Friday, August 24, 2012

The Middle Class: Fuel of Economic Growth

Henry Blodget connects the decline of the middle class to sputtering economic growth over the past decade:
Over the past 30 years, a larger and larger portion of America's income growth has gone to those in the top 10% of incomes, and especially those in the top 1%. This is a major change from the prior 60 years, in which the top 10% and the bottom 90% shared in the income gains.
A stark and startling example of this trend is the fact that, adjusted for inflation, "average hourly earnings" in this country have not increased in 50 years....

The reason the decline of the middle class is important is not just about fairness. It's about the health of the economy as a whole.
Collectively, the middle class represents enormous buying and spending power, and in the past 60 years this spending power has helped the U.S. economy become the envy of the world.
But now, however, the middle class is increasingly strapped. And the resulting impact on spending is constraining the growth of companies that sell products and services to American consumers.
The causes of this middle-class decline are many, from globalization (jobs being shipped overseas), to the decline of private-sector unions, to the wholesale embrace of a "shareholder value" religion that values profit over everything else that companies produce. But the result of the trend can be seen vividly in two charts.
First, wages are now at an all-time low as a percent of the economy.
Second, corporate profits are now at an all-time high.
To truly "fix" the U.S. economy, corporations are going to have to be persuaded to invest more of their excess profits in their employees, both by hiring new employees and paying existing employees more. "Wages" to employees become spending money for those employees, and the spending produces revenue for other companies. If corporations can collectively be persuaded to reinvest more of their profits in their people, in other words, they will help restore their own revenue growth.

1 comment:

  1. Alternately, we can all come to share the happy views of Karl Marx and his followers, that Capitalists and Workers have opposing interests and that Capitalists strive continually to exploit the lower classes.

    Granted, economists told a different story in my childhood, decades ago, when worker productivity and worker income rose at comparable rates for year after year, and this was described as a law of economic nature.

    But hey! Childhood ends, and the happy story books get closed, and we have to move on to adult reality. Ask Mitt Romney toexplain matters to you.