The middle class has shrunk over the past decade. The idea that the standard of living rose is not true. This discussion is not about some universal fairness idea where we need to strip money from people that are successful and give it to people who are not successful. The problem from an economic point of view, with the middle class getting gutted, is that it is hurting the entire economy. That's because the middle class is where most of the spending in the economy comes from.
Some people say that all we have to do is cut taxes to rich people and then they will invest and that will create jobs. The problem is that the highest earning Americans have tons of money right now. Corporations have record profits. But they're not investing. It has nothing to do with regulations and everything to do with the corporations not thinking their customer base is strong enough to sustain the economy. This is an economic issue, not just a fairness issue.
85% of people who define themselves as middle class say it's harder to maintain their lifestyle. Even two income families are not doing very well. There was always this idea in America that if you work hard and play by the rules, you're going to get ahead. That may be working for the top 20%, but not for the majority of people. The average hourly earnings has been flat after adjusting for inflation for 50 years. CEO earnings on the other hand have gone up several hundred percent relative to the average worker. If you look at a 90 year view of the distribution of earnings, for the first 60 years, income gains were split between the bottom 90% and the top 10%. In the last 10 years, all of the gains have gone to the top 10% and the earnings of the bottom 90% have gone down.
This is not just a problem from a fairness point of view. The 90% are the customers. Rich people can only buy so many cars and houses and vacations. The rest of their money sits in their bank accounts and investments. The top 10% do account for 30% of all consumer spending, but it's not enough to keep the economy going. This is the first time in history that the middle class has been out-earned by the top 25%, whose income has risen by 50% since 1980. This is why the occupy movement started. People are feeling like they can't get ahead, or worse, they can't even maintain, even by working hard. The government hasn't proven that they know how to fix the situation. Nor do they seem to want to. They can't even manage their own finances, let alone the country's.
The problem can be identified this way. Wages, as a percentage of the economy, are at their lowest level in history. Profits on the other hand, as a percentage of the economy, are at an all-time high. Companies are struggling to grow revenue, in part because of the decimation of the middle class. Taking a longer view than just the next quarter, if corporations can be convinced to invest only their excess profits to pay employees more and hire more people, all that extra money will stimulate the economy. This is the Henry Ford model. He wanted to pay his workers so that they could afford the Model T. It will be hard to convince corporate executives to do this, especially when they see past the suffering domestic middle class and are looking overseas at new markets. They also aren't particularly motivated to do anything radical because they're doing quite alright themselves.
But systems don't stay this far out of balance for a long time. Systems correct themselves. We can either correct it voluntarily, in a good way that's healthy for everyone or it's going to be the government intruding and jacking up minimum wage and redistributing taxes. Or it's going to be a revolution.
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