When middle class Americans see something is wrong, we can change it.

by Lee Bowers                                                                                  Copyright protected. All rights reserved.

Preface * I. Who Makes Us Fly? * II. Prevailing Winds * III. Unions: A Failing Support * IV. Warning Signs * V. Inceased Exposure * VI. Lost Protections * VII. Adverse Conditions * Notes * Works Cited

PREFACE

As World War II ended, soldiers were returning to a country that didn't immediately have enough jobs for them.  The GI bill bought time while giving veterans an opportunity for further education.   

After years of pent-up consumer demand, and with exploding numbers of young families, businesses began to grow rapidly.  New jobs became available.  Unions negotiated higher wages and benefits.  The American middle class blossomed, and the average American household's standard of living became the envy of the world.

However, some players in our economy, particularly health care providers, insurance companies, and bankers, found ways to take advantage of the deep collective pockets of a thriving middle class (the middle 60% of the population by income*).  By 1980, after only 30 years, the signs of erosion were already apparent.   

Rising prices for health care, an expanding role for health insurance, and the successful sale of debt as a way of life were beginning to wear the middle class down.  After another 30 years, 60 Minutes reported on March 6, 2011, “American families have been falling out of the middle class in record numbers.”  [CBS**]

Those big three economic forces—health care pricing, health insurance, and the banking/lending/investment complex—are so far out of balance today that they have driven too many former members of the middle class to their knees with lost jobs, underemployment, foreclosed homes, reduced consumer spending, and failing hope.  Those who were aspiring to the middle class don’t stand a chance—25% of the nation’s children are living in poverty and often hungry. [CBS]   Long-term injustices still keep women and minorities underpaid.

The big picture is depressing, both psychologically and financially.  Economists and politicians agree with the American public, that more jobs and increased consumer spending are the changes that will truly end the terrible and continuing impacts of the Great Recession.  New jobs, higher earnings, and larger tax revenues will strengthen the balance sheets for our households and our government.   

However, if we continue to allow the practices that have so thoroughly dis-empowered the American middle class, this could be only the beginning of a true tailspin.  We have the power—and the responsibility—to correct the wrongs, re-balance those economic forces, and rebuild the American middle class.  Our nation depends on us.

  * See Notes, below.
** See Works Cited after Notes, below.

I.  WHO MAKES OUR ECONOMY FLY?

All those Sales! * The People * Critical Mass

Airports are fascinating.  I love flying, never fail to be thrilled by the height and the speed, always seek a window seat so I can watch the terrain beneath us.  But there's a lot more happening at airports than the miracle of the physics of flight.  They demonstrate the economic power of the American middle class. 

Most industries conduct their business behind walls, inside factories and offices.  We don't get to see the interactive details of how those industries work.  Airports are different.  Everything happens right out in the open, starting with the quick turnaround time made possible by the coordination of ground traffic, passenger check-in, refueling, and luggage handling.

The control tower is in plain sight.  Air traffic controllers synchronize with adjoining airports and coordinate seamlessly with towers thousands of miles away.  Millions of lives each year depend on their worldwide network.

All Those Sales!

Airports display the intricate interdependence of our society. It goes way beyond the fact that storms in New York can affect business meetings on the West Coast. As with so many industries, there are ripple effects throughout our economy from the airlines’ cargo and passenger services. 

Many sub-industries have to thrive in support of all our big industries.  Every airline passenger encounters many: the security industry, computerized ticketing, baggage conveyor belts, pilot training, car rentals, furniture in the waiting areas.... The economic interdependence of hundreds of businesses is blatantly obvious in airports.

From my seat in the gate area, it's clear that an airport is an entirely man-made environment, a extensive assortment of economic miracles.  Every single item and each part of every machine and piece of furniture around me was invented by human thought, protected by patent law, produced, marketed, sold, delivered, and paid for.  Every stage involves yet another industry.  Just the number of sales alone that had to happen, represented by everything I can see, is staggering. 

The People

And the people!   At any hour, day or night, there are streams of travelers disembarking, lines going through security, groups waiting to board, hundreds of people of all ages weaving through the crowds.  They're wearing jeans and flip-flops with backpacks, business suits with laptop totes, casual clothes with toddlers and diaper bags, even a whole wedding party, bridal gown and all. 

It still astounds me, looking around inside an airplane, how many people want to go to the same place on the same day at the same time as I do.  There have to be great numbers of people flying every day, 24/7, for our airlines and airports to be kept busy enough to survive financially. 

Most amazing of all is the one factor that is absolutely necessary for all these industries to be viable: a middle class with enough money to be able to afford to fly.  The majority of air travelers are working people and family members.  If flying were a luxury only for the wealthy, there simply aren't enough of them to sustain such a huge industry. 

Critical Mass

Airports make it obvious that a critical mass of middle-class* consumers is necessary for the air industry to even exist.  This is why our increasing pattern of shifting wealth away from the middle class into the hands of a few is so very dangerous to our economy. 

If middle class wages stagnate, our actual, non-credit buying power declines relative to inflation even when inflation is low.  When full-time jobs are eliminated, jobs are shipped overseas, and more and more people are forced into part-time, temporary, or sub-contract positions with lower wages and reduced benefits, or no benefits at all, the wealth of the middle class declines—and so does our discretionary spending. 

Any time too many members of the middle class are increasingly restricted as consumers, the whole economy tilts downward.  Our industries cannot survive without a consumer market that is big enough and earning enough to afford their goods and services. 

The survival of capitalism and democracy both are dependent, not on the rich, but on a healthy, thriving middle class.  We cannot fly otherwise.  

*The middle class is generally the middle 60% of the population by income. See Notes, below.

II.  PREVAILING WINDS

Red-lining * Job Discrimination * Wage Secrecy * Pockets of Poverty * Hourly vs. Salaried * Action

Freedom without resources is not freedom.  It is poverty—and “Poverty is the worst form of violence.”  [Gandhi]

A few people I knew in college started teaching in an urban elementary school after graduation.  It was in an impoverished African-American neighborhood, the children attended the local school, and their educational status was as impoverished as their community.  

These new, enthusiastic teachers saw with dismay the effects of racial segregation in a Northern city, and they debated the best solution among themselves.  The answer they kept coming back to was busing, as the most effective way to desegregate the city-wide school system.

Redlining

Later, investigative reporters discovered and exposed the practice of redlining.  Banks and insurance companies were routinely denying mortgages and homeowners’ insurance to otherwise-qualified individuals if they were seeking to own homes in black neighborhoods.  The lenders and insurers had literally marked red lines on their city maps to delineate the residential areas they would not serve.  

One effect of redlining was to maintain the power of the slumlords.  Another was residential segregation by income level, which in turn caused racial segregation in the neighborhood schools.  We’ve since prohibited redlining, and schools have been integrated for more than a generation of students, sometimes with busing. 

Yet too many African-Americans are still growing up in de facto segregation and very real poverty, still inadequately educated, still vulnerable to high unemployment, despair, alcohol and drug addiction, and crime.  Sometimes the problem seems intractable, resisting all attempts to correct it.  

Actually, black Americans are not the only ones who are in an economically disadvantaged group.  After a generation of laws prohibiting race- and gender-based workplace discrimination, white women get only 79 cents for every dollar a white man is paid, while minorities are paid 75 cents or less [CBO].   

Minority women were 8.1% of those employed in 2009, minority men 7.4%, and white women 38.2%—a total of 53.6%.*  More than half of the national workforce is underpaid compared to their white male peers.  [BLS/CPS Workforce]    

* Using BLS/CPS data, minority here includes only the largest (African-American and Asian) racial minority groups in the workforce, not the Hispanic/Latino ethnic minorities who can be of any racial combination, because the Hispanic multi-racial data counts some workers twice and would yield totals above 110%.  Nevertheless, the percent of underpaid women and minorities would be significantly higher than 54% if Hispanic employment data were included.  See BLS/CPS Workforce, http://www.bls.gov/cps/cpsrace2009.pdf.

It seems that red-lining also occurs somehow in the workplace.  Pay discrimination seems as intractable as segregated poverty. How does it continue to happen?    

A 2007 Supreme Court job discrimination case exposed the underlying cause.

Job Discrimination    

In May 2007 the United States Supreme Court ruled for Lilly Ledbetter’s employer, Goodyear, and against her discrimination suit, on the grounds that she had not filed her discrimination claim within 180 days after the wage discrimination first occurred—even though she had no way of knowing she was being discriminated against until someone tipped her off many years after it had begun.  [Ledbetter]     

That was when she first discovered that there had been an increasing gap between her own paychecks and how much her male peers were paid, dating back to her first raise.  She filed suit within 180 days of her discovery, but that was not good enough for the Supreme Court.  Lower courts had consistently found for Ledbetter, but Goodyear kept appealing, and with the Supreme Court’s ruling that she had filed her complaint too late, her employer escaped all liability.  

In reaction to the Court’s 5-4 decision, many were enraged at the conservative majority’s strict interpretation of the 180-day window for filing suit, claiming it was totally inconsistent with the intent of the law.  Justice Ruth Bader Ginsburg wrote a stinging dissent and urged Congress to pass corrective legislation. 

But even Justice Ginsburg tacitly accepted a major factor in the persistent employment discrimination and resulting economic segregation suffered by nearly every group in this country except white males.  That factor is private sector wage secrecy.  

Together, women and minorities make up the majority of the American workforce—and our non-government employers are underpaying all these people.  How do they get away with it?  The same way Goodyear got away with underpaying Lily Ledbetter.  

Wage Secrecy

The most powerful employer strategy to perpetuate wage discrimination in the workplace is the same one that tripped up Ledbetter—enforced secrecy about pay.  Human resources and payroll departments are not the only ones sworn to secrecy. 

Many companies prohibit their employees from telling each other how much they are paid.  I have worked for a firm whose employment contract stated explicitly that revealing one’s salary to a co-worker was grounds for immediate dismissal.

Secrecy usually protects the wrong people for the wrong reasons, and this is a perfect example.  While employers profit from this practice through lower payroll costs, whole groups of employees lose; namely, all the women and minority employees—plus their families.

Consequences  

Economic discrimination blocks whole groups of Americans from full and equal participation in the broad opportunities and benefits of our middle class economy, which is the foundation of American capitalism.  Economic discrimination starts in the workplace, with separate and unequal incomes and benefits, and lower contributions to retirement funds.  Wage secrecy lets employers get away with job discrimination.  They increase their own profits by underpaying a large portion of their workforce. 

But because those lesser incomes limit people to cheaper housing, poverty is still concentrated in some urban neighborhoods and, with their lower tax base, their nearby schools are poorer too.  Hence the de facto segregation of our African-American communities.  

Pay discrimination in the workplace does more than cause housing segregation by income levels.  Pay discrimination fosters pockets of poverty which, in a domino effect, leads to educational segregation and reduced job opportunities. 

Parents suffering economic inequality have a greater struggle just to survive financially, often having to work two or more jobs if they don’t give up altogether.  They have less time and energy left over to involve themselves closely in their children’s education or supervise their out-of-school activities. 

The consequences of wage discrimination are a primary cause of that self-perpetuating poverty syndrome which is so evident in many of our non-white communities.  It has gone on for a very long time, and it will continue—unless and until we acknowledge the root cause and act promptly and firmly to correct it.  

Even though private prejudicial attitudes are undoubtedly involved, pay discrimination is an observable, measurable, and punishable real-life behavior that violates the public interest.  It can be, and is, prohibited and penalized by legislation and the courts—but only if the facts are available.  In the private sector today the most essential facts are hidden: employee pay scales.  

Economic discrimination causes poverty for many and hardship for more.  It oppresses the aspiring middle class, people who should be solid earners and taxpayers with money to spend.  Pay discrimination triggers and perpetuates a whole broad spectrum of inequality in our society today, and one single employer policy causes and protects the whole syndrome:  pay secrecy.  We cannot allow it to continue.      

Pay secrecy is of no social benefit, and it causes great social harm.  It reduces our nation's income tax revenues and Social Security contributions.  It restricts consumer spending, reduces sales tax revenues, and weakens the health of the national economy.  

It all starts with wage secrecy.  Now is the time to end it, to stop the harm it does to the majority of the working members of the American middle class.  And we can end it.  

Only Some Wages are Secret

One whole set of pay scales is already public:  government employees from the nation’s president to the local school janitor.  We know how much our teachers and Congressmen and firefighters and governors are paid—it’s public information, even reported by the news media.   

Unions also negotiate wage scales that are known by all the employees and often published in the media as well.  Only managers and non-union private sector businesses are allowed to keep their pay scales secret, and it's in management where Lilly Ledbetter was cheated.  Management is where that infamous glass ceiling exists for women and dark-skinned employees—and unions don't protect them because they're salaried, and therefore "exempt."

The Equal Pay Act was passed in 1963, but wage secrecy limits its enforceability, which Ledbetter’s case made abundantly clear.  It’s way past time for us to require complete publication of pay scales in the private sector.  

Not that it would ever happen through Congress.  Courts might require it, though, in cases where discrimination is alleged and disputed, and plaintiffs request the data.  If the Lily Ledbetters won enough cases by that method, it might even come to be in companies’ best interests to pro-actively demonstrate their compliance with the Equal Pay Act and publish their pay scales themselves.

Think how much higher our consumer spending and tax revenues—and how much lower our national debt—would have been over the past 60 years if women and minorities had been receiving, spending, and paying taxes on the same wages as white men. 

The discrimination allowed and protected by private sector wage secrecy has done even more damage to our nation’s economic health than our exorbitant health care costs.

Hourly vs. Salaried  

Besides pay secrecy, there is one other factor that tripped up Lily Ledbetter.  The wage discrimination she suffered began with her first promotion into the lowest level of supervisory positions.  That, presumably, put her into the salaried "management" category, which removes people like her from the protection of unions who traditionally represent only hourly workers.

That's the other long-established employment practice that is increasingly costly to the American middle class.  Our distinction between blue-collar laborers who receive an hourly wage and the white-collar managers who get annual salaries goes a long way back, even to feudalism. 

It heated up with the labor movement of the late 19th Century.  This class difference gave rise to the formation of unions, who struggled against management’s sometimes violent power to impose abusive working conditions on their labor force.  

Today, salaried positions are depicted as a promotion to management status, but in reality they are too often treated by upper management as a blank check on the time of their employees.  Why?  Because salaried workers don’t get overtime pay.  They get their regular salary whether they work 40 hours a week, or 20, or 80. In fact, they get no additional pay at all for working the 41st hour and beyond—not a dime more.

I personally know someone whose performance earned him the offer of such a promotion, but when he looked at all the extra hours the others in that position were working and did the math, he saw it would actually be a pay cut compared to his current hourly rate.  He refused the promotion.

Too often salaried employees are expected, or required, to work as many hours as their employers say they need, which has long been standard practice not only in supervisory and administrative jobs,, but also in the medical and legal professions.  New attorneys commonly have to work a minimum of 80 hours a week, and physicians-in-training work 36-hour shifts—all without overtime pay—during the very years when these young professionals are starting their families.  

The quickest way to stop such abuses is to put absolutely everyone on the clock.  No more annual salaries.  Instead, make everyone an hourly employee with time-and-a-half pay for overtime.  for more  40 hours a week.  The method is simple: a law requiring that all salaried employees who work more than than 8 hours in a day or 40 hours in a week be paid, from the 9th or 41st hour on, 150% of the hourly equivalent of their annual salaries; i.e., the salary divided by 2080 hours, at 40 hours per week for 52 weeks.  

Employers might find it cheaper to create more jobs than to pay for all those overtime hours they now get for free.  

Either way—with more jobs, or more over-time pay—our middle-class earnings, and our national, state, Social Security, Medicare and sales tax revenues, will increase,  bringing our deficit down without raising anybody's tax rates, and most “white-collar” workers will be way ahead of the situation they're in today.

Article 23 (c)of the Universal Declaration of Human Rights, adopted and proclaimed by the General Assembly of the United Nations in 1948, states that

Everyone, without any discrimination, has the right to equal pay for equal work.

Our two-tier employment system, where only full-time regular employees get benefits but most of the part-time, sub-contract, seasonal, migrant, and temporary workers do not, violates this principle.  Wage discrimination violates our own law as well.

The exploitation of salaried white-collar workers and rookie professionals violates Article 24 of the Human Rights Declaration:

Everyone has the right to rest and leisure, including reasonable limitation of working hours and periodic holidays with pay.  

Not in our country.  Not yet, but we can make it happen.  Today we have job discrimination and unequal pay by gender, by race, and by class (hourly or salaried).  Our two-tier employment system, where only full-time regular employees get benefits but most of the part-time, sub-contract, seasonal, migrant, and temporary workers do not, is another way we violate this Human Rights principle.  Wage discrimination violates our own laws as well.

The exploitation of salaried white-collar workers and rookie professionals also violates Article 24 of the Human Rights Declaration:

Everyone has the right to rest and leisure, including reasonable limitation of working hours and periodic holidays with pay.

Theoretically, unions could have had a vitally important role in preventing these injustices, except for the fact that unions have traditionally represented only some of the workers, some of the time.  Unions too have been guilty of practicing job and wage discrimination, favoring white male full-time hourly laborers over part-time, female, minority, and salaried workers. 

If the unions had been in there doing their advocacy job for everyone from the outset, all the Lily Ledbetters would not have suffered the injustices they continue to experience today.  Women and minorities would receive 100% of the pay received by their white male peers. 

There's an opportunity here for unions to turn around their declining membership in the private sector—if they are willing to make some significant changes.  In fact, the white-collar / blue-collar distinction has already been broken by the efforts to organize office workers.  If unions got serious about representing all of us, and sought to earn our support with consistent communications and efforts on our behalf, they could actively advocate and negotiate for, and protect, all the Lily Ledbetters still being cheated today

Action  

Prevailing winds can permanently bend trees and stunt their growth, and this has also happened to the majority of the working middle class—women and minorities.  The trees are powerless, but we are not.   

We can end pay discrimination by ending pay secrecy, and we can stop the abuse of unpaid salaried hours by converting all annual salaries to hourly rates with overtime pay.    

We can insist that the leaders we elect have the courage to do so.  If we speak out, repeatedly, with clarity and persistence, we middle-class voters will become the source of Congress’s courage to act—regardless of lobbyists’ pressure on them. 

That is how we can end economic discrimination in this country, and the American middle class—the whole middle class—will be far stronger for it.  As will our families, and our nation. 

Democracy and capitalism will not endure as government and economic systems unless all the people have full and equal access to economic opportunity.

III.  UNIONS:  A FAILING SUPPORT

Personally, my experiences with unions have not been good, even though, historically, the early labor movement was a thrilling story of competition for the ownership of labor—capitalism at work in a new realm.  

Once workers realized their combined strength could match the power of owners and managers, they were able to take some control over their own labor and require owners to negotiate with them rather than exploit them.  Unions made it clear that owners were every bit as dependent on their employees as the workers were on their jobs, and that wages, hours, and working conditions were subject to a fair exchange between equals.  

For some, but not for all.  Today, unions are failing us.  They exclude and don't serve far too many who would otherwise be strong potential union members.  I heartily endorse the concept of unified action by employees, but not the way I’ve seen unions usually.  They haven't helped me, or countless others like me; instead, they have failed me time and again.  

The first time, I was a graduate student working in a hotel dining room where the waiters were in a union.  I expected a union representative to tell me the benefits and encourage me to join, but it didn't happen.  Instead, the maitre d' sat me down for the talk.  

“Rocky,” I asked, “why are you telling me this?  You're management.  Why are you doing a union rep's job?”  

“I'll be in big trouble if you don't join,” he answered.  

“Why?”  

“It's union shop.  The law says you have to join within thirty days or lose the job.”

I said, “Tell the union rep to talk to me.  I'll be glad to join.”    

It never happened.  

At the start of the thirty-first day, fifteen minutes before the dining room opened, three men walked in the front door, topcoats flying open, hats still on.  “Rocky, we hear you gotta girl on da floor ain't in da union.”  

As I was taking my apron off on my way out the back door, one waitress was smirking at me.  That's how I found out who the union rep was.  

A few years later, still not disillusioned, I was one of those teachers who actually read the union contract, and in my third year I was appointed to the union's contract negotiating team.  Because I had a young child, I had arranged to reduce my teaching hours a bit and was working four-fifths time.  

During one of the preparation sessions, the state teachers' union advocate who was guiding us through the negotiating process mentioned the union's position against part-time teachers.  

“Why?”  I asked.  “I'm part-time, and you know how much I support the union.” 

“Part-timers take full-time jobs away from breadwinners,” he explained, knowing full well that I was a not only working part-time, but also the breadwinner, supporting my young family while my husband was going through a career change.  

A few years later, as a newly-divorced single parent, disillusioned about both teaching and marriage but still believing in unions, I interviewed for an office job with the Ladies Garment Workers' Union.  I was mildly puzzled that only men appeared to be managing a women's union, but the interview went fine, and they asked when I could start.  

“Next week,” I answered, adding, “I do have to leave promptly at 5 every day to pick up my child from after-school care before it closes.”  

“No problem,” they said.  “We have kids.  We understand.”  

As the interview was wrapping up and we were discussing details about the job, one of them said, “We normally leave at 5, but if something comes up, or we have to get a newsletter out, the clock stops at 5 and we all stay until the job's done.”  

“I'm sorry, I already told you I'm not free to do that.”  The interview ended rather abruptly.  I left, shocked and still unemployed.  

The last straw happened recently.  I teach in an adult workforce education program funded by federal and state grants, and our staff was abruptly co-opted and forced to join a state-wide community college teacher's union.

No one from the union had contacted us with any information, and the union had given us no opportunity to choose whether or not we wanted them to represent us.   It turned out that the terms of the previous contract had simply defined us into the union without ever consulting us or giving us the right to vote on it.   

Neither I nor any of my colleagues welcomed the union’s slick move, particularly since the terms of their contract governing wages, hours and working conditions did not even apply to us and our grant-funded jobs.  Our wages, hours and conditions of employment were already defined in the five-year grant. 

To add insult to injury, the union also denied the seniority we already had for the years we'd been working in our positions—as much as twenty-five years for some of us.  Instead, they determined our seniority only as of the date we "joined" their union:  we all started at zero.

High-handed arrogance has come to characterize the way traditional labor unions operate, and I don't see them advocating for women and minorities.  If unions had really been working on behalf of all of us, we would already have:

• Equal pay for equal work regardless of gender or minority status, with negotiated and published pay scales to prove it.
  
  
• Parity with full-time workers in wage scales, benefits, and all other terms and conditions of employment for part-time, seasonal, sub-contract and temporary workers.
  
  
• Representation and advocacy for middle-management salaried jobs like Lily Ledbetter’s, and very few positions “exempt” from the right to collective bargaining.  
  
  
• Employment conditions that accommodate the realities of working parents who are responsible to job and family alike.
  
  
• Unions who continuously have to earn the right to represent their members and potential members without hiding behind union shop laws, or finding other ways to compel membership.
   
• Union operations so transparent—and regulated—that they cannot be corrupted or taken over by criminal operators.

Today's private-sector unions only help some of us—the hourly, full-time, non-administrative workers employed in large industries.  They do not serve the majority of the American work force.  Personally, I no longer want anything to do with traditional labor unions.  The rest of us need another way to unite and advocate for ourselves.  

Maybe our cell phones, social media, and the Internet will give us the dynamic, flexible, and proactive means to organize nationwide one-day boycotts and strikes, one issue at a time—like the Arab Spring—until Congress passes legislation that protects our rights as employees, and reliably funds the enforcement of those laws.  Then none of us would have to pay the unions our involuntary “agency fees” instead of dues when we refuse to join, or pay bullies to manage us.

Reduced Earnings * Increased Health Care Costs * Reduced Savings * Increased Debt * Widening Income Gap

Learning Roman history in elementary school, I seem to remember that, when hunger and poverty made the common people restless and angry, the Senate provided games in the Circus to distract them, and threw coins to the mobs to pacify them.  In the fall of 2008, America’s middle class got play-off games and a government handout of a few hundred dollars.  That handout hardly compensated us for the decades of being underpaid, and having our earnings depleted by inflationary health care prices and growing interest on debt payments.  

The media often say that consumer spending is 70% of our economy [ABC].  The middle class—the middle 60% of the population—makes up the majority of the nation’s consumers [BLS/CEX].  Because of our numbers, our nation’s financial health depends on the power of the middle class to earn and to spend. 

Our economic climate has been grinding that power down for the past 50 years.  Reduced earnings, increased health care costs, reduced savings, increased debt, and a widening income gap are all cutting into consumer spending by the middle class.  These five economic forces have reduced our power and weakened our nation. 

While have endured short cycles of stock market peaks and plunges, these deeper long-term forces have merged to wear down consumer discretionary spending, thereby contributing significantly to a decline in the job market.  They have driven our middle class economy so low we are no longer able rebound quickly.  

Reduced Earnings

Since the early 1970’s, middle class wages have not just been stagnant, as some have claimed.  Our real-dollar, adjusted-for-inflation earnings have actually declined.

The bad news from the Bureau of Labor Statistics is that, measured in constant 1982 dollars, our average weekly earnings declined by more than 17%, from $334.01 in January 1973 to $276.69 in January 2006. [BLS/CES]   

Meanwhile, employers' costs for labor have been increasing even as middle-class incomes have declined.  Since those labor cost increases did not go into the employees’ paychecks, where did the money go? 

Increased Health Care Costs

“More than half of all Americans get their health insurance through an employer,” according to Victoria Colliver in the San Francisco Chronicle. [Colliver]  Employer-provided health insurance—a rare practice among nations—left the rest of us, nearly 50 million people, with no coverage at all. 

Yet insured workers are also losing.  Citing a Kaiser Foundation study, Colliver adds:

American workers are paying more for their employer-backed health insurance and getting skimpier benefits….Drew Altman, president and chief executive officer of the foundation, [said], "...Premiums have risen 3 1/2 times faster than wages."  [Colliver]   

Health insurance premiums increased because health care prices have increased rapidly, especially since 1980:  

Expenditures in the United States on health care surpassed $2 trillion in 2006, almost three times the $714 billion spent in 1990, and over eight times the $253 billion spent in 1980.  [Kaiser]  

The longer-term picture is worse.  (A couple of reminders: when prices double, it's a 100% increase, not 200%; 10 times higher is a 900% increase, and 100 times more is up 9,900%.  Also, inflation is cumulative, like compound interest—greater over longer periods of time.)

According to data from the U.S. Department of Health and Human Services, total national health expenditures (including both consumer and government spending) increased from $27.3 billion in 1960 to $2,391.4 billion in 2008—nearly 88 times, or 8,700% higher [HHS],† while the Consumer Price Index for all goods and services grew by only by 7¼ times, or 627% [BLS/CPI].    

Health care spending has increased way out of proportion to the rest of the economy, and may well have been a primary cause of inflation during the last half of the 20th Century.  The consequences of that much health care inflation and the resulting extraordinarily expensive health care system have been doing substantial harm to the financial position of the American middle class for half a century, even driving American jobs overseas and creating a  two-tier employment system at home.†

Our labor unions have inadvertently contributed to our nation's health care cost crisis by winning greater health insurance benefits for their members since World War II.  This set in cement our nation's unusual system of employer-provided health insurance, which helps insurance companies conceal providers' inflationary price increases.†

† For the underlying causes of the astronomical increases in overall health care costs since 1960, supporting data, the impact on our jobs, and corrective actions we might take, see Hearthstones, “Is Doctors’ Success Hurting Us?” and “Is Health Insurance Hurting Us?”

Reduced Savings

The decline in the financial well-being of the American middle class has been disguised by a contrary growth in our discretionary spending—a deceptive fair-weather sign:  

In 1901, the average U.S. family devoted 79.8 percent of its spending to…food, clothing, and housing…. By 2002-03, allocations on necessities had been reduced substantially for U.S. families to 50.1 percent... [and] the average U.S. family could allocate 49.9 percent…of total expenditures for a variety of discretionary consumer goods and services…. [100 Years, pp. 66 & 69]

In spite of reduced earnings and increased health care costs, the growth in our consumption of goods and services has suffered only brief pauses—another deceptive fair-weather sign.  Of course the Roman mobs hardly had all the goodies that tempt us today:   

In the 21st century, households throughout the country have purchased computers, televisions, iPods, DVD players, vacation homes, boats, planes, and recreational vehicles.  They have sent their children to summer camps; contributed to retirement and pension funds; attended theatrical and musical performances and sporting events; joined health, country, and yacht clubs; and taken domestic and foreign vacation excursions.  These items…were unknown and undreamt of a century ago. [100 Years]  

How have we done it?  Some point to Federal Reserve data on the decline in personal or household savings, which is significant:   

According to national income accounts, personal saving in the United States was 1.7 percent of disposable income in 2001—its lowest level since 1934.  This low follows a seventeen-year fall from a value of 10.8 percent in 1984.  The decline is particularly striking as the saving rate averaged a relatively stable 7 to 10 percent from the end of World War II up to 1984.  [Federal Reserve/2004]   

For many of us, the shift in household resources toward both home ownership and capital investments, such as 401(k) retirement accounts and IRA’s, may have compensated for or partially replaced traditional savings patterns.  If we’ve actually been saving in other ways, then what has allowed us to increase our spending in spite of declining income?  

Increased Debt

According to Bloomberg News, citing Federal Reserve statistics for January 2008, 

Consumer credit increased $5.2 billion for the month to $2.54 trillion….  The Fed's report doesn't cover borrowing secured by real estate.  [Bloomberg]  

$2.54 trillion in debt—not including mortgage loans.  The ability of the American middle class to absorb increasing debt is astounding, but it is not infinite, as 2008's sequential crashes in the housing market, financial services industry, and jobs have shown. Too much household debt weakens our consumer-based economy.  We consumers do not need more credit card offers and home equity loans.  

Using Federal Reserve debt statistics, money-zine.com reports that

• The size of the total consumer debt grew nearly five times in size from 1980 ($355 billion) to 2001 ($1.7 trillion). 
• The average household in 2008 carried nearly $8,700 in credit card debt.  [money-zine.com]  

Prices that we cannot afford, if we buy with only cash and savings, are now within reach if we are willing to go into debt.  This is especially true for the three largest expenditures of the American family—homes, cars, and college educations.

This appears to be the one area where the “trickle down” theory of economics actually works.  Tolerance of greater debt for the big three household expenditures has "trickled down" to our everyday spending; today, limited affordability has less market power to restrain either prices or spending. 

Widening Income Gap  

We've heard from the Republican party since the 1980's a theory that, with protection from excessive taxes, increased wealth for the top income earners would lead to more job-creating investments.  Their wealth would thus “trickle down” to improve the financial well-being of the rest of us. Reality proves otherwise.  Not only have the nation's average weekly earnings declined by 17% between 1980 and 2007.

The gap between the highest-income group of Americans and the earnings of the middle class has been rapidly growing wider.  “Since 1975, practically all the gains in US household income have gone to the top 20% of households.”  [Bartleby]  And according to the CBO (Congressional Budget Office),  

… CBO data, which cover years from 1979 to 2001, show that the average after-tax income of the top one percent of the population rose by $408,800—or 139 percent—over this 22-year period, after adjusting for inflation, while the average income of the middle fifth of households rose $6,300, or 17 percent.  [CBO]  

It doesn't trickle down. The socio-economic costs of job-based income differences that shift wealth away from the middle class are enormous.  They inflict hardship, even poverty, on people who should be solid middle-class earners and consumers with money to spend. 

What's actually happening, as the 2nd decade of the new millennium begins, is that those of us who still have jobs are paying down our debt and increasing our savings by dramatically reducing our discretionary consumer spending.  Pent-up demand may lead to brief surges in retail sales, but we can't sustain that higher level of spending.  Although the economy is officially in recovery, according to an outdated definition, job losses are very slow to rebound, because we can no longer afford the level of consumer spending that would restore those lost jobs.

The weekly earnings of the middle class are the foundation of our nation’s economy.  We need policies that will strengthen the financial position of the American middle class—directly and immediately, that is.  No more nonsense about wealth trickling down. 

We need our leadership to turn around past policies that have weakened the economic foundation of the American middle class.  What we need are reduced health care costs and increased earnings, so we can pay down our debt, increase our savings, and still maintain the level of discretionary spending that makes our economy thrive.

Deep Pockets * Debt as an Asset * House of Cards * Turnaround * The Kabbalah of Money

Why is the middle class so important to our economy?  The surprising truth is that we have the deepest pockets.  We tend to think big corporations do, or maybe the extremely wealthy, but we actually outspend each group by far.  Both corporations and the rich are, in fact, ultimately dependent on middle-class earnings.

Deep Pockets

We—the middle class, the middle 60% of the American population—are both the primary producer and the primary market for most of our nation’s products and services, including health care.  The same is true of the middle classes in overseas markets for American companies that produce and sell abroad.  Big corporations and small businesses alike sell to usand, like the airlines, their sales volumes depend on a large, thriving middle class—not on the smaller percentage of the rich.

That’s why the mortgage, auto loan, home equity, and credit card offers have so vigorously pursued the middle class, starting with college freshmen.  They know that our earnings are where the real money is. 

However, over the past 35-50 years our average earnings have gone down 17%; health care costs are more than 80 times higher; our savings rate went down from 10.8% to 1.7%; and our household debt load is nearly 5 times greater.  These forces have weakened the economic strength of the American middle class.

Debt as Banks' Assets

Between 2003 and 2008, U.S. households paid average interest rates that hovered around 14% on credit card debt that increased from $791.9 billion to $963.3 billion—an increase of $171.4 billion, or 22%, in just 5 years.  [Federal Reserve, G.19]  The 70% of our economy that is dependent on consumer spending [ABC] has become increasingly constrained by middle-class debt. 

When a large share of household income is devoted to debt repayment, households have fewer funds available to purchase goods and services. [Federal Reserve/2003]

At the end of 1980, households allocated 10.58 percent of their disposable income to debt service (“disposable income” does not include housing costs or mortgage payments, and “debt service” means interest payments only; it does not include additional amounts to pay down the principal).  By the end of 2007, household debt service was 14.26 percent. [Federal Reserve Releases]  That’s an increase of more than one-third just for interest payments on mostly non-essential purchases. 

No wonder the big credit-card-issuing banks regard our debts as their assets, and keep wanting more.  They are consuming an increasing percentage of our earnings.

The Federal Reserve’s web site offers educational materials, including Building Wealth: A Beginner's Guide to Securing Your Financial Future. The topic of the second classroom lesson in Building Wealth is “Understanding interest, avoiding and eliminating credit card debt.” [Building Wealth, emphasis added]  

Most debt management advisers recommend the same first step:  stop using plastic—cut up those credit cards and throw them away.  Spend only the cash we have in hand after essential bills are paid, and pay down all credit card debt, starting with the one charging the highest interest.

House of Cards

If a substantial portion of the American middle class followed that advice and stopped using credit cards, what would happen to the megabanks that depend on credit card users to stay in business?  On the other hand, if too many people have more debt than they can afford and are no longer able to make their payments, what happens to our whole credit system?  Is it built on a house of cards? 

Is the mortgage crisis just the first wave of a major collapse?  Could just a little more, like prolonged high unemployment, cause enough defaults on credit cards, mortgages, and auto loans to push our whole economy over the tipping point?

It very nearly did, starting with the mortgage and investment sectors in 2008, and would have without immediate and repeated government intervention which, however, is a temporary stop-gap measure that treats only the symptoms. We have to identify and correct the causes of our middle-class decline before we can really turn this mess around in such a way that it won't happen again.

Shrinking take-home pay and increasing health care costs are twin forces spinning out of control.  They are driving our loss of savings and our growing debt, and these in turn only intensify the pressures on the middle class—and on our employers, whose sales are shrinking along with our faltering purchasing power. 

Unless we act, and act soon, these economic and political forces can drive the middle-class foundation of our economy into the ground. How can we turn this around?

Turnaround

Our first step is to reduce health care costs by introducing transparency, competition, and non-discriminatory pricing throughout the health care industry.  (See health care articles in Hearthstones.) 

The second step is to free our employers from carrying 35% of the nation's health care costs on their backs in addition to their own business expenses (70% of the premiums for the 50% of us that currently get health insurance through our employers), and thereby restore the competitiveness of American businesses in the global economy.

We don’t have a lot of time to redirect the flow of our earnings away from the health care industry and back into the paychecks of the middle class.  Our health care crisis isn’t just a health care crisis any more.

Third, insist that both our elected leaders and our employers put all the health-care premium savings into our paychecks, and not allocate any to managers' bonuses or stockholder distributions.  Increasing middle class purchasing power will restore some of the jobs lost to the Great Recession of 2008.

But that won't be enough.  Fourth, our business community will also have to keep the big, long-term picture in mind, and put their focus and commitment into increasing, retraining, and keeping their work force, rather than treating employees as disposables in order to boost the bottom line.  Instead of providing health care benefits, our employers could invest in their work force by providing job training whenever the needed skills sets change.

We can not tolerate repeated cycles of unemployment.  Our employers cannot continue to use the American middle class as the nation’s economic punching bag.

We have prime opportunities for new jobs and increased employment right now. Rebuilding our infrastructure, converting medical insurance jobs to medical records jobs, and investing heavily in both alternative energy sources and increased energy efficiency, are all good options, but government investment and time-limited tax breaks are essential for a substantial enough jump start until private industry can carry the ball on its own.

Fifth, with increased earnings and reduced health care costs, we can return to the long-established American value on thrift and saving—as long as all our bank and investment accounts are protected by Federal oversight, regulation, and enforcement.  With these changes to regain our trust in the markets, we could increase our savings, our investing, and our consumer spending—the essential building blocks of our capitalist economy.

It's amazing how quickly the American middle class has responded to the crises following the 2008 crash of unregulated bank activities, by reducing our debt and increasing our savings.  What has continued to pay the price is low consumer spending, high unemployment, and too many families falling entirely out of the middle class.

We still hover at that dangerous tipping point, and only the strained resilience of the middle class, plus government help, are holding us up—and some elements of our government want to withdraw that help.  They appear to be willing to lead us into economic suicide.

Finally, it’s time for our financial institutions, and the oversight agencies that regulate them, to recognize that increasing consumer debt is part of the problem, not part of the solution, and it's a problem that The Federal Reserve’s tinkering with interest rates cannot fix.

Banks as Dependents

We may have to compel a new mind set in our various banking and investment services in order to remove the insatiable greed and get them to accept the fact that a steady income from modest returns and reasonable interest rates are all they are entitled to expect.  Gouging their customers with fees and excessive interest rates is pure and simple greed, with a short-term payoff that risks a long-term disaster.

Banks are dependent on the financial health of a thriving middle class.  They'd better accept the reality of that dependency, and learn to respect us for it.  It is not only self-defeating for them to try to gouge us as they have been doing.  Such conduct puts the entire national economy at risk.

The Kabbalah of Money

As the Brazilian Rabbi Nilton Bonder, author of The Kabbalah of Money, puts it, “uncorrupted money...multiplies the possibilities of livelihood.” [Kabbalah]   Our banks have been reducing our livelihood possibilities. All our financial industries would do well to follow the basic precept of the Kabbalah of Money:

It is right and good to create wealth through ingenuity and effort, but it is wrong to obtain wealth by taking it from others. [Kabbalah, a paraphrase]

Perhaps a statement like this should be the preface to every finance-related bill we pass and every subsequent regulation our oversight agencies propose and implement.

American middle class voters have the power to insist that Congress and the President fix our economy.  How?   Re-empower the American middle class through reduced health care costs, increased earnings, dependable jobs, and well-regulated financial services.

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LOST PROTECTIONS


The rest of this page is down for revision and will be re-posted after editing.

For democracy to succeed, economic powers have to be be diversified; they cannot be seized by an unregulated monopoly, vulnerable to speculators, controlled by a minority, or concentrated in a small portion of the total population. 

NOTES

PREFACE

What is the Economic Definition of 'Middle Class'? Definitions vary.   A common measure divides the entire US population into fifths, or 5 groups equal in numbers, so that each group consists of 20% of the US population.  Looking at the income range for each group, the lowest 20% and the highest 20% are the poor and the rich, and the three middle groups make up the middle class.

Using Bureau of Labor Statistics data [BLS/CEX] from 2008, the middle class had an annual income range between $19,065 and $93,358 per “consumer unit” (a statistical concept where the household size averaged 1.7 to 3.2 persons).

Table 1. Quintiles of income before taxes: Average annual expenditures and characteristics, Consumer Expenditure Survey, 2008 

According to a 2007 Brandeis University study [Wheary] which takes family size into account, those whose income falls between two and six times the Federal Poverty Guideline, or roughly between the 26th and 80th percentiles, and whose net assets  are less than $500,000 (including home ownership, debt, and retirement funds), are members of the middle class.

Therefore, for the purposes of discussion in Hearthstones, middle class annual incomes are treated as between $20,000 and $200,000.

WORKS CITED

 Erosion of the Middle Class                                         First drafts 2005-2008. 7,724 words

I. Who Makes Our Economy Fly?  

No Citations.                                                                   First Draft 3/29/05.  327 words.

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