It is our vast, energized middle class that has done the heavy lifting and inspired the most innovation. Where the middle class heads, the rest of the country follows. So when the middle class is systematically worn down—when too many of its members become downwardly mobile, unable to keep their jobs or their homes or buy as many goods and services and drive market innovations—can a diminished America, a Third World America, be far behind?
MIDDLE CLASS: I KNOW IT WHEN I SEE IT93
The crippling of America’s middle class didn’t happen overnight—and it wasn’t the result of the bad bets made by the game-fixing gamblers on Wall Street (although they sure did their part). It’s actually been decades in the making. But before we look at who set the roadside explosives along the middle class’s road to the American Dream, it might help to define exactly what the term means.
What makes someone middle class? Is there a base income level (fall below it and you are officially poor), or a top-line figure above which you instantly ascend to the upper class (with a quick rest stop at upper middle class)? Does it depend on the size of your house (do you even need a house—can renters be middle class?), the kind of car you drive, the amount of rainy-day savings you have squirreled away in the bank?
In truth, pinning down a hard-and-fast definition of “middle class” is tricky business. It’s a lot like Supreme Court justice Potter Stewart’s famous assessment of what constitutes pornography: “I know it when I see it.” (Indeed, with both porn and the modern middle class, someone is usually getting screwed.)
There is no tidy formula. Paul Taylor, executive vice president of the Pew Research Center, asked during his testimony to the Senate Finance Committee: “Is a $30,000-a-year doctor94 doing his residency in brain surgery lower class? Is a $100,000-a-year plumber upper middle class?” Or are they both part of the great middle class?
According to the Pew Research Center95, more than half of American adults (53 percent) define themselves as middle class. But behind this assertion96, Pew discovered a host of caveats: “Four-in-ten (41%) adults with $100,000 or more in annual house hold income say they are middle class”—as do 46 percent of those with incomes below $40,000. At the same time, a third of those97 with incomes between $40,000 and $100,000 don’t believe they are middle class.
For purposes of its research, Pew defined98 the middle class as those adults “who live in a house hold where the annual income falls within 75% and 150% of the median” gross income for a family of three in 2006 (the latest year data was available). In dollars and cents, that meant99 an income of between $45,000 and $90,000 made you middle class.
But, in the end, in a very American way, it all comes down to self-definition: If you consider yourself middle class, you are middle class.
THE MIDDLE CLASS’S LONG MARCH TO THE EDGE OF THE CLIFF
From 1945 to the 1970s100, a period characterized by widespread economic prosperity, the wealthiest Americans grew richer at a rate almost identical to that of America’s lower and middle classes. From factory employees to chief executives101, Americans experienced a doubling of income. By the end of the 1980s102, however, things had changed drastically, with the income of the wealthy skyrocketing while the rest of the country lagged far behind.
What happened? Did middle-class Americans lose their mojo? Or had rich Americans unexpectedly come upon the economic equivalent of the Fountain of Youth—a Fountain of Wealth? They had, but rather than Ponce de León103, it was Ronald Reagan who led the income-boosting expedition, marching into Washington under the banner of lowering the taxes of America’s moneyed elite.
But, the Reagan Revolution of the 1980s was about more than shifting the tax burden—it was about shifting the way America looked at itself. In short order, government was no longer seen as a solution—it was fingered as the problem. Tocqueville’s “welfare of the greatest possible number” was replaced by the notion that the invisible hand of the free market could best determine society’s winners and losers—until, that is, the winners got into trouble in 2008 and the government rushed to the rescue in the name of preventing Armageddon.
In books such as The Virtue of Selfishness and Atlas Shrugged, Ayn Rand, the high priestess of free-marketeers such as Alan Greenspan, championed the notion that by doing what is best for yourself, you end up doing what is best for everyone. But, as put into practice by corporate America over the past thirty years, that equation has been flipped upside down. It turns out that an unregulated free market is sooner or later corrupted by fraud and excess. In other words, it isn’t free at all. In fact, it’s as fixed as a street-corner game of three-card monte. And the interests of the elites have become disconnected from the public interest.
In the three decades since the Reagan Revolution, Americans have been preached to from pulpits far and wide the holy word of unregulated markets as the true path to a higher standard of living. As part of the new religion, we were converted from citizens to consumers and taught a catechism about how the market—not “equality of conditions”—was the foundation of our country. Along the way, the social contract—especially the subsections protecting workers, poor people, and our air, water, and oceans—was fed into a shredder. Starting with the New Deal, we began constructing a social safety net to help the most vulnerable among us. But who needed a safety net when the laws of supply and demand were there to protect us, when the trickle-down theory would provide sustenance for us all?
The missing tenet in this new free-market fundamentalism was the recognition, central to capitalism, that businessmen have responsibilities above and beyond the bottom line. Alfred Marshall, one of the founding fathers104 of modern capitalism, in an address to the British Economics Association in 1890, called it “economic chivalry.” He explained that “the desire of men for approval of their own conscience and for the esteem of others is an economic force of the first order of importance.” There is a reason Adam Smith’s105 free-market gospel, The Wealth of Nations, was preceded by his Theory of Moral Sentiments. He knew that economic freedom could not flourish without a firm moral foundation.
But that moral foundation is by no means inevitable. The “approval of their own conscience” and “the esteem of others” have gotten a lot cheaper in recent years. We see the results of capitalism without a conscience all around us: the pollution of our environment, workers being injured or killed, the sale of dangerous products, the shameless promotion of risky mortgages for overvalued homes, and the wholesale loss of millions of jobs and trillions in savings.
The collapse of communism as a political system sounded the death knell for Marxism as an ideology. But while unregulated, laissez-faire capitalism has been a monumental failure in practice, the ideology is still alive and kicking. You can find all manner of free-market fundamentalists still on the Senate floor or in governors’ mansions or showing up on TV trying to peddle deregulation snake oil.
Given how close we were in 2008106 to the complete collapse of our economic and financial system, anyone who continues to make
