Wednesday, March 23, 2016

America's Shrinking Middle Class

On the campaign trail this political season one hears much of about the decline of America's middle class and what should be done to stop the financial hemorrhaging and slide of many from once somewhat comfortable middle class status.  As the image above shows, out of twenty one (21) advanced countries in the world, America now places last in terms of the percentage of the national wealth that it holds.   Things did not used to be this way.  The irony is that the Republican solution is more of the very policies that have so ravaged the middle class: continued attacks on labor unions, efforts to slash the social safety net, massive wealth transfers to the 1% and corporations, and opposition to increasing the minimum wage.  Yet, through appeals to religious extremism and racism, too many Americans are duped into voting for those who are their true threat.  A piece in Business Insider looks at the bleak picture. Here are excerpts:

A study from the Pew Research Center in December showed that middle-class Americans are no longer in the majority. Whereas in 1971 middle class Americans totaled 80 million, and lower- and upper-income classes combined equated to 51.6 million, the 2015 data looks far different. As of last year, 120.8 million adults were in the middle class but this figure now takes a back seat to the 121.3 million combined lower- and upper-income households. Aggregate wealth for middle-class households is also shrinking according to Pew's research, from 62% of all wealth in 1970 to just 43% as of 2014. 

However, one report released last year highlighted a middle class statistics so shocking that you'll probably do a double-take.

The 2015 Credit Suisse Global Wealth Report is now in its sixth year of examining and analyzing wealth across the world in order to get a better understanding of wealth creation, consumption, saving, and asset allocation. Every year Credit Suisse picks a specific wealth topic to focus on, and in 2015 it was the middle class.

Now here's where things get interesting . . . Credit Suisse also looked at what percentage of wealth the middle-class comprised within a country. Of the 21 countries individually examined . . . As a percentage of total country wealth, the U.S. middle class accounted for the lowest share of wealth among developed countries, such as Germany and France, as well as emerging markets like China, India, and Brazil.

Why do U.S. households have so little net wealth relative to the total wealth of the country as a whole? It looks to be a number of factors at play.

First, the housing bubble from late last decade really sapped the net worth out of middle-class households. Although home prices have recovered from their lows, some areas have recovered slower than others. The housing price collapse is still fresh in many Americans' minds, and many fear overreaching on home prices even in today's growing economy.

Secondly, access to credit is arguably easier in the U.S. than in many other regions of the world. During the housing boom in the mid-2000s, this was a great way for middle-class families to grow their wealth. However, the housing bubble, combined with high debt levels, have chipped away at middle-class household wealth.

A third issue? Stagnant wage growth. According to data from the U.S. Census Bureau, median household income has actually dropped by roughly $5,000 since 1999 to a median of $51,017 as of 2012. Pew Research pointed out that in spite of nominal wage growth of 727% between 1964 and 2014, in constant 2014 dollars (meaning when taking inflation into account) real wage growth has totaled just 7.8% over 50 years. College tuition, medical care, and even fuel costs have risen at a faster pace, thus diminishing the buying power of the middle class.

Fourth, there's quite an income gap between the richest Americans and the middle class in the United States. According to CNN, the U.S. has 42% of the world's millionaires, and basically half (49%) of all people with $50 million or more in assets. 

Finally, near record-low lending rates aren't helping. The middle class, which was hammered by the stock market decline during the Great Recession, has few avenues of safety to turn to with CD and money market rates losing to an already reduced inflation rate.

The piece goes on and looks at things middle class families can try to do to improve their circumstances, but sadly fails to look at the systemic problems and failed policies that are accelerating the economic and financial downfall of the American middle class.

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