Lies, Damn Lies and the Disappearing Middle Class

ilene's picture

Lies, Damn Lies and the Disappearing Middle Class 

Excerpt from MarketShadows September 9 2012

Is our nation being torn apart by inequality, lack of opportunity and a disappearing middle class? The short answer is that inequality is becoming more extreme and opportunity is declining. And while the middle class is not "disappearing," a portion of its wealth and resources are.

Ron Haskins recently examined the rumors of the middle class's demise. He noted that the contribution of government benefits to the poor is often ignored by people comparing income across different brackets:

"Our federal income tax system sends billions of dollars to poor and low-income households, substantially increasing their income and taking a bite out of inequality. Households in the top 1 percent pay about 40 percent of federal income taxes, and the top 10 percent pays nearly 75 percent.


"Put another way, the federal income tax system directly transfers billions in cash from the top to the bottom. Programs for poor and low-income families, including food stamps, the earned-income tax credit, Head Start and Pell Grants, annually transfer more than $900 billion in cash and other benefits to the poor and near-poor."  (The myth of the disappearing middle class)

Oddly, Ron uses massive government entitlement spending to suggest that the economy is not quite as impaired as alleged. Taking the opposite view, the need for huge transfer payments could be a symptom of underlying rot.

Jared Bernstein called 'the myth of the disappearing middle class' a canard. "Most living standards analysts, including Ron in this piece (!), think of the middle class as some chunk in the middle of the income distribution -- say the middle fifth or some variation there in (e.g., 40th to 80th percentile) -- which of course cannot by definition 'disappear.'..."

"[Ron] cites research much like that of the Congressional Budget Office on family income trends, noting that middle class income (the middle fifth of the income scale) 'grew by nearly 40 percent' 1979-2007. (CBO analysis shows 35%... these trends include the effect of taxes, transfer payments, and the value of employer provided health care.)


"First of all, 35% over 28 years is 1.1% per year, over a period when productivity grew at twice that rate (up 72%, or 2% per year). There's no reason to expect middle class incomes to grow at the rate of productivity year in and year out, though they did so for a few decades in the post-war years. But this persistent divergence is important context that should not be left out...


"To understand the middle class squeeze, you've got to look at wages and hours. Census data reveal the amazing fact that the median earnings of full-time male workers were almost exactly the same in real terms in 1979 as in 2010: in real 2010 dollars, 1979: $47,621; 2010: $47,715. How could that possibly not be relevant in an article about middle class well-being?" (The Myth of the Myth of the Disappearing Middle Class)

There will always be people earning wages and living somewhere in between poverty and riches. But there has been no growth in median earnings of full-time male workers since 1979. And without including tax effects, transfer payments, and the value of employer-provided health care, growth in "income" goes negative since the Great Recession.

In fact, real median household income fell almost 5 percent since the last recession: "The rich are getting richer, and the poor really are getting poorer... Americans are earning less today on average than they were when the Great Recession...ended... Using Census Bureau data, economists Gordon Green and John Coder determined that real median household income has actually fallen by 4.8% since the recession’s end. Even more surprisingly, they found that the decline since June 2009 was larger than the 2.6 percent decline that occurred during the recession. Adding them together, Green and Coder conclude that average household income has fallen 7.2% since December 2007." (Average U.S. Household Has Lost 5% in Annual Income Since Economic “Recovery” Began)

Note: "income" and "earnings" are often not clearly defined. Ron Haskins included transfer payments, tax credits and employer-provided health care benefits in his income calculations. Gordon Green and John Coder arrived at a different result - negative growth - looking at earnings without the government treats. When looking at numbers, it's important, but often difficult, not to compare apples to oranges...

A decrease in real wages resulted from jobs shifting from the middle and high wage ranges to lower paying jobs. Michael Snyder explored this in Economic Failure: 58 Percent Of The Jobs Being Created Are Low Paying Jobs:

"...58 percent of the jobs that have been created since the end of the recession have been low paying jobs.  So exactly what is a low paying job?  Well, the National Employment Law Project defines it as a job with an hourly wage between $7.69 and $13.83.  But of course you can't pay a mortgage or support a family on $13.83 an hour...


"Most of these new jobs are not paying enough to support a middle class lifestyle. This represents an economic failure on a fundamental level.  Our economy is producing very few good jobs that enable people to be able to raise families and live the American Dream.  The ranks of 'the working poor' are exploding and the number of Americans that are dependent on the government is sitting at an all-time record..."

A fundamental cultural shift in our economy has led to companies devaluing their workers and outsourcing millions of jobs. Michael attributes the changes to an emerging one world economy. "The big corporations no longer need American workers to make stuff. They can just close up shop and move their facilities to the other side of the globe where it is legal to pay slave labor wages to very desperate workers."

For corporations, after-tax profits are soaring. Their success has come at the expense of labor. Wages (as a percentage of the economy) are at all-time lows.




Michael concluded that the middle class will continue declining, while families become poorer, as our employment economy transitions to an ownership economy. (Economic Failure: 58 Percent Of The Jobs Being Created Are Low Paying Jobs)

While income has declined, the cost of living continues to rise (regardless of spurious government claims to the contrary). As jobs available in the lower wage ranges increase, numbers of the "working poor" will also increase, and the "middle" will be forced down to lower levels.

In The Problem with "Tax The Rich": It Won't Work, Charles Hugh Smith examined the unfairness in our nation's tax structure - it's another hit to middle and higher income earners who pay for the transfer payments to the lower/zero wage earners.

"By heavily taxing earned income, the system extracts the highest taxes from the most productive citizens, leaving the less-productive with essentially no income taxes and the super-wealthy with the huge tax break offered to capital gains and other unearned income...


"As I noted in Tyranny of the Majority, Corporate Welfare and Complicity (April 9, 2010): 'In essence, this is a vote-buying scheme by the Status Quo: the top 1% control the policies of the State in alliance with the State's own Elites, and together they buy the complicity of the bottom 60% to passively accept their dominance.'

"In other words, the bottom 60% are recipients of Central State largesse and the top 1% who 'own' the political and thus the taxation process limit their taxes by favoring unearned income (what they collect from sales of securities, stock options, rents, etc.). Thus the productive quintile (top wage earners) pay the highest tax rates and most of the taxes.


"It's a partnership of "Tyranny of the Majority" and "Outsized Influence of Elites." If the political status quo alienates the majority by making them pay more taxes, they risk losing power in the next election. If they alienate the top 1% who fund their multi-million-dollar campaigns, then they will also lose power. So they heap the tax burden on those 'rich' who are actually earning their money rather than clipping coupons."

In conclusion, the middle class is not "disappearing." It's becoming weaker, poorer and struggling to maintain its identity. Government action that has helped lower income groups (transfer payments), and rewarded the wealthiest (tax structure, tax breaks), is sucking life energy from the productive middle and upper middle classes.

Our analysis of the economy should not be confused with our analysis of the stock market. There's a disconnect. As Bruce Krasting wrote,

"I spoke with a guy who runs a fund (with a couple of bucks of mine) this weekend. He was happy as can be. His fund's performance has past the upside mark, so he's getting a free 20% of any additional gains. Like all equity guys, he's bullish for the rest of the year. His thinking is that common stocks of companies with good balance sheets, positive cash flow, and buying back stock have much more upside to them. Google at 800+ is in the cards, according to him.

"He made one interesting observation. He believes that equity prices have decoupled from the business cycle. Stocks can do well when the broad economy is struggling and government financing is in ruin.

"That sounds crazy to me. But it is exactly the status quo today. Stocks are at four year highs, while government financing (globally) is in the toilet, and about to be flushed. His justification for the optimistic outlook for equities was: 'Who in their right mind would buy any government bonds today?'

"We shall see if the decoupling of stocks and the broad economy/public sector financing continues, but you can't ague with what the guy says. Bernanke and the other central banks have converted the debt market into a very unlovable asset class. There is no return on the bonds; there is credit and yield risk. Bonds are a total downside story at this point." (On Sub-Zero and Decoupling)


Also in MarketShadows September 9 2012:

TA by Springheel Jack, trend following by Allan Harris, an idea for going long gold using GLD. For a look into our virtual portfolio, click here. 

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ElTerco's picture

For all of you out there scratching your heads, the difference between the 1% and 99% comes down to the author's astute observation: " slave labor wages to very desperate workers."  That, my friends, is Evil.

Heyoka Bianco's picture

"Jared Bernstein called 'the myth of the disappearing middle class' a canard." Is this dude being deliberately misleading or he just a dolt? 'Middle class' describes a standard of living, not the mid-point of an income distribution. It can quite easily disappear. There's a big ol' buttload of examples on almost every continent to prove it.

rustymason's picture

Attention, tax-happy libtards: the thieving 1% that you hate so much aren't going to pay taxes on the trillion$ they are stealing. Duh. All your new taxes will fall on the regular, tax-paying, God-fearing middle class workers. But then, you already knew that, didn't you, commie scum?

boogerbently's picture

But if you cuts off my welfare, who's gonna pay fo my Cadillac ?

Yes_Questions's picture

 the middle class will continue declining, while families become poorer, as our employment economy transitions to an ownership economy


And then the poor will get productive divesting said owner's of their loot.

A few decendants of particularly cunning theives cannot feasibly claim ownership of the world, and more importantly, the parts of it humanity depends on for survival, perpetually.

The pendulum swings.

Questan1913's picture

The title should be changed to "Lies, damned liies and the disappointing middle class".  They are being disappeared alright, but they apparently aren't too upset about it.  The Globalist Oligarchy has been very open about its plans to eliminate the middle class in both North America and Europe for at least the last 20 years.  Have you heard even a peep out of them in all those years?  I haven't.  They have been told over and over that their standard of living must come down.  You see, the playing field, worldwide, must be leveled.  That means bringing the West down and the Third world up.  Remember the "sucking sound" of jobs being forcibly exported to China, India, South America, etc. as described by Ross Perot in the early 90's?  No?  That is either because you are too young, or your head has been buried deeply in a dark place  of comfortable denial for over twenty years.  A caste system is being imposed in Amerika.  The "bourgeoisie" are being eliminated, just as Marx called for in socialist tracts of the 1850's.  Socialism is being imposed under the word "democracy" and even (laughably) "our democracy".  Hayek called out the two groups most ardently working to impose socialism, or what he called "The Road To Serfdom".  They were organized Capital (guess who that might be?) and their surrogates, organized Labor.  And at the end of this process of destruction of the too wealthy middle class lies what?  One World Government......  presided over by the Princelings of (fictitious) Capital, the merry band of worldwide banksters I call the Swindle Class.  This is just business, or class warfare if looked at another way, and is the final endgame of Globalism, you know, the concept that makes you feel all warm inside every time its mentioned in its tens of thousands of appearances on your beloved TV set.

Translator's picture

When the middle class grows, there are more Republicans, when the middle class shrinks, more democrats.


Obamacare IS the war on the middle class, as they will shoulder 75% of all 23 new Obamacare taxes. The democrats do not want a middle class at all.



Heroic Couplet's picture

We shut down a Vietnam war with protests in this country. Viet Nam is on the other side of the world. Today it has a thriving economny and stock market.

We have Occupy Wall Street right close to the banks in New York City. The Federal Reserve is in Washington, DC.

SmittyinLA's picture

Without massive transfer payments Americans would never tolerate importing scan laborers, the entitilements are a necessity for demographic change, in essence a "bribe" to relenquish your sovereignty for "free stuff".


Today's ctiizen attitude is: "12 million or 50 millions illegals are OK if I get my SS & Medicare benefits"  financed with the sale of your children's sovereignty.   

q99x2's picture

Well who's going to support me if there ain't no middle class?

Questan1913's picture

"Well who's going to support me if there is no middle class?".

Very elegantly stated.  This is the pregnant question of 150 million Americans, or would be, if they were somewhat less ignorant of the world around them or could, with a mighty effort, rouse their considerable girth from the couch and TV set and try to perceive the world beyond the tip of their nose.

Umh's picture

in a perfect world you get to support youself.

LetThemEatRand's picture

Alan Greenspan gets primary credit for the housing bubble.  Clinton and W get an assist.  

Snakeeyes's picture

The housing bubble almost destroyed the middle class. Net worth dropped like a rock and income keeps falling.

hedgehog9999's picture

Middle class is fucked!!!

Back to the threadmill  everybody!!! running a bit faster every year otherwise you'll become marginalized....

That pretty well sums it up for the last 20 years and it WILL get worse!!!!!

This won't change until the system is reformed.

By the way, this is true  everywhere in the world, it does not matter if it is Chinese, Muslim, Christian,  Bhudist Communist, Capitalist, Democracy, Kingdom,  Dictatorship or what not.

The fundamental issue that cuts across all these religions, forms of government or political systems, is HUMAN NATURE, and for that, a new species will have to evolve one day hopefully sooner than later so that a more equitable , system develops.

Fecklesslackey's picture

Boy it sure looks like we really need lower corporate taxes

flacorps's picture

Strip government down, stop the free trade stuff and impose reasonable import duties, use the money to lower tax rates and encourage factories to reopen here, and train our workers while deporting Mexico's workers and developing our own energy resources.

It ain't rocket science. It is virtually impossible in Washington though.

e-recep's picture

yes, let's remain practical, shall we?

Metalredneck's picture

Serf's up!!  And it is you & I.

TruthInSunshine's picture


"The middle won't disappear, but will be simmered in controlled fashion to a quite debased standard of living."

Fixed that for you, Ilene.

The New York Slimes finally acknowledges this openly by printing an article about this (shocking, actually, that they ever did), although they try to paint this 'strategy' as benignly as possible:

Low Interest Rates Benefit Governments, but Not Savers

  • As Low Rates Depress Savers, Governments Reap Benefits

By Published: September 10, 2012

A consumer complaint is ricocheting around the world: low interest rates are eating away at savings.



Though bad for people trying to live off their savings, low interest rates happen to be quite good for anyone borrowing money, like governments themselves. Over time, interest rates below the inflation rate allow governments to refinance, erode or liquidate their debt, making it easier to live within their budgets without having to resort to more unpalatable spending cuts or tax increases.

Along with keeping rates low, governments are using a variety of tactics to encourage captive audiences, like pension funds and banks, to buy their debt. Consumers, in other words, are subtly subsidizing governments without even knowing it. Economists have compared this phenomenon to a hidden tax on people’s wealth.

“If you ask a central banker is that what you’re doing, and why you’re doing it, they’ll say ‘No, we’re just trying to get the economy going by making it easier for the private sector to borrow,’ ” said Neal Soss, chief economist at Credit Suisse. “But I have a syllogism for you: The government makes the rules. The government needs the money. So why should it surprise if the rules encourage you to lend the government money?”

This is not the first time governments have benefited by depressing interest rates, something economists refer to by the ominous name of “financial repression.”

In the three and a half decades after World War II, interest rates in the developed world were on average below zero after adjusting for inflation, according to Carmen M. Reinhart, a professor at the Kennedy School of Government at Harvard. This helped Europe, the United States and Japan slowly whittle away much of their war debt as their economies grew faster than their debt burden.

“The difference is that the postwar period was one of strong growth, when rebuilding and capital investment was going on across the Continent, and there were strong demographics,” said Stefan Hofrichter, the chief economist at Allianz Global Investors. “But these elements are not necessarily in place today.”

For that reason, economists are less certain that the success of the strategy will be repeated.

Many major economies are already slowing down, if not outright contracting. And the actions taken by governments to keep interest rates low can restrain how much savers have to spend and force fragile banks and pension funds to take on more risk. Ultimately, it could crowd out private borrowing.

Governments have different mechanisms to keep their borrowing costs artificially low.

The Chinese government can just make a call to banks and dictate how much they will lend and at what interest rate.

“By forcing them to lend at low interest rates, China’s central bank is taxing banks at high rates,” said Nicholas R. Lardy, a senior fellow at the Peterson Institute for International Economics. “They make it up to the banks by dictating that banks pay depositors even lower rates, so consumers are getting taxed too.”

Manthong's picture

Peak Middle Class America.

dark pools of soros's picture

and the kicker is if you work a crap job you don't get any of the free cake...  freeloaders are really loading up on the free

LMAOLORI's picture



Not true they get handouts like the Earned Income Tax Credit, Food Stamps, Subsidized Housing, Child Care if they work a low paid job.


Income Inequality Worse Under Obama Than George W. Bush


Thing is in the Oconomy that's all that's being produced Low Wage Jobs



Rewarding Idiots with Democratic Totalitarianism


dark pools of soros's picture

how low you gotta go??  i think getting paid in peanuts is better than the jobs you are thinking of

Chuck Walla's picture

In politics, few talents are as richly rewarded as the ability to convince parasites that they are victims. ... generosity is seen as an admission of guilt, and the reparations as inadequate compensation for injustices – leading to worsening behavior by the recipients.


~ Thomas Sowell 



Marge N Call's picture

+100 For a Thomas Sowell quote.

Anyone who questions this it is clearly a racist.

LMAOLORI's picture



I believe every job has worth/value even a garbage man or the school janitor. At the least they have the dignity that comes from working rather then stealing from another who might be the garbage man or janitor who has to pay higher taxes for them to sit around and do nothing. If you don't like those jobs go into business for yourself. You can thank bill clinton for NAFTA and obama for lying that he would re-negotiate it.  Fact of the matter is we can't force companies to do business here we are not Communist's yet and rules & EPA regulations are also a large part of why they left.  What a sham that was the companies then moved to Communist China and other places where they have no rules/regulations and were free to pollute at will. BTW those aren't my jobs they are all part of the new Oconomy.

Shizzmoney's picture

And on top of that, we are migrating towards a "corporate caste system" where you basically you have to "pay-to-play" for those increasing waning high paying jobs which are going overseas or stay within nepotistic circles:

Unless most of the value of a diploma is human capital, making a college degree a positive requirement for advancement is both wasteful (even if college teaches you a great deal, it is not so fantastically useful that we should ignore the evidence of job performance) and reinforces class barriers that are already looking pretty rigid.  The people who have the hardest time getting to college, and succeeding there, are students from homes where no one has a college diploma, which also--hello wage premium!--tend to be homes where finances are pretty tight.  

The barriers to those kids entering and completing college are legion.  There’s poor K-12 education, which leaves them ill prepared.  There’s a simple lack of knowledge about how college works, which middle class kids take for granted.  How do you get there? How do you finish? Arizona State University, for example, started requiring people to choose majors very early, because otherwise a lot of the kids they serve were kind of lost--they’d take a bunch of classes, none of which added up to a major, and then get to the end of three or four years without enough credits in anything to graduate.  Or they'd keep switching, stretching out their time at school, and the loans to pay for it, to unreasonable lengths.  Or they’d feel overwhelmed by the choices and drop out.  

They also don’t have families who tell them which degrees pay--they frequently have a touching faith in the power of any degree, which is why they are often vulnerable to the more predatory for-profit institutions.  And of course, they have no family support for living expenses, and indeed, may be required to work to help out their parents.

But I do want to question the insistence that college is the only route to success--an inistence that comes ever-louder from parents, employers, and policymakers.  The kids I see who don’t want to go to college, or aren’t cut out for it, face a future considerably more closed off than it was 50 years ago.  I understand that much of this is technological change, but, it’s hard to believe that’s the whole explanation.  Those glass ceilings didn’t used to be there, and they didn’t just grow.  We put them there.

I wouldn't worry too much, though.  The jobs are coming.

Chuck Walla's picture

The barriers to those kids entering and completing college are legion.  There’s poor K-12 education, which leaves them ill prepared. 

Yes, but it keeps a constant supply of bodies to the under-class that can have their votes bought for a song while the politicians steal billions.  I posit that as the real reason the Left could give a shit if anyone escapes from poverty, it doesn't help theIr cause. At all.





boogerbently's picture

It has repeatedly been proven that you could take ALL the money (100%) from the top 1% and it would not make a difference (other than psychological) in the debt/deficit. It would run the country for about 2-3 weeks.

Why can't people get it through their heads this means Obama will need to OVERTAX people considerably under his stated $250,000/year target group?....that would be the middle class.


goldfish1's picture

Bullshit to the above post.

Back to the premise of the article:

Households in the top 1 percent pay about 40 percent of federal income taxes, and the top 10 percent pays nearly 75 percent.

"Put another way, the federal income tax system directly transfers billions in cash from the top to the bottom. 

So say the top 1% steals a couple trillion dollars and they have to give back $800 billion.

They still have $1.2 Trillion.

The top 10 % steals five trillion and they have to pay back $3.75 Trillion.

That means the top 1% and the top 10% have $2.25 Trillion and the 90% get to have $4.55 Trillion.

The top still have a disproportionate share of what is not theirs to begin with.


pashley1411's picture

Where did we get the lefties illiterates from?

Take 100% of the income from the 1%, and its not even half the deficit that the country is running.    

LetThemEatRand's picture

The vast majority of the wealth held by the top .1% is not represented in income.  It is either represented in hard assets (cash, stocks, gold, tax free bonds, real estate) or to a much lesser extent capital gains.  Therefore, discussing how much of the deficit could be reduced by taxing their "income" is a false debate.  Romney is one example.  He has little taxable income but vast wealth.  Where did we get the oligarch ass kissing morons from [sic]?

If that article is too challenging a read for the oligarch ass kissing morons, the manner in which you seek to frame the debate is akin to debating whether the mist that comes from the waves of one of the Great Lakes is sufficient to irrigate surrounding farms, while ignoring the water in the lake itself.

Everyman's picture

The vast majority of the wealth held by the top .1% is not represented in income.

You don't know much on economics do you?  "Wealth" is not "taxed" nor should it be because it is from "investments (which have already have had taxes collected from them once) and from income, which has ALSO have taxes collected from that once as well.  Throw in ALL the "properties" that have been purchased beit real estate or cars, oboats and THOSE too have had taxes paid on them as well.

Do you want your "wealth" taxed again and again"  If yu did develop wealth, and yu could pass it on to your kids, do you think it is fair to have that taxed again at transferr of possession?

FAIRNESS is the questino AND the answer.  Most of the lower income and wealth people DO NOT and WILL NEVER develop wealth, maninly beacuse they want $200 pants, and the lastest iBling, and they "purchase it all" on credit, whic is not smart and not "owning" the "thing".

So the bottom SHOULD be penalized in some way if they do not make proper judgements about investing, monitary intelligence and JUDGEMENT and financial discipline.  I see plenty of those at the bottom bitching about how the "rich has it" when they themselves do not work BY CHOICE and have the lastes tech gadget, latest colthes and are completely on the gov't dole.


SO FUCK YOU asshole, quit being a welcher.  And FUCK THE CRIMINSAL ON WALL STREET that have not gone to jail.

There are WAY too many people RICH and POOR with their fuckin' hands out for the Govt handout.

FUCK 'em all!



LetThemEatRand's picture

Putting aside the fact that you completely ignore my point that we should have a meaningful debate about how to deal with an imploding economy rather than setting up a false debate over how much taxation of the mostly non-existent "taxable income" of the wealthy would change the situation.....  So the Walton kids who represent several of the top ten wealthiest Americans and who did nothing to earn their wealth other than be the product of semen and eggs of wealthy parents (known as royalty through most of human history) should get to live in luxury while America goes down the tubes because the corporate owned media convinced poor people that they need expensive shoes?  Do you realize that the wealthiest woman in America did nothing to earn her wealth other than marry one of the sperm and egg combinations of the Walton dynasty who died young?

And fuck you very much too.  

Parrotile's picture

And, for today's classic example of the individually beneficial combination of inheritance and being in the right place at the right time to ride a once in a generation asset bubble, I present -

Gina Reinhardt - the World's wealthiest woman (who currently "earns" $AU 600 per second - and doesn't even break into a sweat doing it!)

As if often the case, wealth is almost always NOT associated with hard work, but with the right circumstances - and that's called luck. A VERY FEW are lucky, the majority are not.

And that's what makes the World go round folks.

RKDS's picture

And yet she briefly lifts her snout out of the trough to squeal about how miners actually producing the copious wealth she's gobbling down should be happy with $2 per day or else they're greedy drunks.