America was once a beacon of light for dreamers around the world. The land of opportunity presented a way for people to earn more money and increase living standards by joining the middle class.
Today, many can dream but never come close to the opportunity they were sold. So what happened to the American middle class dream? Why is wealth disparity and inequality widening?
America as a whole is far richer than it was a decade ago. But as a population – as individuals – for a troubling proportion it is getting poorer.
There are three potential explanations for why the American middle class has collapsed. I’ll briefly explain each and provide supporting graphics below.
- Deregulation: The deregulation of America since the early 1980s – a pillar of Reagan policy – systematically removed protections for American workers, transferring power (and wealth) to the owners of capital. This benefited the wealthy and corporations at the expense of average people. At the same time, automation and offshoring replaced jobs once performed by humans, further weakening labor and the middle class.
- Living Costs: A result of deregulation, costs for many services critical to one’s standard of living have risen disproportionately to incomes. Namely, health care and education costs have grown far faster than incomes, eroding the ability for average citizens to build and maintain the wealth required to be considered middle class.
- Weak Innovation: Since the Industrial Revolution, the combination of wealth generating innovations afforded society the flexibility to provide for all citizens on more equal terms. These innovations included electricity, combustion engine, refrigeration, indoor plumbing, telecommunications and computing. The great wealth derived from these innovations and their many offshoots meant that money could be pooled to raise the standard of living for all segments of the population, helping to create the middle class. Things changed towards the end of the 20th century. Since the 1970s, the American productivity growth rate has been on a secular decline. This is not to say new innovations don’t exist. Rather, today’s innovations don’t have the same revolutionary impacts as those from 50, 75, 100 years ago. Many of today’s innovations are incremental in nature, enhancing efficiency and lowering costs. However, humanity is still largely run on technology invented many decades ago.
Check out the charts below for details on this transformation: