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."

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294Comments
Oct 20, 2012 10:09AM
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There's a lot of discord on this topic.  While I'm sure there are many stories of misfortune out there, our history has always been based on the independent/self reliant nature of the population.  Quoting that the decline started around 1970, you should remember that was just about the time that we were taken off the gold standard.  The Fed's insistence at continually devaluing the dollar is at the nexus of the problem.

 

The Pols in DC (or State Capitals for that matter) are not the solution.  More government only ensures we will all continue to mired in increasing misery (and climbing debt).  Until people stop voting on an R or D basis the problem will continue.  Both parties play off the other in a game of hot potato that does none of us any good while they continue their social engineering experiments.

 

People shouldn't be looking to the government to save them; they should be taking a serious look at the face they see in the mirror each day.  No one said life was fair or easy, but a woe is me attitude won't put food on the table, or gas in your car (hmm... guess the Fed hasn't contributed to those price increases either, not).  I sure as heck remember spending many long hours in night school getting the skills I needed to obtain a job that provided more income.  I went without a lot of things then, and still go without today.  Debt is not a good thing, and an instant gratification mentality drives its accumulation.

Oct 20, 2012 10:03AM
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I thought Obama & Co was going to save the middle class? What happened?  Why is he such a failure?  I'm glad I never voted for him.
Oct 20, 2012 9:19AM
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It would be wise for many of the posters here, and the population in general, to study the facts concerning the dynamics of wealth distribution and how concentration of vast sums of money to few is destroying the dwindling assets of the many. The rich own the government, and are all one in the same, working to their benefit and not for the ones who put them there. Instead of spouting off how the poor in America are sucking the government dry through laziness and apathy, do some research and discover the truth; keeping the masses on the back-slide and giving them enough crumbs to keep them busy is merely an investment enabling the accelerating concentration of wealth to the top. 
Oct 20, 2012 5:59AM
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Yes, it's time but this time we need to be wiser in our approach because the stakes are the highest they have ever been and if fall off of the cliff we will be trying to recover for generations to come. The first step begins with an education in the basics of FINANCE and ECONOMICS. That way as we receive the assistence to recover we will know the cost of all the decisions we make and the return or trade-off for our choices. Then we can return to WE THE PEOPLE. This is CAPITALISM not DEMOCRACY don't be fooled.
Oct 20, 2012 12:27AM
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"Madland says increasing the minimum wage and improving entitlement programs like Social Security are key to rebuilding the middle class." These are programs for the poor, how are these going to help the middle class. Liberals are morons.
Oct 20, 2012 12:18AM
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Obama would be another FDR if the Republicans would let him, and people would put their votes there. You think Romney will make those policy changes? You've got to be kidding!

Get a clue. Stop buying the "socialism" crap and lsitening to the likes of Limbaugh, Faux news and  all the neoconservatives who for going on 30 years now have been behind the decline of the middle class. Don't buy their twists and spin! Don't be suckers! The collective wisdom of the middle class will be the only thing that saves it.

Oct 19, 2012 11:33PM
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There is a jobs bill that has been languishing in a republican controlled congress for over a year. And in the mean time, 170 plus good paying jobs are eliminated in Freeport Illinois and sent to China thanks to Bain Capital.
Oct 19, 2012 10:45PM
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We continue to feel the effects of bad government decisions, ie; war, bailouts, lack of funding for education, bureaucratic entitlement, political infighting, etc; Bottom line, no accountability. While no persecution is going to make our situation better, the people that put us in this mess continue to work freely and make even more money off the middle classes misfortunes. A number of these people are currently working as part of the Obama administration. Nothing will change, whether it's Romney or Obama in office. I've always had faith in America and stood proud, now, however, I can't believe we as a nation continue to tolerate the day to day injustice. My faith in the system has changed. I'm working, but I'm working longer hours for less pay and trying to put two kids through college, that my wife and I can barely afford. My situation is not unique, but I definitely feel alone at times.

Oct 19, 2012 10:33PM
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Small wonder the middle class feels squeezed.  When middle class is defined as $250,000 and below, about 85% of us pretty much have to feel like we are underperforming.

Oct 19, 2012 10:28PM
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Someone must do something!  I have done my share:

1)  30% pay and benefit reduction at work

2)  I'm doing the work of 1.5% people at work

3)  Short, if any vacations

4)  Paying more for groceries, utilities and all home expenses

It is time for the middle class to rise-up or wise-up!!!

Oct 19, 2012 8:08PM
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Jose, a legal citizen in the U S has a household income of 50,000. He pays a total of $14,000 in taxes,$350/mo for health care, with two children he spends $7200/yr on food and incedentals, That leaves him about $24,000 for housing, transportation, utilities and other household expenses.

 

Jorge, an illegal working in the U. S. has household income of $50,000, receives payment as a contract worker, pays no federal  state or local income taxes, no SS, no unemployment insurance charges, only about $1500-1800 in sales taxes, buys no health insurance just goes to free clinics or emergerncy rooms, he owns no taxable property so pays no property taxes although his children are in public schools and qualifies for food stamps through low declarations of wages which cant be tracked.

At the end of the year, he has approx $42,000 for household expenses vs Joses $24,000. why would he apply for citizenship. Of that $42,000, a significant amount is sent back to his country of origin.

One example among many where the middle class hard earned money is directed to support and solicit like ethnic and social groups votes. I dont know why any legal resident or foreigner would buy into this national disgrace regardless of political party.

Oct 19, 2012 6:42PM
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Looking at things with a glass half-full perspective, I received an extra quarter today with the purpose of calling someone who cares.  But, the jokes on them.  I'm just going to save it instead.
Oct 19, 2012 6:34PM
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In the past, the wealthy like Henry Ford realized that a decent wage for more workers would make the rich even richer because there was a larger pool of people able to buy their products.  But now businesses are going the other way.  Abbott Labs is making record profits and its stock was recently at an all time high.  But it's laying workers off to increase profits still further.  The same is true at many companies.  Even though their sales are struggling, their profits are increasing as they cut labor.  Don't they realize this is a no win game?
Yes, the far right is not happy that the bottom 40% still own 0.2% of American compared to the 0.9% it owned pre-Reagan: they speak about "redistribution" to the lower incomes as if it hasn't been going the other way!  The top 1% made 9% of America's income pre-Reagan and makes 24% now.
Don't these fools realize we're not far from riots over the having the highest income inequality in the developed world?

Oct 19, 2012 6:29PM
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The bigger the government, the smaller the middle class will be...  The two cannot co-exist.  Which does America want.  That is what this election is about, Obama's socialist state, or Romney's growing the middle class through free market captialism?

 

 

Oct 19, 2012 6:28PM
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Paying taxes to pay fo rillegal aliens getting education, food stamps and other perks is the problem.  People who hire illegals should have there wealth confiscated.  Do this and the illegals will leave.
Oct 19, 2012 6:25PM
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My first tow years of college I was on government assistance.  I can assure you I did not have any extra money to do anything.  My last 3 years of college I got a job at a CPA firm and dropped all government assistance.  Still no extra money, people gave me clothes to wear to the office and I couldn't afford makeup or haircare products.  Now I am older and  have had my accoutning degree for many years - the girls are grown and I have W-2 income.  I now have enough money for food, hair care, and clothes but not a lot of extra money, I just barely have a tiny retirement savings account.  I pay more taxes than any of my clients - be they poor or be they wealthy.   Makes a person want to just give up.

 

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Single girls who allow themselves to get knocked up by the random guy, need someone to pay for their childbirth. Then they need WIC and food stamps, and welfare. All while the guy who knocked her up refuses to pay child support, and she doesnt want to cause problems, so she doesnt take him to court.

Why would she bother? She has the tax payers to be her support.

I know first hand this happens, VERY OFTEN. I see it at my job quite often. Tax payers, this can be averted. But absent strong parents to raise their daughters right, these girls dont care in the moment.

To add to this, some girls LOOK to get pregnant to have that baby who will love them unconditionally, unlike the guys who knock them up.

It's only getting worse. No accountability. A woman's "No" is the last line of defense for this.

Oct 19, 2012 5:57PM
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The one thing that will grow the ecomony is to get O,bama out of our way!
Oct 19, 2012 5:48PM
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Corporations don't need a middle class to buy their goods or a working class for labor. They are international now and globalization gives them access to the middle class of several different countries. The U.S. middle class will continue to shrink unless we get the corporate lobby out of government. All the legislation for the last 30 years has been written for corporations, top 30 pay no taxes. When it comes to the U.S. they will find they have killed the goose that lays the golden eggs. No country has ever survived without a strong middle class.

Oct 19, 2012 5:45PM
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It`s a great time to open a business.Interest rates are low and the economy has tiurned

180 degrees.Our 1 year old business is really striving.Next year we`re expanding to a

50,000 SQ foot facility.Not all areas of the country are booming like ours, but then

you should move and get out of your muck.

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