Opinion

The Great Debate

The middle-class meltdown

By John Lloyd
September 8, 2011

This is a response to Don Peck’s book excerpt, “How chronic joblessness affects us all.” Labor economist Gary Burtless also responded here.

By John Lloyd
The opinions expressed are his own.

“All that is solid melts into air,” wrote Karl Marx in the Communist Manifesto. He meant that the sheer, revolutionary power of capitalism had wrenched larger and larger parts of the world out of its feudal or tribal doze, and sent it running round the track of modernization, smashing down habits, customs, faiths as it went. The agents of this wrenching change: the middle classes, or as he would have it, the bourgeoisie, the new class which grew in the womb of feudalism, and then destroyed it. And they would, he prophesied, be destroyed in their turn.

Do you not fear, in anxious moments at dawn, that he was right, just a bit (163 years: the Manifesto came out in 1848) before his time? Do you feel the solid world melting? Do you tremble that we in the rich states are living, not just on borrowed money, but also on borrowed time – and that it is running out? That our way of life is being gnawed at from below?

John Gray, the British philosopher, once a Thatcherite, thinks Marx is right, and that the melting has gone beyond effective political control. Marx was wrong, to be sure, about communism producing a decent society, judging by what’s been on offer so far. But Gray thinks he was right about how the apparently triumphant bourgeoisie, builders of a productive, industrial, city-based society, would themselves melt. “The weapons,” Marx wrote, “with which the bourgeoisie felled feudalism to the ground are now turned against the bourgeoisie itself.” The constant churn and change which capitalist development required would, in the end, attack those who had created the process: the middle classes. Now they – we – are for churning.

Our fate has become linked to that of the classes we thought we had left, or left behind. The industrial working class in the rich societies, whom Marx thought would lead the revolution, is now small, and in most states the trade unions are weakened, as are the socialist parties. Those in what Marx called the “lumpenproletariat” are growing in numbers, and can be dangerous – see the London riots in August. But they are also  disorganized. In an article in London’s Guardian earlier this week, the UK Justice Secretary Kenneth Clarke called the rioters a “feral underclass” and said they were “cut off from the mainstream in everything but its materialism.”

But is there also a feral overclass which sets the materialist tone and style? In the United States, a growing number of economists see society separating more and more into the rich and the poor, with a middle squeezed down and out. As Don Peck writes on Reuters.com and in his sober piece in The Atlantic: “the most important economic trend in the U.S. over the past couple of generations has been the ever more distinct sorting of Americans into winners and losers…the recession has pressed hard on the broad center of American Society.” Peck quotes Emmanuel Saez, a Berkley economist, as saying that “the rich seem on the road to recovery,” while the jobs for those in the middle “are being wiped out. And what will be left is a hard and a pure market.”

Earlier this week in the UK, the High Pay Commission published a study – “What are we paying for?” – which showed that the trend towards payment for performance has done well for senior executive pay, less well for performance. It makes tough reading for those who argue that the high paid are worth it: while salary and bonus payments have increased hugely in the past decade, the increases bear “no relation to either market capitalization, earnings per share or pre tax profit.” Bonuses seem to have taken on a life of their own, blithely oblivious to the market and to the profits on which they were supposed to be based. “Even at the deepest point of the latest recession, when pre-tax profit was at its lowest point, the lowest bonus level was still 134 per cent higher than in 2000,” says the report. Throughout the rich world, most (not all) the rich resist tax increases; while their wealth and their lifestyles inevitably insulate them from the majority of members  of their society. The phrase – “we’re all in it together” – cannot be used of these bad times: instead, we’re all in it separately.

The old rich world is not alone – indeed, is not the most extreme. In the new enriching states – as China, India and Russia – the very wealthy cut themselves off ruthlessly from the masses, often live largely or partly abroad and tend to the ruthless side of employment practices. Employers there have the advantage of pools of relatively cheap, usually unorganized, labour, and labour laws which are either non-existent or avoidable. In his new book – The Beautiful and the Damned: Life in the New India – the writer Sihhartha Deb describes workers in a steel mill – “the men visible through the smoke and noise were infernal creatures, rags wrapped around their faces to protect themselves from the heat.” Most of these “infernal creatures” were contract workers, with no effective employment rights: but with very effective stomachs needing filling, and often effective families needing support.

Some among the super rich, the billionaires, the oligarchs – as Warren Buffett, Bill Gates and George Soros – put much of their fortune to charitable use. Some of the new oligarchs, from the enriching state, are beginning to do so too. But most keep most of their fortune. And the merely rich, though they too may give on a more or less generous scale, are concerned – it seems to be the human default position – first of all to retain and increase what they make. Much of this wealth will trickle down: the rich have always needed to employ both the poor and the middle class. But trickling no longer cuts it: a flood of jobs, investment and growth is needed, to get back to low unemployment levels. Will President Obama’s speech on jobs tonight stop the melt? The President is reported as preparing to pump $300bn into jobs creation: even in these times of inflated numbers, that’s substantial. But it has to be fought through Republican opposition. And it has to work.

I am less convinced than John Gray that Marx was right about the great capitalist/middle class melt down. Marx tended to the apocalyptic – one reason why he appealed to revolutionaries everywhere. The enriching world offers, to the enriched, opportunities as well as competition; the educational and other programs now being worked out to raise the level of the western game are more than merely desperate: they are centered on increasing human capacity – and such programs often  work. More people in the populations of more countries have more to lose – because they are becoming middle class in their turn. The sentiment that a gambler’s throw of a revolution will at least make things no worse becomes less widespread.

Yet – to borrow another much-used phrase from the Communist Manifesto – there is a spectre haunting, not just Europe, but also the developed world. That is, that the good times no longer roll.  The areas in which a fine salary can be collected, in increasing amounts, through a not-too strenuous working life, are contracting. The discreet smugness of the bourgeoisie is much reduced.

Though not their potential for anger. If the rich go on getting richer, the poor more feral and the middle more squeezed, than a reckoning, more likely a series of reckonings, will come.

Comments
4 comments so far | RSS Comments RSS

Nice article. I feel like the middle class is being squeezed from all sides. Politicians say 250,000.00 is rich, but I certainly don’t feel so rich that I don’t have to scrimp & save like someone making 75,000.00. The ceo of United Healthcare just a few years ago recieved as a bonus $2 Billion in back dated stock options, on top of a 100,000,000.00 salary. I wonder what he paid in taxes?

Posted by zotdoc | Report as abusive
 

Anyone who ever bothered to read Marx would notice his criticisms of capitalism are spot on. That is the basis of his appeal. That is why much of Europe defused it with social democracy.

Marx’s prescription for improvement was pretty useless. Interestingly it was pretty good for rapid industrial development from a feudal society.

I am mystified that so many people are only just beginning to notice this, after all, Bismarck said ‘A man who is not a socialist at the age of 20 has no heart. A man who remains a socialist at age 30 has no brain.”

This thinking about Marx is hardly new.

Posted by Dafydd | Report as abusive
 

Marx has very little to do with the fall of the US middle class and the exponential rise of the super rich in the past 30 years. It all stems from the US tax code which has steadily increased taxes on the middle class (yes, I do mean families earning up to $350,000) and the dramatic drop in tax rates on capital gains, derivatives, dividends, and investment real estate gains.

Capital formation, job creation and economic stability cannot exist along side speculation. When nearly 80% of NYSE daily transactions are done by quant programs whose holding periods are measured in minutes, when the brightest of MIT and Stanford program for prop trading desks rather than build industries, and when the lowest US federal tax rates (10%) are enjoyed by option traders – you have the destruction of an economy.

Long term investors are at a disadvantage in the US tax code. Furthermore, the super rich who are benefiting from this speculation are keeping more and more of their money off-shore, untaxed. Over 1/3 of the world’s wealth is held off-shore. Everyone knows that ultimately the problems of Greece and Italy is that their wealthy do not pay taxes. In those countries it is actually illegal, in the US it is legal.

If we had capital gains, derivative and dividend tax structure as we had before the Reagan tax changes, the US economy would see a much more stable outlook and a much fairer income distribution.

Marx has very, very little to do with today’s current crisis. It’s all in the tax code.

Posted by Acetracy | Report as abusive
 

Thanks for sharing – Acetracy. I find that succinct analysis to be extremely insightful, and would explain many, many things. That is going to be my working hypothesis from now on and I will see how well it holds up.

Posted by More-Awake | Report as abusive
 

Post Your Comment

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
  •