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Can America's Middle Class Be Saved? (II) He That Giveth Can Also Taketh Away

Aug 25, 2009
Vice-President Biden called the middle class the "backbone" of America.

We agree. The middle class reconciles and moderates other classes.

Biden is in charge of a task force to get the middle class "up and running again."

We agree that the middle class is weakening. One indicator: its share of the national income pie fell from 52.1% in 1975, to 46.0% in 2006.(1)

Jared Bernstein, executive director of the task force and Biden's chief economist, notes on the White House website that at the end of the 2000-2007 productivity expansion of 19%, the middle class actually lost ground. The reason was the expansion mostly benefited the upper 1%.

This time, Bernstein assures us, things will be different: "The middle class won't get left behind again."

If he means in long-run terms, we disagree.

A punch is being telegraphed. Biden's task force is preparing the ground for taxation and revenue policies to redistribute wealth away from the rich.

I do not say such policies would not help the middle class. Economist Thomas Piketty noted that, unlike the United States, inequality of revenues remained stable in France and "other nations" (unidentified) between the end of the 1970s and 1997, due to government income transfers.(2)

The problem is, those policies do not address the basic economic processes by which the rich got richer, the poor poorer, and the middle class smaller IN THE FIRST PLACE.

Yes, the middle class was weakened during the W. Bush administration. However, that erosion began before Bush.

The same United States government data that show the weakening of the middle class 1975-2006 also show that between 1992 and 2000, the Clinton presidency years, the poorest fifth of the American population's share of the national income fell from 3.8% to 3.6%; the richest fifth's share rose from 46.9% to 49.8% (the top 5%'s share rose from 18.6% to 22.1%); and the share of the middle class -- the middle 60% of the population -- fell from 49.4% to 46.7%.

Conclusion: neither Republicans nor Democrats stopped the decline of the middle class. That is because neither party addressed the two major economic causes of that decline:(3)

(1) The concentration and centralization of enterprise. The big get bigger, the small are either bought up or are ruined because they cannot compete.

(2) The specialization of labor. Under capitalism, tasks tend to be simplified and standardized. Consequently, higher levels of training and education needed for more complex tasks are eventually eroded, sapped. Those higher levels and complex tasks are the economic underpinning of the American middle class today.

Why?

Beaten down in the production sector, the middle class was saved by the spectacular growth of the service sector in the 1900s. For the past 30 years, however, services have been undergoing a transformation into commodities. That means services are now undergoing the same standardization and routinization characterizing commodity production in general.

How did the service sector stand apart for so long?

The historical origin of higher training/educational levels and the service sector middle class is the feudal guilds. The guilds were not capitalist; in fact, they were created in part to lock out the new urban working class created by capitalism. In 1776, Adam Smith portrayed in stark terms the fierce, anti-capitalism nature of the guilds in his discussion of how if a trade were too easily learned, the apprentice

"would have more competitors . . . The same increase in competition would reduce the profits of the masters as well as the wages of the workmen. The trades, the crafts, the mysteries, would all be losers. But the public would be a gainer, the work of all artificers coming in this way much cheaper to market.

It is to prevent this reduction of price, and consequently of wages and profit, by restraining that free competition which would most certainly occasion it, that all corporations [i.e., guilds] . . . have been established . . .

The inhabitants of a town, being collected into one place, can easily combine together.

The most insignificant trades carried on in towns have accordingly . . . been incorporated, and even where they have never been incorporated, yet the corporation spirit, the jealousy of strangers, the aversion to take apprentices, or to communicate the secret of their trade, generally prevail in them, and often teach them, by voluntary associations and agreements, to prevent that free competition which they cannot prohibit by bye-laws."(4)

It is not easy to distinguish the production sector -- long dominated by capitalism -- from the service sector and its mercantile, feudal heritage and residues. Consider the following report on a modern-day dilemma:

"Is cooking a hamburger patty and inserting the meat, lettuce and ketchup inside a bun a manufacturing job, like assembling automobiles?

That question is posed in the new Economic Report of The President, a thick annual compendium of observations and statistics on the health of the U.S. economy . . .

Putting jobs at McDonald's, Burger King and other fast-food enterprises in the same category as those at industrial companies like General Motors and Eastman Kodak might seem like a stretch . . .

But the presidential report points out that the current system for classifying jobs 'is not straightforward.' . . .

'When a fast-food restaurant sells a hamburger, for example, is it providing a "service" or is it combining inputs to "manufacture" a product?' the report asks.

'Sometimes, seeming subtle differences can determine whether an industry is classified as manufacturing. For example, mixing water and concentrate to produce soft drinks is classified as manufacturing. However, if that activity is performed at a snack bar, it is considered a service.'

The report notes that the Census Bureau's North American Industry Classification System defines manufacturing as covering enterprises that are 'engaged in the mechanical, physical or chemical transformation of materials, substances or components into new products.'

Classifications matter, the report says, because among other things, they can affect which businesses receive tax relief . . ."(5)

Taxation and revenue policies transferring wealth from the rich, then, can soften but will not solve the decline of the middle class. Major reforms in our political system are needed first; otherwise, what can be done politically can be undone politically.

Stated differently, he that giveth can also taketh away -- and probably will.

But if taxation and revenue policies cannot save the middle class, what will?

FOOTNOTES

(1) United States Census Bureau, "Historical Income Tables -- Households. Table H-2: Share of Aggregate Income Received by Each Fifth and Top 5 Percent of Households, All Races: 1967 to 2006," Current Population Survey, Annual Social and Economic Supplements. Go to Census Bureau: income/histinc/h02ar.html.
(2) Thomas Piketty, "L'economie des inegalites," La Decouverte, Paris, France, 1997, p. 22.
(3) For a discussion of both tendencies, see my article, "Is The American Middle Class Dying?"
(4) Adam Smith, "The Wealth Of Nations," Penguin Books, London, England, 1997, pp. 227, 229-30. For an excellent study of the feudal guilds, see P. Boissonnade, "Life And Work In Medieval Europe," translated by Eileen Power, Dorset Press, New York, 1987, pp. 202, 219, 221, 307-8.
(5) David Cay Johnston, "Should burger-flipping be a heavy industry?," International Herald Tribune, February 21/22, 2004.
About the Author
Thomas Belvedere is the pseudonym of a political consultant to senators, representatives, governors, and the media. He worked for all levels of government, and for all three branches. An accredited expert witness in federal court, he has a Ph.D. in political science.

He authored "The Source of Terrorism: Middle Class Rebellion."

For his website, go to Thomas Belvedere.
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