The vanishing American middle class will hit the global economy
12 December 2015 1:01 pm
Americans are getting richer. Good news, right? Not really. While the rich have been raking it in, America’s middle class is shrinking, And that’s bad news for the global economy.
According to a new report from the Pew Research Centre, more than one in fiveAmerican adults now live in “upper-income” households, up from 14 per cent in 1971. At the same time, however, the share of total income held by middle-class households has crashed, falling from 62 per cent in 1970 to just 43 per cent in 2014.
The Financial Times interviewed Americans all over the country to get their views about the state of the middle class and their place in it. On one hand, you had the insecurity felt by public sector workers, whose numbers were cut sharply after the Great Recession. That contrasted with the optimism of high-tech workers who have been among the big winners in a jobs market that prizes skills and high educational attainment. Together, they represent a society that is looking increasingly fractured in the lead up to next year’s election.
The vast growth of social inequality comes from policies pursued by American governments for decades, Republican and Democrat, aimed at slashing the wages and benefits of American workers while enriching the financial oligarchy that dominates wealth and political power in the US. This process has been dramatically accelerated under the Obama administration. Facilitated by the financialization of the economy and the continuous diversion of resources away from productive investment, it underpins the erosion of democratic forms of government and the endless promotion of war and militarism where the low paid are sent off to die.
The dying American middle class also has implications for the global economy. Obviously it will hurt the American economy. According to The Economist, consumption drives 68 per cent of US GDP and a shrinking middle class will hit that consumption rate and US GDP. After all, the rich can only buy so much. That will hurt US growth.
Given that the US is one of the few bright spots of a faltering global economy, weaker US growth and the erosion of US consumers’ purchasing power will be felt all over the world.