Who Killed the Middle Class?

The Los Angeles Times published a grim headline: “Middle-class families, pillar of the American dream, are no longer in the majority, study finds.”

The nation’s middle class, long a pillar of the American economy, has shrunk to the point where it no longer constitutes the majority of the adult population, according to a new major study.

Rapid growth of upper-income households, coupled with an increase in less-educated, low earners, has driven the decline of the middle-income population to a hair below 50% of the total this year, the Pew Research Center reported Wednesday. In 1971, the middle class accounted for 61% of the population, and it has been declining steadily since.

Well, that is interesting. I wonder what caused it. While I’m sure the causes are complex, the article does find something specific to blame.

The tipping point appears to have occurred in the past couple of years of the recovery from the Great Recession as the economy has continued to reward the highly educated, well-to-do investors and those with technical skills.

The economy was not the culprit. Rather the Federal Reserve was the engine. Many of those “well-to-do investors” were supposed to go bankrupt. Instead, they got bailed out and then Ben Bernanke shoved down interest rates to zero.

As George Will pointed out, this amounted to trickle-down economics.

Obama’s speech denounced “trickle-down ideology” and deplored growth that “has flowed to a fortunate few.” But the monetary policy he favors — very low interest rates, driving money into equities in search of higher yields — is a powerful engine of inequality. Since the Dow closed at 7,949 on Inauguration Day 2009, it has doubled , benefiting the 10 percent who hold 80 percent of directly owned stocks. The hope is that some of this wealth will trickle down.

So the L.A. Times story is fundamentally wrong. The economy didn’t just happen to work this way. The government made it happen. It is killing the middle class.

For other posts explaining how the middle class is being destroyed,  see here and here.

The L.A. Times notes that the Democrats will be working overtime to pretend to solve the problems they caused. They don’t put it that bluntly of course.

The report puts in sharp relief the nation’s increasing income divide — expected to be a central issue in the 2016 presidential race — and highlights how various economic and demographic forces have eroded long-held American ideals about a strong, majority middle class.

So once again, the free market will be blamed for the consequences of economic intervention in order to justify more economic intervention.