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Economic Recovery is Here...But Not for Everyone

The Middle Class is Disappearing

By

America has changed. It is no longer the land of liberty and opportunity it once used to be.

Many find such a verdict difficult to accept, as doing so may shatter a dearly held belief, upset our conscience or sense of justice, and paint over our own progress with a tint of guilt, making our own prosperity a little less enjoyable.

economy “It's clear that Americans still believe that America has exceptional [upward] mobility, and that's not true,” Illinois’ Wheaton College economist Jason Long admitted to CNN Money, finding it “vexing” that “people could be systematically mistaken about verifiable, factual information.”

Americans need also be aware that not everything being crammed down our throats is truth. Government statistics on an improving economy, robust growth, ascent out of recession, and advancement opportunities for everyone simply do not match the reality that most Americans are facing.

For a change, instead of opening wide for that soft, easy to swallow Pablum we are constantly being fed, let’s open a jar of hard solid truth. Just be sure to chew on it for a while, because it is harder to swallow.

The Reality Behind the Recovery

Since the deepest recession in a generation officially ended in 2009, we have been repeatedly told the economy is improving, jobs are being created, the unemployed are returning to work, and the housing market and stock markets are improving. What most fail to realize is that the pits of the reality have been removed from the mash we’re being fed.

To make the jobs recovery look better, over 2.4 million unemployed persons – some 18% of all unemployed – are simply not being counted as unemployed because they didn’t look for work in the last 30 days and are considered only “marginally attached.”

As for the housing recovery, although property values have risen from their crisis depths, wages have fallen and few can afford to buy.

And while stock markets are up, just who among society own a stock portfolio? The people struggling to feed their children? Or the ones who already own their own homes?

The prosperity we are being told about certainly does exist, but for increasingly fewer people. “The economy still feels depressing because for many people it is,” Elise Gould, a labor economist at the liberal-leaning Economic Policy Institute, told CNN Money. “Those at the very top have bounced back [from the recession], but we have not seen that for people at the middle or at the bottom,” Gould elaborated.

If the recovery is already tilted now, imagine how much more off-balance it will be when the Federal Reserve removes its stimulus. The terminations of the Fed’s $85 billion worth of monthly bond and mortgage purchases will cause bonds to tumble and yields to rise – including mortgage rates. If the lower middle class and below are already having a tough time financing home purchase at current rates, imagine what will happen to the housing recovery when stimulus ends and rates rise.

As for all that sweet healthy economic data we are being fed, the pits have been conveniently removed. For a change, let’s review that mashed Pablum with the pits of the harder reality restored:

  • The mash: A steadily falling unemployment rate from a post-crisis high of 10% in late 2009 to just 7% today, as unemployed persons dropped from 15.4 million to 10.9 million over the same period.

  • The pit: The participation rate has been steadily falling from 66% in 2009 to just 62.9% today, the lowest since 1982, meaning that a smaller percentage of the population is working now than before or even during the crisis. Yes, less now than during the crisis.

  • The mash: Average weekly work hours are up 2% from 33.8 in 2009 to 34.5 today.

  • The pit: Wages are down 1% from $10.41 in 2009 to $10.31 today, which is made worse by inflation averaging 1 to 1.5% annually over the same period – totalling over 5% by now.

  • The mash: Job creation has averaged nearly 200,000 non-farming jobs per month since 2010; we’re back at pre-crisis levels.

  • The pit: Unfilled job vacancies have risen from 2 million in 2009 to nearly 4 million today, meaning inadequate training and education programs to fill high tech and professional jobs.

This last statistic is probably the sourest tasting of all, as it clearly shows that America is no longer a land where anyone with a willingness to work can go out and make something of himself. You need more than that, much more – things that are not available to most Americans.

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Upward Mobility Impeded by Yield Signs

Research by Russell Sage Foundation Fellow and University of Ottawa economist Miles Corak dug into the reasons and causes that determine who succeed in life and who do not. His findings show that individual grit and determination can only get you so far, while a variety of assistance from the people and society around you is required to push you the rest of the way.

Corak’s findings put America near the bottom of the list of developed nations when comparing the average person’s likelihood of climbing the ladder out of the social class of their parents into the next class above.

According to the study, American citizens have a 53% chance of progressing to the next social class above the one they were born into – more than the U.K.’s 50% chance, but less than Pakistan’s 55% chance of success. Higher on the list were France’s 59% chance, Japan’s 66% chance, Canada’s 71% chance, and Denmark’s 85% chance of progressing into the next higher social class.

Economists have long grappled with the specific reasons why upward mobility is easier in some countries than in others. But the more prosperous nations have certain traits in common, including:

  • A stable home life: Nations with closer-knit families had a higher rate of citizens progressing into the next social class than nations with a large number of divorced parents, single-parents, and broken homes.

  • Nurturing social policies: We’re not talking about socialism here, but a greater availability of free basic education and affordable advanced education. Education funding in the U.S. has been criticized for creating inequality, since tax money stays where it is collected, resulting in well funded schools in wealthy areas and poorly funded schools in others. Such a system keeps you where you are – the educated rich among the educated rich, and the disadvantaged poor among the disadvantaged poor. It is one important reason why the U.S. trails so far behind other nations in the opportunity to progress into the next social class. America’s abhorrence of equal tax distribution is a contributing factor.

  • Polarization over time: The longer a nation experiences the disappearance of the middle class – where the rich get richer and poor get poorer – the worse are the chances of the next generation’s upward mobility. “The more unequal a society is currently, the greater the chance that the children will be stuck in the same sphere,” the research found. Citizens get cemented into their classes over time.

America’s Melting Pot Has Hardened Cold

This explains why America one hundred years ago was the land of unlimited opportunity for everyone. It was a young nation then, with most of its citizens at the same end of the social spectrum – lower middle class and below. With most of the population at the same level, any social program available to one was also available to any other. Thus they all had an equal opportunity to benefit, grow and prosper.

Today, though, the division among the classes is stark. “The rich can pump a lot more money into their kids' future,” Corak explained. Meanwhile, the failure of government and society to return to last century’s tax distribution priorities will continue to further split the masses into haves and have-nots.

Providing opportunities for all citizens to gain upward mobility is the only way forward for a nation that keeps falling into one major crisis after another. One social class cannot support an entire nation’s recovery. A solid, lasting recovery that won’t keep relapsing into another recession every few years requires all classes to prosper equally.

And yet, it is nothing short of ironic that the way to move forward is to go back to the way things used to be – back to a time when we were all equals and we each had the same opportunities as everyone else, when America was the land of opportunity for all.

Joseph Cafariello

 

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