Greg's Corner

Goodbye Yellow Brick Road – America's Disappearing Middle-Class

by Greg Petty
December 2010

The past mid-term elections have showcased the anger of ordinary Americans to what is happening in their daily lives and how they perceive the actions (right or wrong) of our elected officials to address the major problems we face.

Through all the recent hyperbole, discussion, political posturing, misleading and outright untruthful political ads, and most of all, what some would describe as a few delusional discussions of our solutions to those problems. I did not hear many discussions of the damage, and if we're not careful, the death of what made this country great-a large middle-class where upward mobility was not only possible but achievable. Being an equal opportunity critic, it is my intention in this article to point out steps we can take to provide substantial assistance to the vast majority of Americans and also begin to right the ship of government.

The media has a major role to play and, in my book, has been largely remiss for hewing to whatever the two parties happen to be discussing (not always our most pressing problems), instead of warning us of the approaching cliff our society is about to drive off of, Thelma and Louise style. They are, simply put, the third leg of the dysfunctional Washington merry-go-round. As various pundits have stated, what we need is a third party-a Purple Party combining the economic incentives (red) and regulatory rules and societal safety nets (blue) to provide societal stability. The guiding principles of the Purple Party should be policies and laws based on situational facts and common sense. Add to the solutions a press not dominated by a few mega-corporations that will attempt to keep everyone honest. I never thought I would say this, but thank God for the Internet. It is simultaneously a blessing and curse but could be essential in our efforts to resolve our problems if it enlightens and informs us. All of us must be careful about using trusted sources that post reliable information. This week's news that the Daily Beast blog, a trusted news source, will take over Newsweek may be a step in the right direction.

Our large middle-class has enabled America to develop the largest economy in the world. At $15 trillion dollars it is three times the size of the Japanese and Chinese economies. While Japan has languished for over ten years in what is basically a deflationary economy, (failure to address structural economic problems), China has lifted over 400 million of their citizens out of poverty through the growth of a middle-class. They are capable of eating our lunch if we do not pay attention.

"Banana Republic"
So with all that being said here are some unsettling facts to contemplate about what is happening to America's middle-class:

Tim Noah from Slate reports that the richest 1% of Americans now take home almost 24% of income. This growing inequality rivals traditional banana republics in Central and South America. In 1976 it was 9%. Yes, ladies and gentlemen, we are now a banana republic. (Too much inequality reduces economic growth.)
CEOs earned an average 531 times the salary of their average worker in 2001. It was 42 times in 1980.
83% of all US stocks are owned by 1% of the people.
61% of Americans "always or usually" live paycheck to paycheck and 43% have less than $10,000 saved up for retirement.
40 million are on Food Stamps and it is projected to be 43 million in 2011.
21% of all children are now living below the poverty line. That rate is the highest in 20 years.
40% of Americans are employed in service jobs that generally pay less.
Here is what we are competing against. In China a garment worker makes approximately 86 cents an hour. In Cambodia it is 22 cents an hour.
Political policies have allowed American corporations to outsource both our medium wage and mid-level skilled and professional jobs with little emphasis on job retraining efforts or funding. Government policies have also allowed tax incentives for these self-serving corporate policies as well as the sheltering of the profits they make.

Rebuild our Manufacturing Capacity
Since voters sent the message loud and clear, politicians of all stripes would be wise to act-create jobs or you too will be removed. The trick is how to do it, because it won't be fast and it won't be easy. First we have to establish the right policies. Andy Grove, former Intel chief wrote an excellent article entitled, "How to Make an American Job." Its central premise is that we have stopped making the investments in our manufacturing capabilities in scores of fields, and whatever technological lead we begin with from our vaunted R & D, we literally throw away by outsourcing the manufacturing. If you don't make a product and continue improving it you lose control (which is discovered by paying attention to the manufacturing process and staying close to your customers). We have lost our lead in batteries, LEDs and solar panels to name a few-technologies that will be crucial to our ever-growing demands for clean energy. Grove's other major point is that government's role is to assist American companies in their efforts to scale (build facilities, keep innovating) their products. Grove states, "The first task is to rebuild our industrial commons. We should develop a system of financial incentives; levy an extra tax on the product of offshored labor. (If the result is a trade war-treat it like other wars-fight to win.) Keep that money separate. Deposit it in the coffers of what we might call the Scaling Bank of the US and make those sums available to companies that will scale their American operations. Such a system would be a daily reminder that while pursuing our company goals, all of us in business have a responsibility to maintain the industrial base on which we depend and the society whose adaptability-and stability-we may have taken for granted."

Our Part
Consumers have a huge influence on the marketplace and we need to exercise that power-starting now. By that I mean each of us needs to rethink our purchasing habits. Is the Wal-Mart lowest cost available model what we really need to be supporting? Are we willing to pay a little bit more for a quality product made in America? The proof is in the pudding-"Buy American" wherever and whenever possible.

Our Government
The people have spoken. As William Holden's character from the movie Network said, "We're mad as hell and we're not going to take it any more!" Congress will be addressing two critical items, either in the lame duck session or with the new Congress in January, that will have lasting effects on our lower and middle-classes. We need to monitor the negotiations and express our opinion that the overriding priority needs to be support for average income Americans. The two issues are the expiration of the Bush tax cuts and the report of the Deficit Commission on reducing the federal debt. The Republican proposal to continue all the cuts, even for the richest 0.1 % of taxpayers, would mean that each of them would receive $370,000. Obama's plan would give them $61,000. Given the stats provided above about our growing inequality which one should we support? Both sides agree on continuing the cuts for those earning $250,000 or less, so let's get that done.

The day the Deficit Commission released its draft recommendations, Nancy Pelosi immediately stated they were "unacceptable." Let's give up the games and posturing. Everyone knows that Congress has to address the unsustainability of Medicare and Social Security. As the deficit commission stated, "The Problem Is Real-the Solution Is Painful-There's No Easy Way Out-Everything Must Be On the Table-and Washington Must Lead." Leading means taking tough action but given our situation, common sense should be utilized to minimize the impact to the lower and middle-classes. (Social Security Reform-raise the payroll tax income limitation and tax into higher income levels-means test Social Security before making cuts for average Americans.) Americans will sacrifice if they see real actions to address problems. Alternatively, Republicans have to be willing to cut our defense spending that amounted to $696 billion in 2008 alone! That is a phenomenal cost. Republicans cannot just continue to talk about tax cuts. Trickle down/supply side economics is, and never has been, a workable effective economic policy that stimulates jobs and economic growth. We're not buying it anymore.

So the lessons and actions needed are clear. Can we get it done? Viva Purple Party!