Vice President Joe Biden last month said the American middle class had been “buried” in the last four years. While Republicans were quick to frame Biden’s comment as a repudiation of President Barack Obama’s administration, the collapse of the middle class has more to do with the financial and housing crisis that started before the Democrats took office.
Asia Times Online‘s Spengler columnist, David P. Goldman, argued in August that the financial crisis wiped out nearly half of the median family’s wealth between 2007 and 2010. The tax burden, however, has continued to rise on middle-class homeowners.
The distress of the American middle class is unlike anything observed in the postwar period. Home equity rose at least in nominal terms during every five year interval since World War II, except the most recent.
For the median American family, that translates into a 40 percent reduction in wealth.
But that isn’t even the worst of it.
The housing bubble that anticipated the financial crisis created vast opportunities in construction, real estate, mortgage broking and other financial services. When the bubble burst, those business opportunities disappeared.
An indication is the number of corporations paying taxes. Whereas it grew more than 4 percent per year in 2005 and 2006, it plunged into negative numbers in 2008.
Labor force participation has also declined dramatically, “to a low not seen since the recession of the early 1980s,” according to Spengler.
Unemployment may have come down in recent months, but the labor force participation rate has yet to recover. Some seven million Americans have simply given up looking for work. Another thirteen million are counted as officially “unemployed”. Less than six million draw unemployment checks from the government.
On a more positive note, middle-class Americans are still better off than they were some forty years ago.
In 1975, more than 80 percent of households earned less than $75,000 per year. In 2009, that percentage was still 68.4 percent. In other words, nearly one in three American households have an annual income of $75,000 or when it was just one in five in the 1970s.
Of course, prices have risen in the same period. Adjusted for inflation, the median household income hasn’t risen spectacularly. Last year, it was just over $50,000 compared to nearly $45,000 in 1975. Since the year 2000, median annual household income, adjusted for inflation, has actually declined.