and ego, just as with Madoff, and how many others?
No, until we see the corporations that are making record profits paying their share of taxes, we sure will not at all believe the nonsense you and others of your ilk choose to believe or pretend to believe. As an individual business owner I pay both the employer and employee tax shares out of my gross income, but the huge corporations of America are paying nothing. You are not going to convince me that this is good, this is right, as in moral, or that it is because I am lazy and not educated. Nothing is further from the truth.

Posted by ayesee | Report as abusive

The 1929 depression was economically more devastating than the 2008 financial crisis.

However, after 1929, America emerged from it feeling confident that the Government had rooted out the loopholes of insider trading, which caused the crash.

In contrast, more than 2 years after the 2008 dip, the initial bewilderment turned into a much deeper distrust and cynicism about the Government’s sincerity and political will to root out the loopholes. It appeared that enough distraction was placed on Asia by scapegoating their fiscal policies to damage the American economy unnecessarily. The exchange rate issue cannot and did not account for the crash. By repeatedly scapegoating, and failing to convince American citizens of the legitimacy or primacy of these allegations, the end result was an unnecessary erosion of confidence of investors into the U.S. economy. When will people learn, that playing politics so that one can be elected( by deflecting the true blame to overseas), the newly elected politicians are leading America down a dangerous path.

Lack of honesty, nor courage to confront the truth, is the most dangerous element of our political system. The fundamental problem is not capitalism, not democracy. Rather it is a severe lacking in honesty and courage to face the truth.

Posted by Janeallen | Report as abusive

Apr 18, 2011
3:48 pm EDT

((What we have here is–

Socialism for the rich.
Capitalism for everyone else.
Posted by Yellow105)))

am Totally agreed with what u said …

Posted by Al-Hinai | Report as abusive

Americans failed themselves by not fighting back.

And by listening to the wrong people.

The Republican Party is the problem.

The Democratic Party is part of the problem.

The Ron Paul brigade is a bunch of idiots. It isn’t crony capitalism which outsources labor – it is capitalism – no government official need tell a businessman that a one dollar a day worker is good for business.

The Left is killing itself by opposing restrictions on free trade and illegal immigration. Workers of the world unite is a great slogan but American workers don’t have to wait for “solidarity” from the Indian Trade Union Federation to start defending themselves.

Posted by c13579c | Report as abusive

Excellent article. One very strong coincidental fact is that the stagnation/fall of the US middle class and the meteoric rise of the elite tope 1% started when the Reagan tax changes were enacted. The policies of Clinton (deregulation) and Bush2 (further lower taxes on the elite 1%) were the final nails into the coffin.

Throughout the US tax code are incentives to dis-invest in the US, outsource rather than hire full time, and of course speculate with the new financial engineering that has taken over “investment”.

When short term cap gains tax rate went from 70% to 28% under Reagan, option trading and hedge fund activity exploded because speculative trading now became extremely profitable. And if that wasn’t enough, option trades on broad indices have a 10% tax rate!! The whole US economy went from long term investment mode to a speculator’s roulette wheel.

Reagan tax code eliminated the deduction of interest (except mortgage) for inidividuals but kept it for traders (margin interest) and corporations (major component in private equity deals). Reagan tax code started to tax reimbursed tuition as income!! – a major way middle class workers went back to school. Each of these little changes has further impoverished the middle class.

I estimate that from my middle class income of low six digits I pay an overall tax rate of around 56% if I include Federal, Social Security, state & local income, sales tax, real estate tax, and all the taxes on my tel., cable, and utility bills. 56% doesn’t include what I pay for healthcare insurance and copay (around $5000/year). If I lived in Sweden or Germany I would pay about the same but I would have a pension, universal health care, free univeristy education, and guaranteed 4 weeks vacation.

My point is that if the American voter pushed Congress to change the tax code, we can still save the Middle Class and provide an economic basis for corporations to hire locally rather than outsource.

Posted by Acetracy | Report as abusive

Thanks, Zen, for putting a face on the results of our crony capitalism. Gletto was right when pointing out the system of debt peonage which is destroying the middle class and preventing any possibility of upward mobility.

Posted by Greenspan2 | Report as abusive

The global labor supply doubled in the last decade to 6 billion. The average wage on the planet is $3.25 a day. The average wage in America is $22 dollars an hour. The U.S. is 5% of world’s population, while consuming 25% of the world’s resources. Time to tighten your belts America, because the party days are over. Sunset on the American Dream. And like George Carlin said, “they called it the American Dream, because you could only believe it when you were asleep. Nighty night!

Posted by dcrimso | Report as abusive

Ms. Freeland, please watch and listen to a tape of one of your appearances on Dylan Rattigan.

Posted by emm305 | Report as abusive

Somehow after reading all this commentary here I get a feeling that most guys want to just blame India/China/Rich and want to escape responsibilities. Tell me one thing, did India/China ask US government to run such high debts. Why did US govt. had such high debts? Leave aside housing, financial stuff all that, just concentrate on the govt debt. Where did all that debt money go?? All that debt money was used up by US govt to put food in mouths of those middle class guys who were absolute lazy to earn it themselves. People say US should stop outsourcing and on other hand US govt asks India/China to open up their economy at Doha trade talks…what kind of ridiculous thinking is that?? Why is dollar having a value so high when if people in US are not able to earn their bread and butter. Why not lower dollar value? Why this artificial and farce inflation of currency even now?? Problem is that middle class in US has become so used to working less and getting more that now when they are asked to work more then it is pinching them and it is clearly visible.

Now for financial scams. Pick up history of US. US was always synonymous to invention and all past booms were based on REAL inventions and REAL inventions always add REAL value. But look at past decade and you have LAZY (bold font size 40) US middle class who want houses, cars, cinemas, shopping mall and yet DO NOT want to work harder. So the American dream propagandists invented financial jugglery to keep the dream going but financial inventions DO NOT add any real value unlike REAL inventions.

Just think why US president is worried about children in India spending more time in class rooms than children in America, whereas basic education in America is free and in India its not and engineering education standards in US are FAR FAR better than in India. Who stopped middle class from taking loans and studying engineering but instead the lazy fools took loans and bought more than one homes, more than one cars per person, useless shopping and what not. There is nothing as “free lunch”, pay the price now.

Posted by 007XXX | Report as abusive

[...] of Contrarianism (Jesse’s CafĂ© AmĂ©ricain) • Capitalism is failing the middle class (Reuters) • Auto Rate Markups Cost Americans $25.8 Billion Over the Lives of Their Loans (CRL) • Robert [...]

[...] position the middle and working class finds itself in today. Global capitalism has, in many ways, failed the middle class. While globalization has increased productivity drastically, and made the wealthy in this country a [...]

No lawsuits are killing the middle class…and everyone else.

Posted by edgedes | Report as abusive

[...] Capitalism is failing the middle class | Chrystia Freeland [...]

What the “Global economy” means to the middle class of America is simply put, LOWEST COMMON DENOMINATOR. Just as wages and standard of living are nearly the same from state to sate, with the Global Economy/Free Trade, wages will have to equalize world wide, thus we in the U.S. have no where to go but down.

Posted by Dustyness | Report as abusive

It is amazing how no matter how many stats people are shown of how the American people have not had a raise since Ronald Reagan was president that commentors still blame the people harmed by this loss in wages. The marketing of “Its your Fault” propaganda to the American public will go down in history as the greatest non-wartime misinformation campaign ever waged in modern history. Then again it does lead into people’s need to be in control, the idea that some little guy has that much control over their life is comforting compared to the truth that you can do everything right but still end up in a food line. The truth is scarier then the fiction of blame.

Posted by vsheehan | Report as abusive

[...] Capitalism is failing the middle class. Well, that’s what it is designed to do, so no surprise there. This entry was written by Chill, who is awesome. Bookmark the permalink or follow any comments here with the RSS feed for this post. Post a comment or leave a trackback: Trackback URL. [...]

We in the West, and particularly in the Middle class, have become acustomed to an unsustainable material standard of living. In the long term, it is only sustainable to consume as much as you produce, both as an individual and as a nation. The size of the trade deficit and national debt are just symptoms of a soceity that lives beyond its means. The reality is that the market value of unskilled work is low due to advances in technology and huge capacity in Asia. If 10 IT workers in the US that can set up a system whose output is that of 10000 clerical workers then should they be paid a significant multiple of those workers? The best way for us to progress is if we start producing as much as we consume, this will mean that we have to work harder for less than many have become acustomed to. Individuals need to learn hard skills that allow them to be genuinely productive. Governments must stop taking money from those that generate wealth and spend it on unnecessary wars and bailing out incompetents. Failure to do so will mean we fail as a soceity as a whole. The credit crisis is a symptom of the real problem: we have become decadent and weak.

Posted by McJefferson | Report as abusive

Capitalism is designed to entrench wealth in the property owning elite by providing the majority of wealth created by workers to the people who own equity ordebt. Accordingly, it can’t be failing the middle class becasue it isn’t designed for the middle class. The middle class (the workers) are just a commodity to the capitalists.

Posted by Bharata | Report as abusive

“The most educated, who work in the highly compensated jobs of the tradable and non-tradable sectors, have high and rising incomes and interesting and challenging employment opportunities.”

How do you defined “most educated”? I can attest that women with higher degrees don’t even earn the same money as men with less education. Similarly, the statistics show that they aren’t nearly as well represented as men at the top levels of companies, either.

Further, are you defining those with the “most” education as those who went to exclusive Ivy League schools? Those people have the connections to do well in life, regardless of performance or ability. To me, that’s the heart of the matter. The rich steal from everyone else in so many ways and they practically OWN the government so nothing is done about it–against the law or not.

Posted by Gulfstate | Report as abusive

What this actually means is that technology should NOT be employed to unemploy people! Why are we humans and why do we work are two other questions that should be addressed? What’s the point of working and having technology if the end result is a lot of poor, unemployed people? What are we working for? To make some CEO or corporation richer? Why?!?

Just because things are cheaper to buy doesn’t mean that they should be. Cheap is not good for our economies. Cheap means just that, cheap. We consumers buy cheap, cheap breaks, and then we have to buy more cheap! It is a counterproductive cycle, using up limited, finite resources.

I don’t know what to do exactly to fix this but I certainly know that globalization as it now exists is not good for America and what’s not good for America is not good for its people, and eventually the world. This country was founded as a democratic republic and is a beacon to the rest of the world. If we succumb to CHEAP then we won’t be any better than those countries who do not have our ideals.

Does globalization mean that we have to destroy our middle class and make our workers poor and/destitute so they can be like other workers around the world? Why are we running trade deficits while other countries (democracies) have high wages and little or no deficits? Does this mean that high wages don’t necessarily lead to trade deficits but it is our own faulty trade policies that have landed us in this economic mess?

We have to start asking ourselves if we are living to work, or working to live? Which one would you rather do?

Posted by repar | Report as abusive

Just a few facts most do not want to hear.
A. The imports we get very much mimic the junk shipped to USA in 60-70s, “Cheap” items that wear out in 1/10th time older products did, levies good example. But they provide a cheap imitation of “really good stuff”, but basically trash.
B. Most hardware of any kind, electronics to garden use is simple not repairable, cheaply made, wears out quickly, but designed to look really neat.
C. Corp/LLC push A/B to keep profit levels up to foist off more cheap stuff.
C.Myth of “increased USA productivity. USA workers mostly ASSEMBLE sub-assmebly/parts items t end item. USA does little real manufacturing, do not label “assmebly’
as manufacturing.
D.Items imported are generally high end complex stuff, engines, computers etc, while USA “builds” cheap sheet metal etc to house them. Note good example is Boeing Acft 70-90% tariff free imported parts, auto firms import engines, electronics etc. “Built by more productive workers”, hardly so, just election/profits spin.
E.Amusing accounting via D. Government/Corps assemble imported parts with no tariff, then when exported, deduct FULL sale price of Acft-etc from balance of trade.
F.There is not much doubt, as facts provide nearly daily money/shadow government owns state/DC elected/appointed and “consultants”. Reality is USA now a two tiered nation, one with 90% of real wealth, as required access to write and change legislation at will, the other, simply a profit center for votes/cash/warriors as needed. There is no peoples representatives at any level for 95% of USA.
E.Result impact of F is simply 95% seeing real wages drop, zero chance of real medical or retirement futures. But oddly only 40% chose to vote.
F. Low voter turn out, probably reflects increase in dumbed down slovenly population then anything else,as more paid to vote for TV programs then voted for government. That is due to fact most have more in depth knowledge of latter then former.
G.Power/money mongers, robber barons and others such much prefer dumbed down as easier to manipulate, scare and panic. They insure control by now voting across nation to cut education as “we cannot afford it”, but in same breath, knowing extraordinary education is core item of kids futures claim “We must cut spending (education) in order not to burden out kids”? Kind of kills chicken and egg with that bit of political treason to nation.

Lastly the middle class will soon run out of funds, they are mostly on edge now and credit is the make up they wear to “look like all is well”. We have even returned to the good ole early 2000′s “Lease new car with little down” farce. Greed, corruption and a complete distaste for the nation, it’s people by the elected, appointed and shadow money controlling/owning USA seems to be final fruition of plan started 40 years back, might call it “final solution for middle class”, the last great unions destroyed, budgets cut, but not one mention of any real jobs or the devastating impact of cuts on low and most missed it, the mid class. How bad, well Icon is AZ, state in “Richest nation on Earth cut funds for transplants, RAM (Rural Area Medical) whom used to operate only in third world medical needs, now attends across USA. Icons are icons, need we add more?

Surrender was announced by mid.lower class but most missed it. The news simply told us, “Surveys show most (mid class) expect their kids will not have a good a life/culture then they did when they grow up”
AKA “We (the other 95%) surrender, we are now your indentured citizens and workers” as the distribution of real wealth and incomes prove, but do not tell “other 95% that, as it might upset them, maybe!

Posted by chuck2 | Report as abusive

No mention of the working class or even working poor. What about them? No one ever talks about the poor anymore, that has become a dirty word in politics and public discourse.

Why? Because the right will brand you as a socialist or commie if you talk of them.

Hey, Alan Greenspan, what do you make of this research? How will the corporate media talking heads spin this?

Posted by MarieD | Report as abusive

I know that if America wanted to..we can work out of this. We just have to get innovative and creative. Personally we need to invent the next wave of massive energy..and I am talking about hydrogen technology. Cars can run on pure water and there are now hydro torches..that just use water and get hotter then any gas I use.

People don’t wait or depend on a failing government who really is only out to line their pockets.

We can do this! America needs to start inventing the next appliances and machinery that will change the world..and make us completely NON dependent on oil.

This is it…we either break down on our knees or we stand up and do something..do something.

Posted by TiredoftheBS | Report as abusive

Why is being in the middle class a negative? Someone has to. Everyone can’t have the same position. It absolutely is designed for all classes, the middle is part of the necessary conditions.

Duh

Posted by infidelguy | Report as abusive

To get globalization to work for the American middle class, America has to be poor first, and we are on our way there.

Why?

Globalization is like the ocean. America is like a lake on a plateau 300 feet above the sea level. Globalization forces the dam to open its gate, and the wealth is pouring out to the lower sea. We buy everything cheaper from elsewhere, and that creates jobs for them; but they are not buying as much as we are spending. Eventually, we will drain our reservoir and we will be on the same level as the ocean. At which point, we can really benefit from globalization. In the mean time, we are bleeding dry.

Posted by skeptico | Report as abusive

OpenCalais from Reuters wants to connect everything.

But what would they find? :-) The basics I’ve found? Good health comes from eating vegetables, getting some sunlight, having friends, having meaningful work, having family and community ties, basic exercise woven into your day, a sense of connection to that which is beyond you, and so on… And we need to rethink our economy for abundance, like so, as I outline here:
http://peswiki.com/index.php/OS:Economic _Transformation

Of course, I achieved that (incomplete) understanding by years and years of reading and searching. So, others will find it on their own in their own way, eventually. I can hope OpenCalais and other tools helps with that some.

There are solutions. The biggest challenge of the 21st century is the irony of technologies of abundance in the hands of those thinking in terms of scarcity.

Posted by pdfernhout | Report as abusive

As I begin to look at Michael Spence’s report in detail, I find it has some 20th century assumptions about economics which are no longer that valid in the 21st century. Search on “21st century enlightenment” for a related RSA Animate YouTube video. To begin with, Spence assumes lots of jobs are “nontradable”. How does he justify that?

He references health care as one example, and on the surface, that seems to make sense, for how could a supposedly hands-on profession like a family practice physician ever be offshored? Yet, much of human health connects to nutrition; as we read books on nutrition written by international authors or citing studies done in other countries, or as we eat imported vegetables and fruits, or as we use imported cheap home medical test kits to assess our nutritional status, as we do all these things, we are trading our local doctoring for offshored services and goods. And that does not even begin to talk about telemedicine, imported medical robotics, or medical tourism. Reading X-rays has been more and more offshored for years, for example.

I could suggest the same for other industries, too, for things we normally think of as local, where new goods and services or better design can move them into the economic cloud. :-) Such goods and services move towards cheap labor, towards automation, towards better design, towards cheap energy and cheap raw materials, and towards voluntary social networks. But at some point, we will see a major phase change in our economy, like ice melting into water, or water boiling into steam, as quantitative change eventually becomes qualitative change (the late James P. Hogan wrote on that theme in sci-fi novels like “Voyage from Yesteryear”). Entrepreneur and author Marshall Brain also talks about these trends in “Robotic Nation” and “Manna”.

Spence dismisses “automation” as a major factor in current trends but I feel that is an old-school reaction to a whole bunch of trends like AI and robotics, better design, and voluntary social networks based on a gift economy that are reshaping our economic landscape. This shift is all made possible by better technology. Ironically, Spence writes about the “explosive growth” in electronics sales.

I would suggest it likely that Spence also would not accept that demand could possibly be self-limited by people adopting an ethic of voluntary simplicity or reduce-reuse-recycle as they move up Maslow’s Hierarchy of Needs. When you add self-limited demand along with a falling value of most human labor in the market, trends are far worse than he discusses, and we need larger change (including probably a basic income) to address this. In the same way we might see a desire for physical obesity as a mental illness, is it really just mentally illness to want to be financially obese?

Most mainstream economists can’t admit these trends because then their beautiful classical equations would end up blowing up with divide-by-zero errors as labor costs go to zero through robotics and as demand also grows more slowly than productivity, reducing prices to zero. Then we are left with people promoting things like war spending, expanded prisons and criminalization of difference, and endless schooling to get people out of the labor pool and create endless make-work.

These general issues were all talked about in a 1960s essay prepared originally for President John F. Kennedy called the “Triple Revolution Memorandum” about ongoing transformations related to cybernation, WMDs, and civil rights. So there are not new issues, but they are coming to a boil now after a long simmer.

So, I feel there are flaws and missing parts in Spence’s analysis, which actually makes the US situation much worse than even he is willing to admit. There are no doubt other implicit flaws, like assuming that monetary incentives have much to do with productivity in a 21st century information-age economy, one of the the things talked about in the RSA animate video, as well as another by them called: “RSA Animate – Drive: The surprising truth about what motivates us”.

And search also on: “IMF bombshell: Age of America nears end” about China’s rise and the USA’s decline in general. The other day I read a comment by someone in Canada talking about that “angry country in decline to the south” an I can wonder if it is indeed an apt description? And that is worrisome, because such a mindset tends to lead to the rise of the hard right with regressive social policies. Even in Canada a rightist government has just taken power. Still, ultimately these issues transcend left vs. right, because they will change fundamental aspects of what is possible and desirable socioeconomically.

Anyway, I am both heartened that the mainstream economics profession is paying attention to the years of data in front of them, as well as disheartened about how far they have yet to go.

But there are some other opinions out there. A search on: “An Appeal from Teachers and Researchers of Economics” will lead to an appeal from the editors of Heterodox News that begins with: “The authors of this appeal are deeply concerned that more than three years since the outbreak of the financial and macroeconomic crisis that highlighted the pitfalls, limitations, dangers and responsibilities of main-stream thought in economics, finance and management, the quasi-monopolistic position of such thought within the academic world nevertheless remains largely unchallenged.”

Or for a more mainstream economics take on that, search on “They Did Their Homework (800 Years of It)” for a related major newspaper article.

Posted by pdfernhout | Report as abusive

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