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CPBJ Extra Blog

History and the vanishing middle class

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I've read a lot of great reporting lately about income inequality, and there's no question it's a serious issue.

Notice I didn’t say it’s a Republican issue or a Democrat issue. Not even a conservative or liberal issue. The stark reality is if there’s no middle class, or a severely shrunken middle class, it affects everyone.

Except maybe Wal-Mart, but that’s a completely different blog entry.

The statistics are striking. A 2011 study by the Congressional Budget Office found that the top earning 1 percent of households increased their income by about 275 percent after federal taxes and income transfers over a period between 1979 and 2007, compared to a gain of just under 40 percent for the 60 percent in the middle of America’s income distribution.

In 2012, the gap between the richest 1 percent and the remaining 99 percent was the widest it’s been since the 1920s, according to an analysis of Internal Revenue Service figures dating to 1913 by economists at the University of California, Berkeley; the Paris School of Economics; and Oxford University.

Incomes of the wealthiest 1 percent rose nearly 20 percent in 2012, whereas the income of the remaining 99 percent rose 1 percent in comparison.

Yale professor and economist Robert J. Shiller, one of three Americans who won the Nobel prize for economics in 2013, has said that rising economic inequality is “the most important problem that we are facing now today.”

Viewed in a vacuum, it’s very disheartening to see that trend line continuing with seemingly no end in sight. For hundreds of thousands of workers making south of $40,000 annually, the carrot is off the stick. They are making the same, or less, than they did 20 years ago.

I was bemoaning this uncertain future in rather hopeless fashion recently when a friend advised me to look back — about 100 years, to be exact. We’re all familiar with the idea that “history repeats itself,” and I believe that concept more than most.

If we look back 100 years, workers were in the midst of a progressive battle for many basic rights we have long taken for granted. The pro-business, pro-party bosses atmosphere was so slanted against the lower classes that a movement began on behalf of the middle class.

Labor unions rose to power, business monopolies were broken up, standardized education and political reform advanced, among other ideas. Reformers crusaded against child labor and for the eight-hour working day and civil service reform.

In other words, the Gilded Age went so far that it drove change. And this is not a class rant against the Rockefellers and Carnegies of that era. Those men, and others, created the first philanthropic foundations that we are so familiar with today.

Entrepreneurs come up with ideas that make money. And they take that money and make more money. That’s how this system works.

Every so often, the system needs to be tweaked or changed. I am convinced we are headed for some form of one or the other in order to resuscitate the middle class.

What do you think — does our economic system need minor changes or major reform?

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