Hard times tighten middle-class squeeze

After the Great Depression, the US made major policy changes to support average Americans. Is it time to launch such efforts again?

By MSNMoney partner Oct 19, 2012 9:31AM
US News logoBy David Francis

The decline of the middle class has become a focal point of this year's presidential election. Each candidate claims his plan would end the middle-income slide that accelerated during the Great Recession and shows no signs of abating.

But lost in the rhetoric is the reality of the decline. Nearly everyone is aware that the middle class is struggling, but few people understand how the struggle plays out in everyday life.

According to experts, the decline is fundamentally reshaping the U.S. economy. The Great Recession has affected the way the middle class feels about higher education, government and the future. Even their health has suffered.

"Their economic future isn't very bright," says Timothy Smeeding, the director of the Institute for Research on Poverty at the University of Wisconsin Madison. "Wages and income are flat. Transportation, childcare costs and health care costs are going up, and . . . income isn't."

Smeeding calls the current state of the middle class "the squeeze." Even people with jobs are having to squeeze more and more out of their income, despite the fact that incomes aren't growing. "These people live on earnings. They're working on not great wages, and their jobs are threatened," he says. "They don't see any hope in the future of things getting better."

Hard numbers paint a stark picture of the middle-class decline. According to an August 2012 Pew Research Center report, only half of American households are middle-income, down from 61 percent in the 1970s. In addition, median middle-class income decreased by 5 percent in the past decade, while total wealth dropped by 28 percent. According to the Economic Policy Institute, households in the wealthiest 1 percent of the U.S. population now have 288 times the amount of wealth of the average middle-class American family.

The income decline has caused many people to accumulate high levels of debt. And as the cost of college increases, more people are saddled with tens of thousands of dollars in student loans after they graduate.

Only 23 percent of people are confident they have enough money to get them through retirement, according to the Pew report. It also found that fewer people believe hard work will get them ahead in life.

"You have far less disposable income and increasing levels of debt," says David Madland, the director of the American Worker Project at the Center for American Progress. "You have this fundamental squeeze on most members of the middle class. It's impacting their quality of life and their outlook for the future."

These are the kind of statistics used by politicians to sell policies, but they tell little about the realities behind the numbers or how the decline of the middle class plays out in people's everyday lives.

More and more middle-income families are turning to government programs such as food stamps, Medicaid and unemployment insurance. According to a recent Senate Budget Committee Report, "Among the major means tested welfare programs, since 2000 Medicaid has increased from 34 million people to 54 million in 2011 and the Supplemental Nutrition Assistance Program (food stamps) from 17 million to 45 million in 2011. Spending on food stamps alone is projected to reach $800 billion over the next decade."

People are also saving less. Wage increases have not kept up with increases in the cost of living, prompting people to dig deeper into their savings to make ends meet. Meanwhile, many middle-class workers who lost their jobs during the recession remain unemployed.

"The most pressing worry is the diminished economic security of middle-class families. The long-term unemployed have completely drained their savings," says Kristen Lewis, a co-director of Measure of America, a project of the Social Science Research Council that explores the distribution of opportunity and well-being in the United States. "Those who are working have jobs without health care or sick leave. They have no retirement savings plan. There's no end in sight to that."

Lewis adds that the economic state of the middle class takes its toll on their health. A series of recent reports found that life expectancy for whites without a high school diploma, once the backbone of the middle class, has dropped faster than for other groups. The reports link the decline in large part to the lack of access to health care.

Can the middle class come back? According to Lewis, current economic and political conditions won't provide the middle class with the same security it needed to rebound after World War II. "In the postwar period, there were a lot of programs put in place to help people," such as education and homeownership assistance, Lewis notes.

Madland says increasing the minimum wage and improving entitlement programs like Social Security are key to rebuilding the middle class. After the Great Depression, "we made major policy changes to ensure we have a strong middle class. We let too much of it wither on the vine," he says. "We need something approaching that kind of effort."

But for Wisconsin's Smeeding, one thing has to happen before such policy changes can occur. "We have to get the economy growing again."

More from U.S. News

294Comments
Oct 19, 2012 2:03PM
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I was on assistance in the late '70's.  I moved to a place where there were jobs and when I finally got a job my caseworker said, "If you wanted more money, why didn't you just get pregnant again?"  This is my example of what is wrong with our government.   I have spent 40 years contributing to our society,  If you want a job, go find one, even if you have to move to get one.  They are out there.  If you don't want a job, starve.  I realize there are people out there who need help, but those of us who have to pay our own bills resent having to pay yours.
Oct 19, 2012 1:44PM
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  If a company like jp morgan loses billions of dollars of money that is not theirs, where does it go and who acquires it.  When the middle class was forced to take 401k's and when the 401k's tanked, where does the money go and who aquires it.  It's questions like these that make me wonder why we argue about liberal or conservative when what we really should be asking is why and who is robbing us blind right from under our noses.  I know these are just a couple of examples but if anyone has an answer for either one I would love to hear it.

Oct 19, 2012 2:15PM
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My wife works at a hospital where almost all the mothers giving birth are getting their care free. Some of those getting free care will come in with purses that cost several thousand dollars. So I paid about $6000 when my daughter was born but they get the same care for free, while having purses that cost more than my car. That is why the middle class is having such a hard time. If I got food stamps, subsidized housing, health insurance, and childcare, what else would there be to spend money on other than several thousand dollar purses? Even if it was only a low-paying job.
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What many people dont realize is that the poor in this country are very well taken care of, close to 1 trillion spent on them last year alone.  The middle class are the workers that dont qualifiy for many federal/government programs and are forced to fight it out on their own.

 

Please people, wake up!  By increasing government, you are taking the edge off the middle class and teaching people who used to be self sufficient how to lean on Government help.

 

This clown spent 5 trillion dollars and unemployment is still over 8%?  Yes they revised that number up on Thursday.

 

You may think well everyone else does it, why not me?  Well start thinking, I am stealing from my children and their childrens future.

 

Selfish, tsk tsk.

Oct 19, 2012 2:00PM
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My job now has the insurance premiums scaled to salary. So those making over $15 an hour pay 2-4 times as much in health insurance premiums than those making less than $15 for the exact same coverage! Nothing illustrates the problems of the middle class better than this. People can talk about the 1% as much as they want but at the end of the day, no matter how much money they have, there isn't enough of them to subsidize things. All wealth redistribution comes from the middle class--my company's health insurance plan as exhibit A. My wife and I joked the other day that if I lost my job and had to get a minimum wage job we might not be any worse off because we could get food stamps, health insurance, free childcare, subsidized housing and everything else that we pay a fortune now for. Some good two masters and a PhD does.

Oct 19, 2012 2:26PM
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People need to live within there means.  Cable, snacks, airconditioning, cigarettes, beer, soda, new books "use a library", look around and appreciate what you have instead of feeling like you constantly need more.  Spend some time with your family.  Let go of your pride for a second and realize that your blessed.  Make personal sacrifices to fix the country that you say you love.  Stop looking for the next handout.  Be a neighbor to someone who needs help and don't expect anything in return.  Don't feel entitled to anything.  Work for what you want and need.  Don't expect those who did and became rich to bail out the rest of us.  My kids understand this so why is it so hard for an adult.  Stop blaming others.  Turn off the tv the games the radio,  go outside and do something.  There is an abundant amount of things to go do that don't cost money.  More government,  more policies, more taxes, more bailouts, more freebies equal more debt, more unself reliant people, more bad examples to the next generation, more poverty, more bad choices.  Take this as you will we all know the immature and childish people will want their rebuttal.  I'm a 33yr old married father of 3,  I don't make much,  low end of middle class at best.  We make sacrifices, we survive.
Oct 19, 2012 3:16PM
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It is almost comforting to read this article.  I am in the middle class.  Our gasoline to go to and from work everyday is over $1000 per month.  My property taxes doubled, my auto insurance and homeowners insurance went up about 25%.  Our health insurance premiums went way up.  I am paying college tuition, etc.  We have not gotten a raise in years.  My husband and I keep wondering why we can't put any money in the savings anymore.  I still feel very blessed though that I have a job, a roof over my head,  food in my stomach, and we can at least still pay the bills.  My heart goes out to those who can't.  We just gave up our cell phones in an effort to save more money.  Next, we are considering giving up cable tv and electricity.  I kid you not!
Oct 19, 2012 2:19PM
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No Jack Bridges what the nation doesn't understand is why big business like the oil companies are entitled to corporate welfare?  Why should JP Morgan receive corporate hand outs?  Why should the vast majority of big business pay no Federal taxes?  Why high paying CEO's be allowed  to manipulate the tax code to pay less in taxes after commanding huge salaries.  Why the rich should be allowed to off shore their money to evade taxes?  Why corporate America is allowed to out source jobs to China and other countries, have unregulated business practices, less stringent employment laws and favorable tax status?  Yes, Jack Bridges, chumps like you always want to shift the burden and the blame onto the 47% and others but the bottom line it's been "corporate greed" supported by corrupt members of Congress that has allowed these shenanagians to foster in this country.
Oct 19, 2012 2:38PM
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If the author is truly talking about the middle class, then increasing minimum wage and improving Social Security will do very little to help.  Any family dependent on minimum wage or social security benefits is close to the poverty level.  My understanding is that middle class would be household income in the $50,000 - $150,000 level.  Above that and you're in the top 10% of all households.

 

So the question should be how to help those in that $50,000 - $150,000 range.  First, allow everyone to refinance to the lower rates, even if their house is underwater.  Just because the value of the home has dropped, that doesn't mean they want to move, but they sure could use the lower monthly payments.

 

Second, allow consolidation of all student loans, not just government backed loans to allow them to again, qualify for the lower current interest rates. 

 

Third, mandatory financial basics to be taught in both senior year of high school and freshman year of college. 

 

Oct 19, 2012 3:25PM
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 The squeeze has been going on for years. Property insurance, auto, health, bank fees, taxes, utlities, education and more. Some say there is a war that is taking place. Yes, there is a war that is taking place and it is against the majority of the american people.
Oct 19, 2012 1:39PM
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Trickle down economics has been put to the test since Reagan, was in office and where's it got us?Put money in the hands of the ones who spend it, not the ones who hoard it.
Oct 19, 2012 2:40PM
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Why in Gods name would anyone vote for Obama Biden again,,,, When I hear polls that tell me he is up in many states I am in utter disbelief ...What has happened to the reasoning power of the average man and woman ....?
Oct 19, 2012 2:54PM
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This is not about which party is in power.  Both major political parties are to blame, as are we, for allowing our elected officials to run US into the ground.  Having had a very nice income only 10 years ago, lost to off shoring and onshoreing of cheap labor I am now on public assistance, much to my chagrin.  The Newspapers here report the elitist company owners grousing that they cannot find the trained labor that they seek.  Those of us who even read their accounts know that is simply not true...what they are saying is that they can not find Americans who will work for the low wages corporate America is offering and they need to import offshore workers who will work cheap.  Their education subsidized by their respective governments competing against US and our Children who had to pay or borrow for our respective educations.  By Law being forced to pay back student loans at rates that take the greatest part of take-home-pay. Our kids (and many of US Parents) just can not afford to work for those low wages and pay back student loans, pay for housing where we are not stacked 8 deep in an apartment or buy American made vehicles.

 

The corporations will reap what they sow.  If Americans can not buy the products, houses and eventually even not the education that will return America to the vibrant economic leader that we once were then we, the corporations and America will suffer...continue to suffer.  Our position in the world is sliding downhill fast...we need to reverse that fast.  And it is the right and duty of all Americans elect leaders who will do this not just those with good sound bites.  One only has to look to the debates to understand.

Oct 19, 2012 2:36PM
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If you look at the simple statistics of wealth and income distribution for the last 30 years, the middle class and the working poor have been losing ground or just keeping even, while the top few % have seen massive gains.  Much of this is intentional as the result of tax law, public policy, and deregulation by both political parties in the largerst, conscious redistribution of wealth in our history. 
Oct 19, 2012 3:18PM
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It takes a great deal of money to get elected today.  There is no such thing as a middle class or poor president or elected congress.  They are so wealthy in their own right that they can't even comprehend how the middle class and poor have to cope and live, nor do they really care.  Because if they did, that would mean they would have to give up some of the wealth they have accumulated.  The Banking Industry and Big Business has too much control over peoples lives and there is no meaningful regulations put on them and so goes the spiral.  Government  won't regulate them because their wealth is tied to them.  Just seeing what has and is happening over the last 50 years to the middle class is a disgrace.  I hear our youth giving up their dreams to go to collage because of the spiraling cost or paying the rest of their lives to get a college education. It is very sad to hear so many people say their is no hope for the future.
Oct 19, 2012 3:43PM
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As a working Economist... this subject is really too large to disucss, and there are many view points of how to fix EVERYTHING.  I truly believe the problems we see today are ones that have compounded within each presidents tenure since the 1950's.  I also believe one would have to go as far back as the beginning of taxation to really realize how the so-called "New Deal" tanked the ideals of the true America economy.  People came here from foreign lands because of the wealth that could be accumulated from hard work.  Today those same people come here for the welfare.  Taxation, PACS, special interests, socialistic tendencies.... I guess my one true belief is the removal of the gold standard did not help the country.  The ability to print money has caused years of spiraling prices that an everyday hard working man can no longer afford.  I can remember the day of high school grads raising families in a single income house hold.  Then the 60's came in and all hell broke lose.  This is a very large topic of which there are many viewpoints.  Republican?  Democrat?  Libritarian?  These parties have been putting band aids on an economy for more than 50 years and trying to make those happy who pay the most to get them elected.  It isn't the normal working man folks...
Oct 19, 2012 3:05PM
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Obama keeps talking about getting the rich people making over $250k to pay more taxes to help the country. How does this help the economy? It only gives the government more money to keep spending ridiculous amounts on things that don't lead to self-sufficiency. Tax revenue increases do not equal job creation. If you want what the other guy has, then go out and do something to earn it. We need a business leader in the White House and Mitt Romney is our guy.
Oct 19, 2012 2:29PM
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What a surprise, MSNBC promoting class warfare again.  You guys are always promoting more social spending programs when we already spend over $1 trillion on such programs.  Not even the 1% has sufficient wealth to subsidize the needs and wants of the remainder.  For the results of runaway social spending just look to Greece, Spain and Italy.  Tax and spend liberal policies will not get us out of these tough economic times...no one has enough money!  What will work are policies that promote private enterprise hiring including less government regulation, income tax reform and targeted incentives for small business....most of which will require Obama to serve a single term as President! 
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This report is comparing today with conditions of 1970, 40 plus years ago. Yes, college expenses are up but consider the living conditions compared to 1970. In 1970 one lived in a 2 or 3 person room with a community bath down the hall and no air conditioning. Today it is a single person room with a private bath and air conditioning. Eliminate the expenses one has today that they didn't pay in 1970, cell phone, cable TV, home air conditioning and all the other comforts we have accepted as necessary since 1970 and watch your savings grow. For those going to college get a degree with a future. Think STEM, Science, Technology, Engineering, Math. There is no future for basket weaving.
Oct 19, 2012 4:57PM
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If you think the government is going to get us out of the mess that you all have described, you are fooling yourselves.  Learn how to do something, do it very well show up every day and quit whining.  Less dreaming more work.
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