Political Stability And The Middle Class
By:
Cam Hui Wednesday, October 21, 2009 10:17 AM
I wrote about the
possible social backlash of the financial crisis back in April. Given the uproar over the size of the Goldman Sachs bonus pools, it's time to revisit the topic and the picture isn't pretty.
Simon Johnson, former chief economist at the IMF, recently
reiterated his views on the effects of the financial crisis on US income inequality by saying, in effect, that America is becoming a banana republic:
The US increasingly displays characteristics that we have seen many times in middle-income "emerging markets" – new dimensions of vast inequality, forms of financial instability that benefit the best connected, and consistently easy credit for the privileged.
In an
interview with the Washington Post, Elizabeth Warren, Chair of the Congressional Oversight Committee, stated her views of how the evolution of US society has affected the middle class:
When we compare middle-class families today with their parents a generation ago we have basically flat earnings-a fully employed male today earns on average about $800 less, adjusted for inflation- than a fully employed male earned a generation ago. The only way that houses could increase or families could increase their household income was to put a second earner into the workforce, and, of course that's now flattened out because there aren't any more people to put into the workforce. So you've got, effectively, flat income in this time period with rising core expenses; housing; health insurance; child care; transportation, now that it takes two cars to get everywhere, two jobs to support; and taxes, because you've got two people in the workforce and we have a somewhat progressive taxation system. So that families are spending a lot more on what you describe as the basic nut.
These folks have to work twice as hard just to tread water. But it isn't just about the lack of income gains and flat real earnings over several decades, Warren went on to discuss the effects of credit, health care, college costs, the housing crisis and shifts in income distribution on the middle class and their expectations. She concluded that (emphasis mine):
In the 1950s and the 1960s, coming out of World War II, we said as a government, as a people, what can we do to support the middle class.
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