The hollowing of the American middle class is not an accident. To understand it, we need to understand the plutocrats at the top of the hourglass. (More)

Plutocrats, Part I: From Egg to Hourglass

This week Morning Feature considers Chrystia Freeland’s Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else. Today we consider the changing shape of the U.S. economy, and how we fit in the global economy. Tomorrow we’ll see how plutocrats have risen, in the U.S. and around the world, to become more citizens of a super-rich global village than of their homelands. Saturday we’ll conclude with whether such high levels of income inequality are sustainable in democratic societies.

Chrystia Freeland is a veteran financial reporter and is now Reuters‘ global editor-at-large. Born in Alberta, Canada and educated at Harvard and Oxford, she began her career as a correspondent covering the Ukraine for the Financial Times, the Washington Post, and the Globe and Mail. She was later the deputy editor of the Globe and Mail, and the U.S. managing editor of the Financial Times. She has been honored as a Young Global Leader by the World Economic Forum, and won the 2004 Business Journalist of the Year Award.

Our Changing Shape

Over most American adults’ lifetimes, our economy was shaped something like an egg. By the late 1960s, the New Deal and post-war programs like the G.I. Bill had caused what economic historians have come to call “The Great Compression,” with ever more Americans earning middle class incomes and enjoying middle class lives. There were still poor people nearer the bottom curve of the egg, and still wealthy people at the top, but the average CEO earned only about 25 times the income of the median worker. A high school diploma was usually a ticket into at least the lower middle class, and a college degree would usually boost a family into relative security.

Today the average CEO earns almost 400 times the income of the median worker, even before the 2008 financial collapse. Median incomes stagnated in the 1970s and began to decline, relative to inflation, in the last decade. Although the economy is recovering, unemployment remains stubbornly high and many families now rely on holding several uncertain part-time jobs rather than a single breadwinner’s secure full-time job. Most defined-benefit pension plans have disappeared, replaced by 401(k)s and other programs that leave too many saving too little to afford a secure retirement. Household debt has risen, and many families’ mortgages are still “under water” with the market value less than the mortgage balance. A high school diploma will not bring a worker far from the cliff of poverty, and even a bachelor’s degree will not guarantee a job or anything near financial security.

In Chrystia Freeland’s metaphor, the U.S. economy is becoming an hourglass: with a top and a bottom but only a tiny middle. The metaphor is not entirely accurate, as the top is very tiny and the bottom very large. We have “lovely jobs and lousy jobs,” she writes, quoting a British source. Indeed some corporations like Proctor & Gamble no longer try to reach a middle-class market, choosing instead to offer upscale products for the rich and bargain-price products for the rest.

Are We Better Off?

Yet even wealthy families of the late 1960s typically had only one or two cars, and most lived in smaller homes than many middle class families own today. Two-television households were rare, and most families watched whatever the three major networks and perhaps one or two local UHF stations broadcast. Only a tiny few had a second telephone line. Computers were massive appliances that occupied entire rooms. A child who twisted an ankle or knee at school might get an X-ray, but would more likely be diagnosed by a manual examination, and many illnesses and injuries went undetected or untreated, or required major surgery that left ugly scars and long and uncertain recoveries. Salads were a summer food, and few could enjoy fresh or even fresh-frozen vegetables in the winter months. The family dishwasher was probably a grumbling child or adolescent.

Today most families – even those struggling in poverty – have multiple televisions, with dozens or hundreds of cable channels and a DVR to record favorite shows. Most families also have multiple cell phones, and at least one if not more computers in the home. A poor child brought to the ER or a public health clinic with a twisted ankle or knee will almost certainly get an X-ray and probably also an MRI. Medications treat more diseases, and more surgeries can be performed in clinics with minimally invasive procedures. Groceries stock fresh fruits and vegetables year-round, and even families on the Supplemental Nutrition Assistance Program can usually afford frozen vegetables. Most homes, even in poor neighborhoods, have an automatic dishwasher.

Most of the ideas that enabled that improved material standard of living were devised during our egg-shaped, post-war economy. Yet their development and mass marketing – at prices that allow even struggling American families to afford TVs, computers, cell phones, advances in health care, fresh-frozen vegetables, dishwashers and other such amenities – are due in part to the shift toward an hourglass economy.

Are They Better Off?

In inflation-adjusted dollars, the median American family is earning only a bit more, or perhaps a bit less, than were median American families forty years ago. But as we saw, even struggling American families have a notably better standard of living than a median family forty years ago …

… and changes in the developing world are even more dramatic. Although poverty is still severe in much of Asia, Africa, and Central and South America, billions more people can now at least see sparks of hope. The collapse of communism and the opening of formerly state-run economies, along with globalization and advances in technology, have lifted and are lifting many of those people out of a kind of poverty that most Americans could only barely imagine. Yes, the vast majority of them work for far less than American workers would demand, and yes that migration of industry has left many Americans struggling to find jobs here. Yet that same migration of industry helped to make TVs, computers, cell phones, medical devices, dishwashers, and other amenities more affordable to more Americans.

What’s more, many families in the Philippines, China, India, Brazil, or South Africa can now afford some of those same amenities. As we discussed back in June, the global spread of cell phones and social media have enabled political and cultural changes in areas where, just a decade or two ago, communication outside your own village was difficult if not impossible. Indeed many regions in developing nations never had land-line telephone service, and people there who now have cell phones think it quaint that anyone ever used a telephone “just” to talk.

As one plutocrat put it to Freeland, “If we lift five Chinese families out of poverty for every one American family that falls out of the middle class, that’s a good deal.”

Maybe so, but it doesn’t feel that way to hard-working Americans who struggle to pay their bills, wonder if their children will be able to attend college, wonder if they can afford both groceries and a doctor visit, and wonder if they will ever be able to retire.

As we’ll see tomorrow, those very different perspectives lie at the heart of political divides here in the U.S. and in many other countries as well. The plutocrats increasingly see themselves as “citizens of the world” – by which they mean a global village inhabited by other plutocrats – but the rest of us don’t have that luxury.

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Happy Thursday!