A Labor Day Article About The Middle Class and Economic Recovery

We are currently concerned with the results of the financial crisis which produced the "Great Recession". Reich tells us that our real problem has been the hollowing out of the middle class that has been going on since the late 1970's in the US. The entry of women into the workforce enabled households with two wage earners to live like they did when one wage earner could provide a middle class living standard. When two wage earners could no longer provide a middle class living standard, households were able to dip into their savings, primarily in the form of home equity, in order to maintain their living standard. At the top of the economic pyramid, things have gone well. They have have extracted the wealth from the middle class, in the form of stagnant wages, in order to raise the compensation of the top executives in corporate America. Government has contributed to the wealth extraction by shifting the tax burden from holders of capital to wage earners. The marriage between Wall Street and Corporate America began in the 1980's when executive compensation was tied to stock price appreciation, otherwise known as shareholder value. The incentive system encouraged executives to ignore the interests of other stakeholders, such as employees, vendors, the broader community and even their customers. The alignment of government with corporate interests in America is built into the structure of the electoral system. The costs of running for political office in the US are the highest in the world and they are growing rapidly. Politicians are dependent upon those who fund their campaigns. The US Supreme Court has confirmed the capture of the state by corporate interests by a recent decision which protects corporate campaign contributions under the first amendment of the constitution as "free speech". Some have argued that globalization and technology, which enabled the hollowing out of the middle class is inevitable and cannot be reversed. Reich provides the example of Germany to dispel this myth. Germany has prospered during this period but its middle class has not been hollowed out by wealth extraction. Government has not allied itself exclusively to the interests of the top executive class in Germany. Moreover, even though it has large multinational corporations, Main Street has not been wedded to its investment banking sector as it has in the US. Industrial firms in Germany still view their employees, and the broader community, as stakeholders. Increasing shareholder value has not been their sole objective. This could change in Germany if executive compensation is aligned primarily with stock price appreciation as it has been in the US. Certainly its executive class is aware of the benefits that have been extracted by their peers in America. Perhaps cultural traditions in Germany will prevent this from happening as long as its government is not captured by corporate interests. While Reich describes the problems in the US with clarity, his solutions fall short of the mark. The US cannot become more like Germany or other European states which have stronger social support systems and stronger representation by labor in decision making in industry and government. The elite class in the US describes those states as "Old Europe" and it constantly preaches the doctrine of free markets and the virtues of creative destruction in capitalism, along with limited government and lower taxes for the super rich, as the superior American Way. The hollowed out middle class in America still responds to this gospel.