When I was eight years old, my parents bought a new, two-toned green Oldsmobile. My mother got a new automatic washer and dryer to replace her wringer washer and drying rack. The year was 1957. My parents had married shortly after World War II and moved to my maternal grandparents farm. My father, trained as an electrician, rewired the house before they moved in. Initially, the house we lived in had no running water, but within a few years, my parents added an electric pump and running water to the kitchen and bathroom.
Like the rest of the middle class, over the next thirty years, life got easier for my family. I grew up believing that hard work and a good education would continue to give us a better life.
The Federal Reserve released the “Survey of Consumer Finances” last week. The report looks at the trends in median income of Americans between 2007 and 2010. The Feds survey shows that the median income of American families. In 2007 the median family income was $49,600. In 2010 it had dropped to $45,800. The report also shows that the losses in income were greatest for people who are well educated and once considered upper-middle class. Families not only saw a decline in their annual income, but their net worth (most often held in the value of their home) dropped dramatically.
Since the 1980s, American working families have seen their incomes stagnate as employers outsourced work to countries where labor was cheap. Today both parents work and fewer families save any money. Unlike my family in 1957, most farm families today live substantially on income earned off the farm. Non-farm middle class families work more hours and have higher debt than they did thirty years ago. If they are living better, it is because they are working harder and longer and have borrowed against future earnings to do so.
The economy in the 1950s and 60s grew because people like my family were doing well and could buy a new car, a new washer and dryer and pay for them. The middle class had money and recirculated it through the economy.
The one group that has done well in the last thirty years is the group at the top. The income of the top one percent of Americans has increased in spite of the economic downturn of the last five years. Not only has their income increased, their net worth has also increased.
Repeatedly, we are being told that we need to take care of the wealthy because they are the “job creators.” Much of the income which is concentrated at the top of the economic scale is generated by capital, not by work or production of any real good or service. Money makes money. The rich, however, do not spend more than half their income. They do not put that money back into the economy. They invest it in foreign currencies, expensive paintings, and a few big houses. The benefit of their wealth stays at the top. You would think by now we would see through the myth that wealth “trickles down.” According to the Federal Reserve’s study, that economic theory has not worked for the last thirty years. Why should we believe it will work in the future?
The gap between the middle class and the wealthy continues to grow. History would tell us that such an economy and the society it supports–one with a great disparity between the rich and everyone else–is not sustainable or stable.
Economic systems are not God-given or natural law. They are humanly derived through policies of taxation, regulation and subsidization. We can choose who benefits from how we do business. We can choose to create a system where the rich get richer (hoping we will one day be one of the rich) and everyone else gets by. Or, we can choose an economic model where everyone, even the wealthy, does better and our great country continues to prosper as it did when average families could buy and pay for a new Oldsmobile.