Tuesday, May 06, 2008

The Great Rip-Off

To understand our economy, you must first understand what has happened to the “middle class,” and what forces have caused it to shrink, and how tenuous a state it has become. One of the best explanations of the big picture is by Elizabeth Warren, whose lecture here is much worth viewing (but you could omit the first five minutes or so, before she takes the podium):

The short version: Warren addresses part of what I’ve said for years—that family income has not risen in tandem with the number of hours spent in the work force, that the lifestyle that once demanded just one full-time worker (often with only a high school education) now requires two full-time workers (usually with at least some college).

I would take this one step further, and note that the real windfall has come to business, which has managed to extract almost double the working hours from the (better-educated) populace, while holding wages down. (Men’s earnings, corrected for inflation, are about level with what they were in 1970.) Not only have they held wages down, but most pensions have been gutted, so if that were included, total compensation has actually declined over those 35 years.

Most tellingly, listen as Warren describes the data of where we are spending our money now, as compared to then, and ponder for a moment what it WILL mean to our society to drive so many into ruin. You may also gain some sympathy for those who find themselves in bankruptcy, which is not usually due to frivolous spending, but to vastly increased fixed costs in the face of a lost job, or family illness, or family rupture, or some combination of two or three of these factors. It’s not a pretty picture, and there seems to be no light at the end of the tunnel.

Again: consider what it will mean for a society that’s accustomed to having a massive middle class, if large numbers of those people enter poverty, and ours becomes a two-class society. A brief study of two-class societies should include the realization that most of them are police states, to one degree or another. Is this really where we want to head?

(h/t for the video to Chris Bertram at Crooked Timber)

If what I've said above appears internally contradictory—that men’s earnings (corrected for inflation) have remained about constant over time, but are insufficient to support a family, even when augmented by women’s earnings—it is because of the way inflation is calculated: it does not include housing costs, healthcare costs, the additional childcare and transportation costs inherent in the second earner leaving the home, and also does not account for the higher tax hit by moving to the next bracket. Warren makes all of this quite clear, but I realized that I could not leave this out of my comments if I wanted them to make sense.


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