January , 2016
This erosion of a self-employed, independent
middle class was an important pre-condition for the collapse of Rome and the
French Revolution.
I have devoted many blog posts to the
erosion of the middle class, for the specific reason that when the middle class--the layers of the
economy between the Power Elites and landless laborers/state dependents--erodes away, the nation/empire
is destabilized and descends into crisis.
A society without a functioning middle layer
of economic and social activity is not stable, though repression can mask this
for a time.
As historian Peter Turchin explained in
his book War and Peace and War: The Rise and Fall of
Empires, societies that lose the cohesion needed for concerted,
collective action collapse, either by failing to meet an external threat or
from internal conflicts.
Economies constructed of a supremely
wealthy elite, a thin layer of independent artisans and small farmers, and a
great mass of laborers with no assets has no shared sense of identity or
purpose; those at the bottom have little in common with those at the top, and
the thin middle that is scraping by has little affinity with either the elite
above or the poverty-stricken below.
This
erosion of a self-employed, independent middle class was an important
pre-condition for the collapse of Rome and the French Revolution.
As I have outlined in some detail, the
middle class in the U.S. is eroding: the lifestyle that was widely accessible
to a broad swath of households in the 1960s is now only available to the top
10% below the wealthy (the top 5%). This includes not just possessions like a
home or vehicle but productive assets that can be handed down to the next
generation.
As it stands now, many households that
consider themselves "middle class" have few if any productive assets,
and even fewer will have any assets to pass on to the next generation as their
retirement and other expenses may well consume much of whatever assets they
currently own.
There are five primary drivers of this erosion
in my view:
1. The shifting of pension and healthcare
costs/risks from the state and employers to employees
2. The decline of scarcity value to labor
in general and specifically in college degrees that were once the guaranteed
ticket to middle class security
3. The inexorable rise in big-ticket
costs: higher education, healthcare and housing. Even as wages stagnate, these
costs continue rising. claiming an ever-larger share of household incomes,
leaving less to save/invest.
4. The transition from an economy with
stable returns to a financialized boom-and-bust economy that wipes out middle
class wealth in the busts but does not rebuild it in the booms.
5. The regulatory and administrative
barriers to self-employment in a globalized economy.
There is zero evidence that any of these
drivers is going to reverse, for the reason that they are reflections of deep
forces that cannot be reversed: demographics, the exhaustion of
financialization, the 3rd Industrial Revolution (i.e. the digital/automation
revolution) and the loss of scarcity value in the foundations of the middle
class: labor and financial capital.
