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 25, 2012 1:22PM
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When did USN&WR become so socialistic. Glad I gave up my subscription.
Oct 23, 2012 8:22PM
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All the money used for handouts/financial help could be utilized to subsidize legitimate attempts to get people working. I believe that everyone can do some kind of job in order to get that money instead of getting that money while not doing anything tangible in return, taking it just because they qualify to do it. The supposedly "needy" take advantage of those programs because those programs are available for them, just like businesses take advantage of write-offs and deductions. I don't think that requiring people who get the "handouts" to do some work in return, as part of their contribution, is too much to ask for, do you? 

Oct 22, 2012 4:54PM
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hmmm, ethanol increases the price of fuel, creates shortages of food staples thus causing an increase in food prices.  Ethanol requires tax payers to subsidize it's manufacture.  Sounds like a good government program to eliminate.  One change has a domino impact for everyone.  It's never made sense to me that I pay taxes so that my food and fuel costs can be higher.  Take the domino further and look at the impact on the costs of goods and services that increase also as a result of fuel costs.  Sink a country and make a few farmers wealthy on government subsidies... Seems like it would be cheaper to just give them all a million bucks and let them retire.
Oct 22, 2012 4:38PM
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I see quite a few opinions on here. (and other sites)  It's true all of this mess had been created through greed of a small percent of the world's population.  My question is:  What can we do to combat it?  How can we stand united because divided we get no where?

 

This was all being done when the economy was good.  or we thought it was good.  The middle class was spending money (credit) and paying attention only to their newest aquisitions.  The kids were being brought up by video games and other electronic devices.  Mom and Dad worshipped at the altar of materialism.  Now, all things being relative, we feel poor.  We are because we were being robbed when our attention was on other things.  i feel this was a planned stratagy.

 

So move forward and fight back.  Return to the one income family.  Grow your food. It's safer anyway.  Don't lust after a new anything and pay attention to your kids.  Older kids don't leave home.  Contribute to the well being of your family.  Stick together.  Cast off materialism and be happy with having each other.  Forget dinners out and being sad if you can't do this.  The food's not good for you anyway.  Be stronger than the peer presure to buy the newest thingie.  Pay your bills or go bankrupt if you need to,  Live a simple and rewarding life.  Take your kids out of day care and raise them yourself.  Feed them yourself and educate them to be independent thinkers.  Returning to simplicity does not mean returning to the dark ages.  We are more educated now.  That won't disappear.  It only means returning to less stress and healthy relationships.  Of course, few will do this.  The next Ipad is coming out soon.   A change in attitude will do more for the middle class than anything else.  It will redefine the meaning of the words 'middle class'.

Oct 22, 2012 4:28PM
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secure the borders. stop issuing visas. see how fast the skilled and educated pop-up everywhere to fill the so called skilled jobs.and let's not forget the helpdesk jobs from overseas..
Oct 22, 2012 3:22PM
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I'd like to add I have nothing against most of the rich. My boss, for example, makes a pittence for the amount of money tied up and risk he takes in this current economic situation. The problem lies in the few of those that are making their money at the demise of the nation, and that they corrupt....or in legal terms, "lobby" politicians to keep the table tilted their way. Meanwhile our county continues to pile on more debt, loses more manufcaturing jobs, and continue down the path of fiscal suicide.

I'm sure alot of people wouldn't mind paying 30% more for some consumer product if it meant they could have their house back, their car back, and their job back. It's not the governments job to give us anything except a level playing field, and right now we don't have it.

 

 

 

Oct 22, 2012 12:49PM
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Class is a Myth

            There is no such thing as low, middle or upper class. These are nothing but myths created by socialist to control the population by pitting one fake group of people against another. The governments love when you idiots spend your day hating each other instead of hating them. Rich is also a very subjective term created by the same bunch of socialist (many of whom fall into their own definition). Wake up and stop being used. We need to fight the government, not each other.

Oct 22, 2012 11:18AM
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"One thing has to happen before such policy changes can occur. "We have to get the economy growing again."

 

We need a successful respected businessman in the White House to make the change.

 

Time to retire the community organizer.

Oct 22, 2012 11:11AM
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The last couple paragraphs in this really set me off. SS is not an entitlement. A good chunk comes out of every paycheck yet I keep getting letters saying if they don't change things SS will be broke 3 years before I can retire...and that's if the eligible age hasn't been pushed to 80 by then...

And no we don't need to increase minimum wage, we need to level the playing field by imposing heavier tariffs on Chinese goods to protect our jobs, recovery would follow. Why is it that this is such a no-fly zone(balancing trade) and we continue to sit here and watch our country go down the toilet? 

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ROFL -- few people understand how bad it is for the middle class

 

just shows you how far removed from reality the elites running this country are from everyday life

 

QUOTE

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."

END QUOTE

avatar

ROFL -- few people understand how bad it is for the middle class

 

just shows you how far removed from reality the elites running this country are from everyday life

 

QUOTE

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."

END QUOTE

avatar

ROFL -- few people understand how bad it is for the middle class

 

just shows you how far removed from reality the elites running this country are from everyday life

 

QUOTE

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."

END QUOTE

avatar

ROFL -- few people understand what the middle class is going thru

 

Just shows you how for out of touch with reality the ruling elite of this country have gotten.

 

Quote

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."

END QUOTE

Oct 22, 2012 7:48AM
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NO! We don't any new socialistic bull in this country. All the crap Roosevelt started back then is what 's wrong with this country now.
Oct 22, 2012 2:45AM
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I have always been in the middle class.  My parents were middle class.  My father was an engineer, who left home at 16, just before the Great Depression.  He shoveled coal, unloading railcars, in the PA winter (when there was a real winter).  He worked his way up, gradually, to becoming a mechanical design engineer.  My mother was a ticket-taker in a theatre in a small town making $6/week (not an hour) while my father made $16/week.  I worked beginning at age 12 with a paper route and I received my PhD in 1990, after working in many small and large businesses.  I started my own small business along the way (I worked my way through grad school, and was able to graduate with no debt, but my tuition was 1/5 the current tuition).  I am now in my 70's.  I never made anything close to $150,000/year, much less the $8 million a year the current crop of CEO's makes. 

I live well, and own my home outright, but I don't have a yacht nor a giant SUV.  I can travel to other countries.  I receive Social Security and Medicare--godsends to the elderly retired, especially women who have been mostly home-makers like my mom and survive their husbands. 

I have no sympathy for the whiners who might have to pay a little more tax if they make over $250,000 or $500,000 or $1,000,000 per year.  Most of those making over $500,000 a year do work hard, usually at the expense of others.  Some are outright crooks, and know it.  Others skirt the edge of the law, and think there is nothing wrong with that.  That includes Mitt Robme.

Mitt is just another George W. who will get us into more foreign wars and run up the debt like the Republicans did, starting with their hero, Ronald Reagan.  Go to Zfacts on the web and look at the charts.  Barack Obama is far from perfect, but he's a lot better than the Republican gangsters who created the messes in the past 30 plus years.

Oct 21, 2012 10:36PM
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Americans can fix this problem right now take all your money out of the stock market.

It will crash hard. The rich will not have are money to use against us any more.

Before the Rich do it again to us. And sell away your stock.( Look out )

And by the way WE CAME IN TO THIS LIFE WITH NOTHING SO YOUR NOT GOING TO TAKE ANY THING WITH YOU. GO HAVE FUN BUY A HARLEY OR A DIRT BIKE A BOAT JUMP OUT OF A PLANE OR  WHAT EVER LIFE IS TO SHORT TO WORRY ABOUT YOUR STOCK CRAP
THAT IS RUNNING THE COST OF EVERY THING UP. GO SPEND IT .LET YOUR KIDS

PROVIDE FOR THEM SELF.AND GET A JOB.

 

Oct 21, 2012 9:19PM
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Taxes are to high on the middle class - Romney paid a lower percentage of taxes than I did. I take home 52% of my pay - if I didn't participate in 401k and employee stock plan I would take home 60%.

If you don't make enough to hit the social security cutoff your rate shouldn't exceed 10%.

So I have a choice of voting for a guy who spent trilloins and I didn't get any of it or a guy who has a lot more money and pays less taxes than I do. I think its time to pick a 3rd party candidate.

Oct 21, 2012 5:44PM
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Another stupid article. The minimum wage does not affect the middle class, because if you make minimum wage you aren't in the middle class. Social Security is already under duress because of all the "giveaways" they have added to it--it used to be a real old-age insurance program but they have turned it into another form of welfare. It would not be in trouble except for these give-aways, and its demise would certainly negatively affect the middle class.
Oct 21, 2012 4:47PM
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The Capitalism that has been successful in America is one that has rules keeping the balances from employer to employee,  producer to retailer, and retailer to consumer in lets say a fairness. .  This balance attends to fairness both in an economic and political or societal sense. The wellness or goodness of all the participants is weighed and laws and rules made and enforced to promote, protect, and maintain this balance. Unfortunately politicians have decided their need for money now outweighs this fairness and have sold their capability to make and enforce rules to the highest bidder.  These we all know are the rich and international corporations who have this money the politicians claim they need to survive and stay in office.  They have in essence sold out these balances which made  America great by changing the rules to benefit those that pay them the most to the detriment of those that don't.  This is corruption and is simply, plainly, and unarguably the number one reason the regular citizen now finds himself in such an economically disadvatagious position. Ever since the congresswoman was shot in Arizona these corrupt cowards have been hiding quietly raking in their bounty carefull to say nothing to bring attention on themsleves while we argue over condoms, abortion, a war on women, and any other diversion the Liberal media can raise a flag to.
Oct 21, 2012 4:13PM
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V.I ... I to live in Michigan and my US House REP is Candice Miller R - 10th district ! A TRULY useless POS that needs to lose her job ! She has never voted out of her party in all the 20 yrs there ! And she has voted to borrow our country into huge debt !!! She is part of the problem !! And has been for yrs.. As useless as they come Candice Miller....Thats my House Tax and spend rep....
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