In the not too distant past the United States had a vibrant middle class. Prosperity for most families was the rule rather than the exception. This didn’t happen by accident or some odd twist of luck. It happened because as a country we setup a foundation that valued a robust middle class. The Great Depression had taught us some profound economic lessons and humility. But like a car that is neglected and falls into disrepair, the middle class is now a minority group in this country. We tend to romanticize the past but in this case there is some truth to this view of history. Going to college is now putting millions of Americans into incredible levels of debt. Buying a home is moving further out of arms reach for most working families. And the notion of a secure retirement is turning out to be more of a fairy tale than reality. Once upon a time, the U.S. had a majority living in the middle class.
Where does the middle class go from here?
The middle class used to represent economic stability. For anyone with the desire to work hard providing economic stability was doable. That is no longer the case. And this isn’t some relentless free market capitalism that we are seeing. It is financial cronyism in many cases. The public is pushed into a narrative that discusses austerity and financial belt tightening. Then you have financial institutions using the government as a piggybank and gaming the system – bad bets they win, good bets they win. The losses are charged onto the public’s credit card. Privatizing the gains, socializing the losses.
So it is no wonder why the middle class has eroded into a minority:
Most Americans that took a hit from the Great Recession went from middle-income to lower-income households. The good paying jobs simply did not come back at a rate in which they were lost. We also have a large number of Americans not in the labor force. What is being asked of many younger workers is for higher taxes, bigger college expenses, smaller paychecks, and a less certain future. They hear their parents saying, “once upon a time, the U.S. had a vibrant middle class.”
This isn’t intended to be some long lament but a recognition that many families are being shafted under the guise of free market capitalism. This is not that. There is largely no disagreement that on a large scale, competition is extremely healthy because it caters to what people know best, their self interest. The financial system should serve as a means of revving up the real economy. Yet what we have now is a financial system that largely operates as a predatory vampire extracting real wealth from the economy and families and funneling it into the wallets of few on Wall Street that essentially operates as modern day loan sharks.
Once upon a time, the financial system operated more like a utility rather than a casino. Glass-Steagall a law that came about in 1933 after the economic horrors of the Great Depression was repealed in 1999 by Bill Clinton and fully supported by both Republicans and Democrats. This legislation that largely separated commercial and investment banks was broken down. So it is no surprise that subprime lending took off nearly at the same time:
These were the toxic mortgages that set the American housing market on fire. But what brought the system down was the side bets made by Wall Street (see The Big Short for a short crash course). When everything came crashing down the financial system was bailed out at the expense of the U.S. middle class. Now the homeownership rate is near a generational low. Once upon a time, we had a sane financial system.
There was once a vibrant and healthy middle class in the United States. Today that is not the case. The anger you see in the country today being manifested in a contentious election year stems from this. Once upon a time, our representatives cared about a middle class. Now most are millionaires serving those with the deepest pockets.