Times: US middle class no longer word’s richest

The American middle class

In Canada, this man would have a nice beer.

The New York Times is running stories about inequality, and they are running hard. Today brings news that the American middle class is no longer the richest in the world. Our hardworking suburban football fans were tied with Canada’s hockey-gazing layabouts in 2010, and data suggest we’ve been surpassed since. Our poor—families at the 20th percentile of US income—make substantially less than families in Canada, Sweden, Norway, Finland and the Netherlands. But those are all socialist countries. Our working poor may not have as much money, but they have freedom. In the decade since “freedom” became the most important word in American rhetoric, per capita income has shrunk at the 40th, 30th, 20th, 10th and 5th percentiles.

To be fair, incomes were merely stagnating for most of that time, but then they tanked in 2009 with the global recession. The US economy has recovered since then, but 95% of the income gains between 2009 and 2012 went to the wealthiest 1%. In this light, the period from October 2008 to last July looks less like a financial crisis and recovery than a massive upward transfer of wealth.

Redistribution happens, whether the government does it or not. Yesterday, we talked about Thomas Piketty’s claim that when the rate of return on investment exceeds economic growth, wealth inevitably concentrates in the upper classes. The United States has seen that happen over the last 30 years. Regardless of whether Piketty’s mechanism explains it, the wealth of America has been redistributed over the last three decades—especially since 2009.

Fact: The S&P 500 closed at its eighth record high of the year earlier this month, and the Dow missed its record by three points. The housing market has recovered at the price level but not in new construction, suggesting that investors are competing with families to buy existing homes, but people aren’t getting paid to build them. Virtually every economic indicator suggests that the economy has recovered for investors and the wealthy, while the recession continues for working people and the poor.

Redistribution has already happened, in other words. It happened gradually from the 1980s to 2009, and at a stroke from the crisis until now. For the purposes of argument, I’m going to call this phenomenon inadvertent redistribution. I want to distinguish it from government redistribution, although you could argue that the federal response to the 2008 crash—particularly in its focus on the financial services industry through bailouts and the stimulus—constituted a redistribution of wealth to the investor class.

That’s what we wound up with, but I’m not convinced it’s what we intended. I want to focus on results, and the result of the last three decades has been a massive transfer of wealth to the richest Americans at the expense of the middle class and poor. You can argue that this phenomenon is bad or good, but a raft of empirical evidence demonstrates that it happened. Regardless of your attitude toward redistribution, it is a fait accompli.

If we accept this premise, then we should consider whether we want to do anything about it. The two choices here seem to be inadvertent redistribution or government redistribution. The classic argument—that redistribution is morally wrong or otherwise un-American—seems orthogonal here. We already redistributed American wealth through a combination of policy and inaction. We did it with an economy that has devoted progressively more resources to finance, insurance and real estate, and we did it with a government that is increasingly drawn from members of the investor class.

You cannot say that American wealth redistributed itself when we have economists and Federal Reserves and Departments of Labor. We did it, even if we only did it by not paying attention. I emphasize this point because I believe that when Americans take responsibility for the massive, upward transfer of wealth we have overseen for the last three decades, the prospect of doing something about it loses its ideological charge.

Plenty of people consider redistribution a taboo, something the government is forbidden from doing and discourse therefore forbidden from considering. A lot of them are the same people who have defended inadvertent redistribution for years. The question is not whether we should do it, because we already have. We should decide whether we want to correct what we have already done.

If Americans wanted to, we could elect a Congress that would raise the top income and capital gains taxes to, say, 41%. We could use that money to subsidize college educations, which the Times article cites as a major factor in the loss of professional jobs to foreign countries and the relative decline of America’s middle class.

That would be redistribution of wealth. It would be redistribution by the government and not by inaction, but make no mistake: we’ve been redistributing wealth in this country for 30 years now.  The question is whether we want to do it on purpose.

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  1. Hello i am kavin, its my first occasion to commenting anyplace, when i read this piece of writing i
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