Just how much pain has the middle class
suffered in the last four years? The
data is quite conclusive: the pain has been harsh.
According to government statistics, wages for
the middle class have shrunk appreciably in the past decade. The Census
Bureau points out that the typical middle class household made $51,017 this
year, roughly the same as the typical household made a quarter of a century
ago. Adjusted for inflation, that’s a
decline in living standards too big to ignore.
Providing further insight into the middle
class plight, in 2010 the U.S. Commerce Department published a report about what it would take for different
types of families to reach the historical U.S. middle class — which it defined
as a house, 1-2 vehicles, an annual vacation, decent health care and enough
savings to retire and contribute to the college education of one’s
children. Its conclusion was that the
middle class has become much more exclusive than it used to be. “Even two-earner families making almost
$81,000 in 2008 — substantially more than the family median of about $51,000
reported by the Census — would have a much tougher time acquiring the
attributes of the middle class than in 1990,” one analyst concluded.
Additional perspective on the growing gap
among the classes can be found in a 56 percent jump in the cost of housing
since 1990, a 155 percent leap in out-of-pocket spending on health care and the
double-digit increase in the cost of college.
“Either we define the middle class down a couple of notches,” stated one
reporter, “or we acknowledge that the middle class isn’t in the middle
anymore.”
The doleful plight of the middle class has
been a recurring theme among journalists for much of this year. Just this week, for instance, the Washington Post highlighted a speech by
President Obama which emphasized the “dangerous and growing inequality” between
America’s highest earners and the rest.
The president’s speech was rich with platitudes but poor on solutions.
To take another recent example, Rana
Foroohar, writing in the Dec. 2 issue of Time,
opines that despite an abundance of monetary liquidity, “we have a
real-economy-growth problem.” Foroohar
acknowledges that the Fed’s monetary policies have benefited the top quarter of
American households, which hold most of the country’s equity assets. Yet “they have done much less for the rest,”
she contends, “people who continue to struggle with flat wages and higher than
normal unemployment.” Boston Fed
President Eric Rosengren admitted as much when he stated, “If you don’t have a
house or stock, you don’t benefit as much” from QE.
The need to do more to stimulate the economy
and revive the middle class has been the excuse behind attempts at actually
increasing monetary stimulus. Former
Treasury Secretary Larry Summers, in a recent speech before the International
Monetary Fund, warned that the U.S. might be stuck in a “secular
stagnation.” He suggested that this
slump isn’t a result of normal business cycles but could be a potentially
permanent condition. The solution he
offered to “fix” this problem was the introduction of negative interest rates
by the Fed.
Others have picked up on this theme. Miles Kimball, an economist at the University
of Michigan, has suggested placing sharply negative interest rates on bank
deposits, which is tantamount to charging customers for keeping money in the
bank. “Paper currency could still
continue to exist,” Kimball was quoted as saying in the Dec. 1 issue of Businessweek. “But prices would be set in terms of
electronic dollars (or abroad, electronic euros or yen), with paper dollars
potentially being exchanged at a discount compared to electronic dollars.” Theoretically this would put pressure on consumers
to spend before their money loses value, thus providing a boost to the economy
according to this line of thinking.
While economists offer up schemes to get the
average consumer buying again, the underlying cause of the problem continues to
be ignored. An overlooked factor behind
the decline of the middle class is the long-term economic rhythm, or Kress
cycle. The 60-year cycle of inflation
and deflation provides an almost perfect parallel of the middle class plight
since 1954. When a new 60-year cycle
took off in 1954, so did the fortunes of a majority of Americans. The 60-year cycle is divided into two 30-year
cycles. The first half of the 60-year
cycle is typically inflationary and is conducive to rising wages and an
increasing standard of living. The
second half of the cycle is at first disinflationary, then deflationary.
By examining the current 60-year cycle which
began in 1954 one can easily see that the first 30-year period from ’54 until
1984 was a time of expansion for the middle class. Probably no greater period of unbridled
economic success has been experienced by most Americans than during this
period. By contrast, the period from
1984 until 2014 – when the cycle bottoms – has been one of declining economic
fortunes, especially the last 10 years.
It was Machiavelli who said that when a
problem becomes so big that everyone can see it, the time for remedies has passed. The problem of the shrinking middle class
can’t be solved by direct political action; the time is much too late for such
remedies. The only possible hope for
revival is a resurgent economy in the years following next year’s 60-year cycle
bottom.
It is worth noting that Mr. Kress, the
namesake of the cycle, himself didn’t believe that the upcoming 60-year cycle
bottom would result in a meaningful resurgence of the middle class. Instead he predicted the further
establishment of socialist political policies aimed at increasing, not
decreasing, economic inequality among the classes.
Kress also referred to his long-term cycle as
a “Revolutionary Cycle,” pointing out that the bottom of this cycle frequently
coincides with the advent of major social/military/economic revolution. Kress emphasized that the Industrial
Revolution which gave birth to the U.S. middle class was a product of the
long-term cycle bottom of 1894. Many
commentators believe that a global economic empire, or world government, will
become a reality within our lifetime.
The words of author Felix Markham in his seminal work, “Napoleon,”
provide context to this line of thought.
Speaking of Napoleon’s attempt at creating a world empire, he wrote:
“But it is hardly conceivable that the…world
empire which appeared to be within his grasp could have lasted more than a few
years. The forces at work in Europe [in
the 19th century] would have shattered it into fragments – the rise
of the middle class, fostered by Napoleon as the basis of his power, and soon
to be immensely accelerated by the spread of the industrial revolution. And it was this class which was to be the
spearhead in the demand for national self-determination and parliamentary
government.”
In other words, Markham is saying that a
strong middle class is inimical to a highly centralized autocratic, or
socialist, government. Within this
context the decline of the U.S. middle class may be considered by the ruling
class as an expedient toward greater political centralization.
In the final analysis, the problem of the
shrinking middle class is so extensive and entrenched that any political
solution is likely to be ineffective.
The time for remedies is when a problem is still in its infancy; when it
has become entrenched the trend must be allowed to run its course, at the end
of which the problem will terminate and thereby create its own solution through
the process of time. Economic trends are
products of the long-term cycles and attempts at forcing cures to a problematic
trend usually succeed only in exacerbating the problem. The best that the middle class can hope for
is that time itself will work out a solution agreeable to its survival.
