Bonus Reckoning

We're pleased to bring you a bonus reckoning today from DR founder Bill Bonner, on a study that puts the struggles of the middle class in raw numbers:

The poor middle class is on the rack, stretched out in every direction. On one side, falling house prices pull down the typical homeowner’s major (and often, only) asset. On the other side, the falling dollar reduces the value of his wages. Tuition, health care, food, and energy are all becoming much more expensive…while earnings actually fall. Over the past decade, lenders dangled such easy credit terms, he couldn’t resist. Now, the typical middle class American owns a bigger house that is located farther from his work – just as the price of oil nears $100 a barrel. Creditors tug his arms practically out of their sockets (the American middle class owes more money to more people than any race ever did)… Employers yank away benefits that his father’s generation took for granted. And his government empties out his pockets, spending his money without asking, without scruple, and without a lick of sense.

Martin Hutchinson adds detail and statistics:

“The declining share of low and moderate income workers in the American pie is undeniable; the relative share of such workers peaked as long ago as 1973. For those with only high school qualifications or less, their absolute earnings peaked in 1973 and have declined substantially since then. From 1973 to 1995, this appeared to be a [simple case] of the rewards for skills increasing, with low skilled workers suffering increasingly in terms of earnings and job losses compared to those with a bachelor’s degree or better. Since 2000, however, the paradigm has changed, with all sectors of the workforce losing ground in absolute terms, except for the top 1% who have gained essentially all of the modest gains in employee incomes under the George W. Bush administration.

“A Center for Economic and Policy Research study released this week shows that the share of ‘good jobs’ in the US economy has fallen substantially during the 2001-07 business cycle, where a ‘good job’ was defined as one that pays at least $17 an hour (the median wage rate in 1979) and offers employer-provided health insurance and a pension. While most of this deterioration has arisen from employers’ increasing failure to provide health care and a pension, the share of ‘bad jobs’ with pay below $17 per hour and neither healthcare nor a pension has also increased in this business cycle, by 1.6 percentage points.

“These statistics are pretty clear, and cannot be ignored, whatever one’s policy disagreements with the left-leaning CEPR. Blue collar workers lost bargaining power catastrophically following the peak of the 1973 cycle, and since 2000 their failure has been accompanied by a more generalized loss of bargaining power by white collar workers and all toilers below the level of top management. Employers no longer feel compelled to offer their workforce either a decent wage or the most basic of healthcare benefits, benefits which were considered sacrosanct in the social contract of 1945-73.”

Surely, the impoverishment of the American middle class will be the biggest political issue of next year’s campaign…says Hutchinson.

The Daily Reckoning