09 March 2013

The Middle Class is Dead

The nation’s median household income has actually declined by more than $4,000 since 2000, and the “typical trappings of middle-class life are slipping out of financial reach for many families,” CNNMoney said.
Economists are attributing the blame to two factors: jobs and wages.
According to the National Employment Law Project, mid-wage work, such as that for office managers and truck drivers, added up to 60 percent of the job losses during the recession, but only 22 percent of the gains during the recovery.
Meanwhile, low-wage jobs have soared 58 percent.
The mortgage crisis “hollowed out” the middle class, Tamara Draut, vice president of policy and research at Demos, a public policy research group, told CNNMoney. Home prices are still 29 percent below their mid-2006 high. [Emphasis added.]

It’s only going to get worse from here.  ObamaCare is basically going to give employers an incentive to make workers pay for their own health care out of pocket, and I would be willing to bet that most employers won’t provide full compensation for the difference.  For example, one of my friends is a safety manager at a production facility and his bosses are trying to cut health care costs as much as possible, which is causing employees to seek alternative providers; ultimately the company hopes to have the employees pay for their health care directly in exchange for a pay increase that’s slightly less than company’s original cost of health care.  Thus, if you made $60k a year plus a health plan worth $20k, under the new plan the company would just pay you $80k pretax and you would be responsible for finding your own health plan, which will undoubtedly cost considerably more than $20k, and possibly post-tax at that. This is practically the same as a pay cut.

Additionally, the continued federal budget deficits are unsustainable, which will likely result in a tax increase for the middle class.  The wealthy are too politically connected and financially savvy to be taxed more than they already are.  The poor don’t have much that can be taxed.  Thus, the continued deficit problem will be paid for by what’s left of the middle class.

Big businesses will clamor for more access to cheap labor, which means either more immigration or more “free trade” (i.e. access to cheap foreign labor), or some combination thereof.  Since big business lobby/bribe politicians more effectively than the middle class can, it’s likely that these policies will be pursued until the middle class simply gives up and starts working for slave wages.  However, big business will not lobby for deregulation or lower corporate taxes until all of its smaller competition is completely destroyed.  Thus, the hallmark of the middle class—self-employment—will be mostly done away with since it will basically be impossible to operate a business at a profit sufficient for decent wages.

In sum, the middle class will be more or less completely gutted.  They will face decreasing wages, higher taxes, and more restraints on entrepreneurial activities that would otherwise alleviate their plight.  They will not be able to afford the Middle Class lifestyle, and will eventually descend into the lower class.  Of course, the current government policies will not last forever; they will continue until they are unaffordable.  But by then, the damage will significant and will take a considerable amount of time and effort to reverse.