A PUZZLE EARLY IN THE PRIMARY PROCESS
In August of 2015, I was impressed with the momentum Bernie picked up with his insurgent campaign. I mean, I have seen insurgent campaigns before, I worked for Bradley in New Hampshire even. What Bernie’s team put together in a relatively short time frame was impressive in that context. My political bent has always aligned better with Bernie’s economic New Deal style rhetoric, so I was pleased by his rise.
Bernie’s crowds were growing rapidly and his poll numbers were climbing exponentially for that early in the process. That was true in almost every demographic segment, to one degree or another, in all but one demographic group. The black vote.
I was personally perplexed. I mean, I did not expect large movement, the history with the Clinton’s runs deep in the black Democratic community. But to see almost no movement at all? I just did not get it.
MIDDLE-CLASS NEW DEAL POPULISM RINGS HOLLOW
In an attempt to get my head around what was happening here, I broke bread with my favorite person on the planet to get her insight on what was going on. My simple question to her was why was Bernie’s message falling so flat with people like her, a recently retired black woman.
Let me tell you, it was an enlightening conversation. She shared her memories as a young girl in the late 50s and early 60s listening to her parents' rail against New Deal and post-war programs like Social Security and the GI Bill. What I learned from my dear friend, was that black people were specifically excluded from most of the benefits of those programs.
Employers were not required to pay social security for domestic workers for example. At the time of implementation that was the predominant work available to black women, and not by choice. Redlining and other blatantly racist practices denied blacks and women access to the easy loans and grants made available to encourage homeownership in that era.
In other words, the New Deal was nothing more than the same old deal for the black community. It is no wonder New Deal rhetoric falls flat with that community. Discovering that history, well it did not exactly surprise me, but it helped me understand why New Deal economic populism is not attractive to a significant portion of the Democratic Party base. Sure the Great Society corrected many of these wrongs, but not all of them. Even then, most of the progress of the Great Society was rolled back when it really started advancing the interests of the black community as it was intended, starting specifically with the election of Reagan and the economic path we have been on ever since.
SO WHY SO MUCH FOCUS ON THE PLIGHT OF THE MIDDLE-CLASS
Personally, I find the term “Middle-Class” problematic. It implies delineation, a rigid class hierarchy. I mean sure, the American Dream is built around the notion of climbing that economic ladder, but that reality is reserved for ever narrower numbers of people, and the ladder up has largely been unavailable to far too many of us, specifically based on arbitrary factors such as race and gender.
A personal aside here, I climbed the ladder to an upper-middle-class level, but am now in a chute back down with alarming rapidity. Can’t even get an interview at grocery stores. So the climb up is getting narrower, but the chutes down are becoming more prevalent as well.
Even knowing all of that it remains true that the term “middle-class” has tremendous utility in any conversation about American economics. For most of us it conjures up images of a reasonably comfortable lifestyle including things like:
- A sound education for our children
- An ability to take care of the basics
- A roof over your head
- a good nutritious diet
- clean drinking water
- enough left over to maybe enjoy a modest vacation every year
- Access to decent healthcare when needed
That is why so many of us spend so much time focused on “middle-class” economics. Those basic elements are the foundation upon which we should build a real functioning economy. Those are the baseline elements that every American should be able to enjoy. It is not the hierarchy that term itself implies that must be maintained or sought out, it is the standard of living that the term middle-class embodies that draws our focus. It represents a standard of living we believe all should share in.
A PEW RESEARCH CENTER PAPER REVEALS A PROBLEM
A few weeks back, an interesting story was posted to the front page by Kerry Eleveld titled Three striking findings for 2016 from Pew Research. It was a fascinating read. Going through the research data drove home to me exactly why there is such a lack of understanding of the economic pain being felt across most of the country today.
The basic thesis of the article published by Pew is that the middle-class is disappearing as more people move up and out or slide down and out. Slightly more up than down at the moment as well.
It does not sound that terrible, I mean it sucks people are sliding into poverty (given Pew Definitions there CAN be no distinction between middle-class and working-class, you are poor, middle-class or upper-income, you will see why in a minute), but more people are moving up, so that can’t be all bad, right?
IT IS BAD, HERE IS WHY
The Pew Research study covered in that post defines middle income as
“middle-income” Americans are defined as adults whose annual household income is two-thirds to double the national median,”
Here is a graphic from their report that demarcates the low and high-end income levels that make up the middle-class for varying household sizes.
The table below focuses on single person household in Portland Oregon, the metro area in which I live. Each header links to source data where available.
PORTLAND COST OF LIVING BUDGET
|
Monthly Total
|
Monthly Remaining
|
Annual Total
|
Annual Remaining
|
Pew Research “Middle-Class” Income
|
$2,004
|
---
|
$24,042
|
---
|
Income Taxes
|
$413
|
$1,591
|
$4,959
|
$19,083
|
Average 1 Bedroom Rent
|
$1,057
|
$534
|
$12,684
|
$6,399
|
Food
|
$194
|
$340
|
$2,328
|
$4,077
|
Monthly Transit Pass
|
$100
|
$240
|
$1,200
|
$2,877
|
Basic Phone Plan
|
$20
|
$220
|
$240
|
$2,637
|
Basic (Electricity, Heating, Water, Garbage) for 915 sq ft Apartment
|
$132
|
$837
|
$1,585
|
$1,052
|
ACA Silver Plan with Maximum Subsidy
|
$138
|
-$51
|
$1,656
|
-$604
|
As you can see, just the basics of life, take you -$604 in the hole every year. Yet, a reputable organization like the Pew Research Center (and they do, in fact, do excellent work) calls that income Middle-Class by definition. Someone living on that wage has not seen a movie, gotten internet access, gotten a cup of coffee, gone on a date, bought one stitch of clothing, they have not taken one ounce of enjoyment out of the fruit of their labor yet, all income has been spent on necessities and it is still not enough. We have not even gotten into a car, renters insurance, which many landlords now require, auto insurance and the like. The above is a pretty spare existence financially speaking.
The average rent for that 1 bedroom apartment in Portland is for outside the city center. Rents in the city center average $1,493. The food budget is based on the maximum SNAP benefit available to a single person no dependents. I actually currently draw the maximum benefit and it is nowhere near enough to eat healthily, so that budget is a survival budget, not eating a proper diet.
The insurance cost is based on my cost. I am on an ACA exchange plan, with a maximum subsidy and a Silver Plan. Bronze Plans are complete garbage and I actually need health care. The premium is $138/month after a maximum subsidy is deducted. That is my medical cost without going for any required treatment yet, or even just going to a routine doctor appointment. Keep in mind, an income of $24,042 would still qualify you for an ACA plan subsidy, but not the maximum subsidy reflected in the monthly cost shown here.
THAT IS NOT MIDDLE-CLASS
The failure is clearly in our definition of what middle-class even is. Policy makers rely on reputable organizations such as Pew Research Center to help when making policy. Their research is invaluable. When such an organization offers a definition of middle-class that sends people into debt just to meet basic needs there is a problem.
It is no wonder politicians can claim the economy is working, when it clearly is not. They have no clue how destitute a person would be if they tried to live on what a policy maker, relying on Pew statistics, calls a middle-class income.
That is why there is so much angst and anger in the electorate. It is a reason why the Democratic party message falls flat in too much of the country. Things are just getting worse all of the time. Politicians seem so out of touch with these hard realities. We have been in this decline for decades now as well (discussed more at end of this post), despite living in a nation enjoying the greatest wealth of any nation in the history of the planet...at this very moment.
CREATING A REAL DEFINITION OF MIDDLE-CLASS
Basing a person's “class” status on income alone has proven to be insufficient. What the Pew Research Center calls middle-class is clearly not, clearly. I reiterate, I am not really a fan of all of this class talk. I am much more into expanding opportunity for all and that shared prosperity business. That said, we need to have a clearer picture of the realities we face today. That starts with defining the condition our economy leaves people in. As such, we need some form of a consistent definition set so we can all work from a common understanding. This represents my take on what the various classes of concern ought to be defined as.
Poor — Sticking to the federal guidelines here would be appropriate. They are modeled on means testing measures and not simply income, although it is scaled to income. To be poor is not to be able to afford the basics, you are often forced to choose between medications, food and or paying rent.
Working-Class - Any income from just above the poverty line to the baseline Middle-income category. To be working-class is that you make enough to live comfortably with some sacrifices. If you are working you can meet the basics no problem, but, you can end up in trouble pretty quickly if you lose your income stream. In no more than a month or two and you see radical lifestyle changes.
Middle-Class - I would define the low-end Middle-Class income to be based on the average apartment rent in a metro area not exceeding 1/3rd of total Income. In the Portland market that would be an income of, at a minimum, $38,052, not the $24,042 as defined by the Pew Research Center. To be middle-class means that you live comfortably, can easily take a decent vacation and have money enough to set aside some over a few years so that if you do lose your income stream you can survive a year or so without radically changing your lifestyle.
I am not all that interested in defining what upper class is. If pressed I would say it starts at double the middle-class minimum income level, so at around $76,000 per capita income in the Portland market.
THE DECLINE HAS BEEN HAPPENING FOR DECADES
So, with a major research center defining “middle-class” as being something actually near what most of us would consider the poverty line, it is not surprising that the modern economic choices advanced by both parties over the last 4 decades have failed to provide shared prosperity for most Americans. Below is a survey of the macroeconomic dynamics at play. And using the Pew definitions, it is easy to see why policy-makers accept what in reality is a declining economic situation for most of us.
One thing is clear, looking at the data, productive work has lost significant value against financial engineering activity. This is true of tax policy and wage and salary distribution. To highlight the scope and scale of the problem I just want to look at growth rates of GDP, all Wages & Salaries, and Median Household Income since 1970.
All data below comes from US Census Bureau or FRED and are in inflation-adjusted dollars.
GDP, WAGES AND SALARIES, MEDIAN HOUSEHOLD INCOME, TOTAL HOUSHOLDS
|
1970 |
2015 |
GROWTH |
CHANGE |
GDP (TRILLIONS) |
$4.722 |
$16.397 |
$11.675 |
242.7% |
WAGES & SALARIES
(TRILLIONS)
|
$2.432 |
$7.034 |
$4.602 |
189.3% |
MEDIAN HOUSEHOLD INCOME |
$47,583 |
$56,516 |
$8,933 |
18.8% |
TOTAL HOUSEHOLDS (MILLIONS) |
64.778 |
125.819 |
61.041 |
94.2% |
This table illustrates the fundamental failing of our modern economic choices. The explosion in GDP without a corresponding increase in wages shows a radical redistribution of wealth allocation. The 55 percentage point gap there shows a problem (that is a difference of $1.4 trillion no longer distributed to wages and salary). The gap between wage and salary growth and median household income is even more alarming. That shows what gains have been made have only gone to a very small few overall. Let’s look at what median household income would be if it mirrored growth of either GDP or even just Wages & Salaries.
The top line is if median household income remained the same share over time. The second line adjusts that share down to compensate for the growth in the number of total households.The most alarming part of this data is that it does not even consider that the number of wage earners per household has probably increased, and further, that the number of jobs worked per wage earner has likely increased over that period as well. If you add those factors in you would see an even further degradation of the value of work in our modern economic system.
MEDIAN HOUSEHOLD INCOME (MHI) GROWTH COMPARISONS
|
ACTUAL |
MIRROR GDP |
DIFFERENCE |
MIRROR WAGES |
DIFFERENCE |
MHI |
$56,516 |
$165,231 |
-$108,715 |
$137,638 |
-$81,122 |
MHI (ADJUSTED FOR TOTAL
HOUSEHOLD GROWTH)
|
$56,516 |
$85,094 |
-$28,578 |
$70,884 |
--$14,368 |
This is the fundamental problem with the Democratic Parties economic approach and message. Voters want a system where working people share in the gains of such explosive economic growth. A median household income of $85,094 today would alleviate a significant amount of the economic pressure most families are under today. Instead, Democrats offer up childcare credits and better tuition aid. Providing programs to help deal with the problems caused by the devaluation of work is far less compelling than actually pursuing policies that once again return real value to productive work.
CREATING SHARED PROSPERITY
That needs to be the focus of the economic message of the Democratic Party. To get there, Democrats must recognize the system itself is failing and band-aids like childcare assistance, while not a bad thing, are not adequate to deal with the gaping wounds left by our modern economic policy choices.
And it is not simply natural economic forces driving down wages. It has been intentional policy choices that have led us down this path. In my estimation, a widespread abandonment of organized labor has helped spur this decline. Labor has been under attack for decades, we have not defended them/us well enough. We must band together and demand our fair share.
This final chart, from EPI, makes it clear we are the victims of bad policy choices. If policy choices did not matter, if it was simply the way capitalism worked, we would have never seen a time when wages grew with productivity. The thing that changed is our policy choices. We allowed the system to devalue productive work in favor of financialization. And allowing the middle-class to be defined as the Pew Research Center does only contributed to that problem.