I have a wealthy friend who lives in a wealthy neighborhood. One day he was in his front yard, chatting with his next-door neighbor, a Republican, who asked him why he’s a Democrat. My friend said he’d grown up poor but had gotten a good public education, worked his tail off, and made it. Then he pointed to a gardener working across the street. “Don’t you want that gardener’s son to live the same American Dream we have?” my friend asked. His neighbor shot him down, sniffing, “That gardener’s son will be my son’s gardener.”
And so dies the American Dream. Have we reached a point where rich people no longer want to extend the winner’s circle? Has it gotten so bad that poor people cannot plausibly aspire to success? Are we moving toward Third World economics, where a few have it all and most have nothing? Are we witnessing the death of the great American middle class?
We define “middle class” as much by values as we do by economics. It means working hard, playing by the rules, and getting ahead. It means saving up to buy a home, making payments on a new car, seeing your kid graduate from high school—and even college. It means retiring with some dignity and security.
In terms of income, six in 10 Americans earn between $25,000 and $100,000 a year. They’re the heart of the middle class. And yet as many as a third of those making more than $150,000 and 40 percent of those making less than $20,000 also describe themselves in the same way. So in all, three fourths of Americans think of themselves as middle class—which means that three fourths of Americans (more, actually) are getting screwed.
A recent report from the Federal Reserve documents the collapse of the middle class. Between 2007 and 2010 median wealth dropped a staggering 40 percent. As ever, the rich did fine, actually seeing their wealth increase as everyone else’s disappeared. That’s because those on top have less of their wealth tied up in real estate and more in investments like stocks and bonds, which have done better in the Bush Depression than home prices.
The birth of the American middle class was the product of policy decisions—and the same is true of its death. After the Second World War, America had a debt crisis. It’s expensive to save the world, which is why, as a percentage of gross domestic product, debt in 1945 was far larger than today. The Greatest Generation made some tough choices. President Eisenhower raised the top marginal tax rate to 91 percent (that commie), and America invested in education (the GI Bill), housing, and technology. And the great American middle class led the boom that paid off the debt. In just 17 years the debt was back down to its pre-war level.
Turns out that investing in middle-class consumers makes rich people even richer. That’s what President Clinton thought. He raised taxes (modestly) on the rich—up to 39.6 percent—trimmed the federal workforce and invested in middle-class education, emerging technologies, and biomedical research. Once again, a middle class–focused economic policy lifted all boats, including the yachts.
Today we again face a debt crisis. And to their credit, American elites are worried about it. Panicked is more like it—and for good reason. But where are the blue-ribbon commissions on the decline of the middle class? Our president rightly describes this era as “a make-or-break moment for the middle class,” but across America governors and mayors are forced to lay off teachers, cops, and firefighters—the kinds of people who serve, protect, and educate the middle class, and who can help poor people lift themselves up into the middle class, and members of the middle class lift themselves into prosperity.
No, despite what the president said in his famous flub, the private sector is not doing fine. But at least the private sector has generated 4.3 million new jobs since the recovery began, whereas the public sector has shed 600,000. But we didn’t get into our current mess because we had too many teachers, cops, and firefighters. We got into it because we cut taxes, mostly for the rich, waged two wars on the national credit card, and deregulated Wall Street. We will never cure the debt if we don’t address its true causes.
None of this is easy. Of course we have to cut spending. And, obviously, we need more tax revenue. But we have to do it in a way that protects the promise of opportunity for all. The key to paying off our crushing debt, ultimately, is economic growth. And the key to growth is an expanding middle class.