Is the Middle Class Disappearing?

From the zerohedge blog. Read the whole thing.

I don't consider myself a class warrior - successful people deserve their rewards; they have earned it (at least that's the way it used to be). It's the risk-reward dynamic that fuels a healthy economy and lifts our standard of living.

But I think it's legitimate to ask whether or not we are rewarding the right activities appropriately and whether or not the link between risk and reward have been broken.

The same article at zerohedge points out that the CEOs of the top-20 recipients of bailout money made more money, on average, than the CEOs of the S&P 500. I cannot see the logic in rewarding the CEOs of companies that are failing (and taking us with them) more richly than the CEOs of companies that (for the most part) are getting by.

In 2007, the year for which figures are available from the Federal Reserve Board, the richest 1% of U.S. households owned 33.8% of the nation’s private wealth. That’s more than the combined wealth of the bottom 90 percent. (from zerohedge)

The increasingly lopsided distribution of wealth is dangerous. I don't think the US, as we know it, can exist with a rapidly increasing (and more desperate) lower class and a disappearing middle class.

One cause of the Great Recession may be that reality is catching up with the middle class: we ain't worth what we used to be.

Is it possible that the free market has failed us?

I don't know - I don't think we've ever seen an actual free market. But what we have seems to be failing.

I am no economist (and being one doesn't seem to grant you any special ability to figure out what is going on). Nor am I inclined to fill this post up with lots of facts and figures which all seem to come from biased sources… all of us have an agenda to push and axes to grind.

What has occurred to me is that deregulation, free trade, globalization - what have you - hasn't worked out. If deregulation meant removing barriers to businesses run by ethical people with some base level of patriotism and sense of civic duty then I think things would have worked out well.

The thing we got, instead, is an oligarchy of politicians, government workers and their NGO clients, and business leaders who seem hell-bent on lining their pockets and pressing their agendas regardless of the actual costs and outcomes. The people that make the policies that have brought us to the abyss are wholly-owned subsidiaries of financial companies that subsist on government handouts and enrich themselves no matter what happens.

Back in the old days (pre-regulation), it seems to me that the United States did pretty well. People made decent livings working in busy factories and offices.

The stock market was just something that most people heard about on the news - the brief mention of the Dow Jones averages somewhere near the end of a newscast. It wasn't all that interesting and few people really cared.

To most people, "saving and investing" meant passbook savings accounts that paid actual interest (around five percent). If you accumulated some wealth, you bought certificates of deposit (CDs) that paid a tad more interest to compensate for the depositor's agreement not to draw out the money before the maturity date.

From these savings, money was loaned for small business expansion, cars, and homes. Banks made a reasonable profit, savers got a reasonable return, and borrowers paid nominal rates of interest. This scheme didn't fuel booms but we got by. I knew a couple of bankers when I was a kid… they lived well but nothing like what we see now.

Sometime in recent years, we began to fixate on investors - the rate of return, profit and loss, bond yields, LIBOR, quantitative easing… and all the rest of the financial arcana we hear about. Constantly.

We became greedy. We all began to think that we could "earn" ten percent forever.

Banks became the destroyers of worlds. There was a time (before megabanks) where it was in the banks interest to keep customers from going under. Sure there were penalties for being late on a payment or overdrawing your account but the banker didn't stand there handing you lead bricks as you sank. Now, banks regularly impose death-spiral fees and interest rates on customers in trouble - ruining people that, otherwise, might have recovered. They're like sharks and vultures circling their prey. Who would have thought that a giant like Bank of America would make so much money screwing some poor slob who's lost a low-paying job due to an economy brought to ruin by the likes of BofA?

Now, "greed" is a favorite term of the left. To the left, it means "having more than you deserve… what you deserve being determined by your betters".

I don't mean that. What I mean is living for the moment: people in their 20s wanting the same lifestyle their parents worked 20 years for; older people wanting retirements they haven't paid for; investors demanding high growth and profits no matter what; employers wanting more and more for less and less.

What other term do you apply to the masses of people who bought houses in overheated markets with the intent of flipping them? To people who cashed out the "equity" in over-valued properties to spend on short term pleasures? To businessmen who hire illegal immigrants in order to pay low wages and skirt labor laws? To companies like Wal-Mart that squeeze suppliers to the point that manufacturing has all but abandoned the US (while scheming to take every government handout they can grab)? To bankers who award themselves multimillion-dollar bonuses for coming up with novel schemes for gambling with other peoples' money? To government workers who, all be damned, demand retirements that private-sector workers can only dream about? To we-the-people who want dirt cheap merchandise as long as it's not OUR job on the next boat to China or India.

It's clear that the prosperity of the past couple of decades was an illusion; faery gold that is now disappearing before our eyes. Wealth that can disappear overnight wasn't real to begin with.

I don't know what the answer is.