Wither The Middle Class?

It seems to me…

The most perfect political community must be amongst those who are in the middle rank, and those states are best instituted wherein these are a larger and more respectable part, if possible, than both the other; or, if that cannot be, at least than either of them separate.”  ~ Aristotle.

We frequently tend to overly simplify our approach to complex system corrections whether they are in economics, education, environment…  We isolate specific problem areas and attempt “fixes” without adequate consideration of how all the related “parts” interact.  A doctor never would prescribe some medication without considering other drugs the patient might already be taking yet we repeatedly attempt exactly this in every other field.

Engineers, scientists, and others primarily in technical fields are trained to consider a total system interface approach in their analysis and recommendations but the majority of people – and this apparently is especially true of politicians – tend to reject what they view as unnecessary complexity.  We want the overly-simplistic solution to all our problems – the pill that cures all illnesses, the easy environmental measure not requiring us to change, full employment without investment… – though we realize everything in this world is interrelated.  The majority of politicians, and apparently most people, seem to feel they can reject scientific findings and instead substitute whatever it is they wish regardless of any conflict with mere facts.

The general public (i.e., voters) falsely believe elected officials are able to more quickly affect change than is within their ability.  The President is blamed for the high cost of gas (which comes from the middle-east), declining stock prices (affected by possible financial defaults by Greece), persistent high unemployment (though all levels of government have failed to adequately invest in education), and anything else the opposition believes can be used for political advantage (regardless of how bogus the claim might be).

While we tend to concentrate on reducing currently high unemployment rates and budget deficits, an additional critical problem is that the U.S. middle class is being systematically wiped out.  The disparity between the wealthy and those less financially well-off is increasing at an unparalleled rate.  About ten years ago, the United States had the largest and most prosperous middle class in the world but now that is rapidly changing.  Consider[i]:

  • 83 percent of all U.S. stocks are in the hands of 1 percent of the people.
  • 61 percent of Americans “always or usually” live paycheck to paycheck, which was up from 49 percent in 2008 and 43 percent in 2007.
  • 66 percent of the income growth between 2001 and 2007 went to the top 1 percent of all Americans.
  • 36 percent of Americans say that they don’t contribute anything to retirement savings.
  • A staggering 43 percent of Americans have less than $10,000 saved for retirement.
  • 24 percent of American workers say that they have postponed their planned retirement age in the past year.
  • Over 1.4 million Americans filed for personal bankruptcy in 2009, which represented a 32 percent increase over 2008.
  • Only the top 5 percent of U.S. households have earned enough additional income to match the rise in housing costs since 1975.
  • For the first time in U.S. history, banks own a greater share of residential housing net worth in the United States than all individual Americans put together.
  • In 1950, the ratio of the average executive’s paycheck to the average worker’s paycheck was about 30 to 1.  Since the year 2000, that ratio has exploded to between 300 to 500 to one.
  • As of 2007, the bottom 80 percent of American households held about 7 percent of the liquid financial assets.
  • The bottom 50 percent of income earners in the United States now collectively own less than 1 percent of the nation’s wealth.
  • Average Wall Street bonuses for 2009 were up 17 percent when compared with 2008.
  • In the United States, the average federal worker now earns 60 percent MORE than the average worker in the private sector.
  • The top 1 percent of U.S. households owns nearly twice as much of America’s corporate wealth as they did just 15 years ago.
  • In America today, the average time needed to find a job has risen to a record 35.2 weeks.
  • More than 40 percent of Americans who actually are employed are now working in service jobs (which often are very low paying).
  • For the first time in U.S. history, more than 40 million Americans are on food stamps, and the U.S. Department of Agriculture projects that number went up to 43 million Americans in 2011.
  • American workers now must compete against: China, where a garment worker makes approximately 86 cents an hour; Cambodia, where a garment worker makes approximately 22 cents an hour.
  • Approximately 21 percent of all children in the United States were living below the poverty line in 2010 – the highest rate in 20 years.
  • Despite the financial crisis, the number of millionaires in the United States rose 16 percent to 7.8 million in 2009.
  • The top 10 percent of Americans now earn around 50 percent of our national income.

 In his 1936 book The General Theory of Employment, Interest, and Money, John Maynard Keynes wrote that a stable middle class is the primary source of economic growth.  He argued that extremely unequal distributions of income depresses demand and thus reduces growth, a strong middle class provides a stable consumer base that drives productive investment, and that a strong middle class is a key factor in encouraging other national and societal conditions that lead to growth.  “It is a prerequisite for robust entrepreneurship and innovation, a source of trust that greases social interactions and reduces transaction costs, a bastion of civic engagement that produces better governance, and a promoter of education and other long-term investments.”

The wealthy in unequal societies simply do not consume enough to drive a modern economy.  The wealthy save more than the middle class and they consume less.  When incomes for the majority of people are stagnant or declining, there is insufficient demand in the economy to encourage productive investment – unless this demand is debt-fueled which no country can sustain indefinitely.

Myopic attempts to reduce our current persistent unemployment rates will not be successful without a concerted effort to rebuild our middle class.  Consequently, there are two separate necessary considerations required in any program intended to effect long-term unemployment reduction.

In the short term, jobs need to be created to begin immediate unemployment reduction.  Unemployment benefits for the long-term unemployed should be dependant upon participation in approved educational or retraining programs but a corresponding jobs program (think CCC/WPA) would get some people back to work, some money back into the economy and, most important, help to restore confidence.  While there are many existing infrastructure projects available very much in need of repair, funding would be better utilized preparing for the future rather that repairing the past.  Sustained long-term funding for infrastructure maintenance should have been considered during the original planning approval process and therefore the responsibility of the approving agency, not the federal government.  A much better use of these funds would be for communications upgrades, renewable energy, mass and high-speed transportation, or similar projects.

Much of the funding for these types of projects, rather than being directly funded by the federal government, should be financed and directed by a National Infrastructure Reinvestment Bank with the goal of maximizing our safety, security, and future competitiveness.  Any such project approval should be dependant upon the requirement that all materials, components, or subcomponents used by either contractors or subcontractors must be produced in the United States.

A second and the primary component of any unemployment reduction program must be investment in innovation development to recreate declining middle-class opportunities.  Since this segment of our economy has suffered neglect in recent years, it will require significant initial investment and time to recover.  The long-term prospects of our nation depend on what is to done to correct this problem: nothing is more important for our future.

The decline of our educational system must be reversed.  Standards must be raised, teaching improved, students better prepared, and academic completion rates increased – especially in science and technology.  College has become too expensive for the average student.  Everyone deserves the opportunity to obtain as much education as they are able without incurring burdensome levels of debt.  This is critical now and will become even more so in the future.  To those who say it is unaffordable, the only answer is we can not afford not to.

Many of the either unemployed or under-employed are unable to find adequate work due to obsolete skills.  Technology has rapidly changed and they require retraining to again become productive participants in our work force.  As adoption and incorporation of technological advances supplant older methodologies, it has rapidly accelerated the need to substantially increase employee educational levels.  It is not reasonable to expect someone struggling to just make ends meet to afford additional costs to upgrade their skills.  Many of these people have contributed years of hard work in now non-existent occupational fields.  They deserve the opportunity to upgrade and once again find meaningful employment.

The research labs of today are the crucible of tomorrow’s industries.  Future opportunities are in nanotechnology, biological components, integrated communications and entertainment, renewable energy… – if we provide the supporting environment for those industries to nurture and fully develop.  Funding for basic research performed at universities supports universities and provides graduate students with experience able to carry fundamental breakthroughs on to advanced levels.  Basic research funding modeled on the DARPA program needs to be increased along with research tax incentives for corporations contracting with approved university research programs.

Incentives for entrepreneurial venture capitalists to turn research into actual product development also are necessary.  New corporations should be encouraged by simplifying corporate formation, investment funding, and initial favorable tax policies.

Our nation’s economy is not yet on life support and can be resuscitated but will require investment and patience if our political representatives have the will and commons sense to bridge the acrimonious political divide and work intelligently for the common good.

That’s what I think, what about you?

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About lewbornmann

Lewis J. Bornmann has his doctorate in Computer Science. He became a volunteer for the American Red Cross following his retirement from teaching Computer Science, Mathematics, and Information Systems, at Mesa State College in Grand Junction, CO. He previously was on the staff at the University of Wisconsin-Madison campus, Stanford University, and several other universities. Dr. Bornmann has provided emergency assistance in areas devastated by hurricanes, floods, and wildfires. He has responded to emergencies on local Disaster Action Teams (DAT), assisted with Services to Armed Forces (SAF), and taught Disaster Services classes and Health & Safety classes. He and his wife, Barb, are certified operators of the American Red Cross Emergency Communications Response Vehicle (ECRV), a self-contained unit capable of providing satellite-based communications and technology-related assistance at disaster sites. He served on the governing board of a large international professional organization (ACM), was chair of a committee overseeing several hundred worldwide volunteer chapters, helped organize large international conferences, served on numerous technical committees, and presented technical papers at numerous symposiums and conferences. He has numerous Who’s Who citations for his technical and professional contributions and many years of management experience with major corporations including General Electric, Boeing, and as an independent contractor. He was a principal contributor on numerous large technology-related development projects, including having written the Systems Concepts for NASA’s largest supercomputing system at the Ames Research Center in Silicon Valley. With over 40 years of experience in scientific and commercial computer systems management and development, he worked on a wide variety of computer-related systems from small single embedded microprocessor based applications to some of the largest distributed heterogeneous supercomputing systems ever planned.
This entry was posted in Education, Innovation, Keynes, Middle Class, National Infrastructure Reinvestment Bank, Recovery, Retirement, Technology, Training, Unemployment, Venture Capitalists and tagged , , , , , , , , , . Bookmark the permalink.

9 Responses to Wither The Middle Class?

  1. Hello , This is a great website and thank you for the post, I\’m glad that I found it.

  2. WONDERFUL Post.thanks for share..extra wait .. …

  3. This really answered my drawback, thanks!

  4. Happy Holidays & Merry Christmas to you and your family

  5. Youre so right. Im there with you. Your blog is absolutely worth a read if anyone comes across it. Im lucky I did because now Ive obtained a whole new view of this. I didnt realise that this issue was so important and so universal. You undoubtedly put it in perspective for me.

    • lewbornmann says:

      Thank you. A nation’s middle class constitutes it primary engine for growth. Its decline indicates our nation is for an extended period of limited economic improvement. Hopefully, current trends can be reversed but that will be difficult without substantial investment — something which conservatives seem opposed to approve.

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