If we want to create a vibrant middle class, we have to abandon slogans and simplistic solutions and understand the bigger picture.
Note: We avoid using the term “Americans” when referring to people who live in the United States. Americans actually refers to people living in the Americas. Our preferred term is “USians”, but that has not taken hold. We kept Americans in this article because that is how the author wrote it. -MF
There is no doubt that majority of Americans have gotten poorer over the last few decades even while the top 10% or so have done extremely well. In a world of slogans and minuscule attention span, the media and the pundits either completely deny this fact or justify it by focusing on advancements in technology or turn it into a partisan blame game. The reality is that multiple developments contributed to this decline of prosperity, much of it due to deliberate but gradual social and financial engineering. Without assigning ranking or weight, here is a look at twelve major reasons why Americans became poor.
Demise of Labor Unions and Reduction of Wages/Benefits
The 20th century saw the biggest gains as well as the most painful losses for the American worker. On one hand, workers earned the right for collective bargaining – which meant good wages and job security – and myriads of benefits such as 2-day weekends, paid vacations, paid sick days, pensions, healthcare etc. The golden era for the American worker was from 1945-1980 and it really peaked in 1974 (this was the time when the U.S. completely got off the Gold Standard — more on that later).
In the mid-1940s, more than 1/3rd of the U.S. labor force belonged to private labor unions. It went on a steady decline and is about 6% now. Another 6% of the labor force now belongs to the public sector labor unions – teachers, government employees etc. – which started to grow in the 1960s.
This decline did not happen by chance. Dismantling labor unions and cutting wages/benefits were done deliberately and slowly by corporate elites. (Privatization is another tool to attack public labor unions now). Pensions were replaced with false promises of programs such as 401-K which was basically letting the fox (Wall Street banksters) into the henhouse (pension plan). Making it easier to layoff people meant scared employees worked harder and corporations could easily replace a worker with someone willing to work for less. Corporate lobbyists also fought hard against raising the minimum wage, which became even harder after the 1990s when NAFTA, WTO and illegal immigration put a tremendous downward pressure on wages.
Inflation & Cost of Living
There are other ways to rob the average person without their knowledge, and that involves inflation and cost of living. Although these two terms are sometimes used interchangeably, there is a difference. Inflation is the term for devaluing the currency, which then makes things more expensive. This happens when the government creates money out of thin air – physically or digitally. Under the Bretton-Woods system or the gold standard, the U.S. was supposed to print dollars only based on the amount of gold it had. Thus every dollar was backed by and could be redeemed for actual gold. However, the U.S. cheated during the 1960s to fund the Vietnam war and the welfare system, and by the early 1970s, the U.S. was forced to switch to fiat currency – money that’s backed by nothing but faith in the government. This was why inflation rate went from 4% in 1972 to 14% by 1980. By the way, there are different ways to measure the inflation rate and the official government number is constantly tweaked every few years to make inflation look less than it actually is.
The cost of living can go up regardless of and above the inflation rate. Over the last 75 years, Americans have come to spend more real money – adjusted for inflation – on housing (100% more), transportation (200% more), healthcare (200% more) and education (400% more). The two items which cost less are food and clothes, thanks to harmful processed food and cheap labor in poor countries to make our clothes. On a side note, most people don’t realize that cheap food leads to much more expensive healthcare.
Thus the three main culprits so far have been slashing of wages/benefits, inflation due to fiat currency, and rise in cost of living. Onto the rest.
Financialization
Since the 1970s, the financial sector – should really be known as Casino Capitalism – has grown tremendously. Wall Street profits rose from less than 10% in 1980 to 40% of all corporate profits by 2003. People who create nothing managed to become the masters of the economy. Manipulating the price of stocks and commodities while sitting in front of a computer became a lucrative way to make billions. Derivatives and other exotic tools were given exemptions from full disclosure, which enabled blatant rigging and insider trading. Financialization also meant that corporations were now controlled by large shareholders and financial corporations that made decisions solely to influence stock price and dividends. This vulture capitalism involved slash-and-burn activities such as buying companies to raid their pension funds, forcing a company to use debt to buy back their own shares (to boost the stock price), wantonly laying off employees to spur short-term profits and so on. End result? Fewer corporations, less creativity, fewer innovations, fewer workers and decreasing wages.
Federal Reserve Bank
Although many people are waking up to the biggest financial scam, most people still don’t understand that the Federal Reserve Bank is controlled by private banks and behind-the-scene plutocrats. The power to create money out of thin air cannot be overstated. The Fed can create and burst economic bubbles, start wars between nations, and control every aspect of the nation – media, politicians, corporations and the distribution of wealth. The Fed distorts capitalism and free market by determining the winners and losers in an economy, and the American worker has not been the winner. The effect of gold-based currency versus fiat currency (since 1971) is clearly reflected in the chart below:
Excessive Deregulation
If too many regulations are bad, then too much deregulation is worse. While regulations increased for the small business owners over the last few decades, big corporations bought off politicians and filled up the regulatory agencies with past (or future) corporate employees. This enabled corporations to break up unions, get rid of anti-monopoly laws, consolidate media ownership, get GMO approved, enable marketing of pharmaceutical drugs directly to consumers and so on. All these only resulted in concentration of power and money in the hands of fewer and fewer Americans. It must be noted that many regulations are actually crafted by corporations in order to kill competition. Regulations also usually work against small-medium businesses. Thus there is no simplistic answer to regulations as a concept.
Taxes
In the 1950s, the top income tax bracket for an individual was more than 90%. This was slowly chipped away every few years and brought down to 28% by the time Ronald Reagan left the office in 1988. To compensate for the loss of revenue, payroll tax and other taxes were quietly and steadily increased, which negatively impacted the middle class. Meanwhile, complex loopholes were introduced in the tax system that allowed global corporations and billionaires to minimize their tax burden and squirrel away trillions in offshore accounts.
Globalization
Although there are undeniable benefits to trading with other countries, U.S. corporations used globalization to ship many American jobs abroad in order to leverage cheaper labor. High-paying jobs in the U.S. were replaced with low-paying service jobs. Thus globalization translated to equalization of wages and living standards. America got poorer and countries such as China and Mexico got richer. The chart below shows how the GDP of U.S. and China performed over the last 35 years.
Automation
In the 1950s and ‘60s, Americans were told that automation and computers were so awesome that within a few decades, Americans will be working less than 20 hours a week and the biggest challenge in life will be figuring out what to do with the leisure time! Ha ha, ha ha. You were punked! It was probably deliberate propaganda to ensure there was no resistance to technology and automation. Millions of jobs become obsolete every year and this trend is going to become only more acute as robots become smarter and more skilled. There are now robotic kitchens, self-driving cars, robotic nurses in hospitals and even robots that do farming! Automation is a double-edged sword, for sure.
Immigration & Women in Workforce
If you put aside politics and social considerations, women in workforce and immigration simply increased the supply of workers and thus decreased wages. It’s simple economics. In 1950, only 10% of mothers worked, while more than 65% of American mothers work now. Essentially this influx of women into labor force cut the wages in half, and thus many families now need two incomes to survive. Same applies to immigration which brings in people who are willing to work harder for less money – a fact that applied to low-skilled jobs before but now is increasingly true for many high-paying jobs.
Single-Parent Families
Again, without being moralistic, the objective fact is that nuclear families are financially better off than single-parent families. The extraordinary rise in divorce and single-parent households over the decades have also contributed to the decline in wealth of the average American family.
Consumerism
Starting with Edward Bernays in the 1920s, America’s elites deliberately cultivated consumerism – your worth as a human being is based on what you own/buy. Of course, this meant Americans typically save far less than Europeans or Asians. This was fine during the boom years, from 1945-1975. Then, even as the economy changed, the habit of consumption remained. As Americans started to become poorer since the 1970s, debt became the tool to obscure that fact. Credit cards, easier auto loans and smaller mortgage down payments, for example, hid the negative wealth effects. The ever-decreasing interest rates – artificially done so by the Fed – over the last 30 years kept up the fake growth, but this has created terrifying dangers for the economy.
Endless Wars
The military-industrial complex that Eisenhower warned us about has been unstoppable since World War II. Empire-building and wars are simply too lucrative and profitable. Destroy-Build-Destroy is a good business model for the elites. Trillions of dollars have been wasted in meaningless wars that have left us with fewer allies, more debt and a less safe country.
Conclusion
Finally, it really boils down to education and attitude. If people wield critical thinking and take the time to research issues on their own, they will elect the right leaders, demand the right policies and create the ideal communities. Of course, this is exactly what the elites don’t want to happen. As Rockefeller once said, “I want a nation of workers, not thinkers.” Hence we have schools that excel in dumbing down our students, and corporate mainstream media that triumph in spreading fake news. Hollywood and the entertainment complex distract and confuse people – especially the young ones – with trivial, vulgar, violent and nihilistic beliefs. If we want to create a vibrant middle class, we have to abandon slogans and simplistic solutions, understand the bigger picture, tackle multiple and complex issues simultaneously, and work together as Americans in a non-partisan way.