How the Middle Class Lost its Mojo

The Pew Research Center is out with a depressing new study today about how America's middle class has lost ground -- along with some of its famous can-do optimism, too. No big surprise there, given that we're now in year five of the worst economic downturn since the Great Depression.

But what's striking from the data here is how long this decline has been going on. Middle class households saw big income gains the 1980s and even bigger gains in the 1990s (gains that came, alas, often by working longer hours). But the Bush years were largely a bust, even before the financial crash of 2008.

Incomes for the middle tier of households actually went down through most of '00s, with many Americans never quite recovering from the recession of 2001-2002. One reason is that this period saw a rapid acceleration of globalization, with EPI estimating that 2.8 million jobs were lost to China alone between 2001 and 2010.

Other bad trends were also gathering steam, like a relentless push by big employers to turn good jobs into bad jobs through domestic outsourcing. One day you're a janitor making $18 an hour with benefits working for building management; the next you're making $10 an hour with no benefits because the building has outsourced its cleaning work to a janitorial contractor.

The Pew study asked 1,287 middle class Americans in a poll who they blamed "for the difficulties the middle class has faced in the past 10 years?" The leading culprit named was Congress, followed by banks and financial institutions, large corporations, the Bush Administration, foreign competition, and the Obama Administration -- in that order.

The public largely has it right in this hierarchy of blame. As we have argued again and again, the rise of America's postwar middle class didn't happen by accident; it was greatly helped by public policies like the GI Bill. Likewise, middle class decline hasn't been accidental; it has stemmed inevitably from a failure of U.S. political leaders to adopt a new generation of public policies to deal with changed economic conditions, globalization first and foremost -- and policies, like tax cuts and deregulation, that actually made things worse. So, yes, Congress deserves a big share of the blame -- followed by the banking and corporate elites who wield disproportionate influence over Congress and have repeatedly won special treatment while blocking policies to rebuild the middle class.

The public is right to place "foreign competition" well down the list of culprits. Yes, globalization has eroded U.S. living standards, but a more responsive political class -- one beholden to the public interest, not private power -- would have figured out how to buffer the worse effects of this trend. Instead, Congress actively embraced free trade policies that allowed neo-mercantalist powers like China and Japan to wipe out America's industrial heartland.

One other thing about the Pew study: It shows very clearly that middle class losses are directly linked to upper class gains. In other words, the rich have gotten so much richer because the middle class has lost ground. That is driven home starkly by the study's analysis of how big a slice of the national income pie is going to the upper class versus the middle class -- and how these shares have changed over time.

Once upon a time, back when the Brady Bunch first appeared on the air in 1969, 62 percent of all national income went to middle income households and just 29 percent went to upper income households. But by 2010, the middle class was getting just 45 percent of all income, while a relatively small group of high-earners were commanding a slice that equalled nearly half of the entire income pie, or 46 percent.

This about-face makes sense, given that it's the upper class that has been profiting when goods are made cheaper overseas (think Apple executives and shareholders) or decent jobs are turned into bad jobs. That's not to say that gains for the upper class always come at the expense of the middle class, but often this is the case.

One moral of the story: Prosperity is more of a zero-sum game these days and if the middle class wants good times to return, it needs to wrestle back a larger share of the income pie. In turn, that requires reclaiming America's political system from the hands of wealthy elites.