John Hagney: Sinking wages are threatening democratic capitalism

By John Hagney

It would be a hardship for half of all Americans to afford a $400 emergency expense. – 2019 Federal Reserve Study

During two decades following World War II, moderation in American politics was predicated on a muscular middle class. The 1970-2020 dissipation of this “vital center” is reflected in continuing economic insecurity that oppresses most Americans, especially among those without college educations representing two-thirds of workers, and the present polarized political landscape.

Beginning with the 1970s oil crises, the industrial heartland rusted, caused initially by increased demand for fuel-efficient Japanese automobiles. Prior to this, about 16% of American workers were employed in automobile manufacturing, support industries and services. These workers received livable union wages, then the source of middle-class security. In the early 1970s, 72% of these jobs required only a high school education. By 2020 that fell to 36%. And with globalization and automation, industrial-wage skilled jobs with benefits were eviscerated, replaced by minimum-wage service sector unskilled employment.

At the same time women, encouraged by the nascent women’s movement, were compelled to labor outside the home to compensate for accelerating costs of living caused by oil-induced hyperinflation, wage stagnation and indenturing of consumers to ruinous interest rates and debt. Men, measured by the “sole breadwinner” ideal, were thus emasculated, families fracturing.

Smokestack cities that had been the broad shoulders of the middle class were haunted by expendable workers, some resigned to tenuous nomadic boom/bust employment. Nicholas Kristof states in his 2021 book “Tightrope”: “Communities collapsed into a miasma of unemployment, broken families, drugs, obesity, and early death.” And minor drug possession, regarded as criminal rather than a public health problem, created a new class of felons, imposing obstacles to employment and housing. According to the CDC, since 2017 life expectancies for white American men without college educations have declined, now at par with Sudanese males. Kristof cites the cause as “deaths of despair” – drugs, alcohol, suicide – the scale is exceptional compared with other developed economies.

Ronald Reagan adroitly channeled hostility away from those responsible for the crises – corporate avarice – and redirected it to D.C., thus rationalizing the subsequent four decades of unprecedented deregulation and supply-side fairy tale that further exacerbated the condition of American workers including the Great Recession.

The Great Recession of 2008-2009 involved the collusion of both political parties. The Bill Clinton administration succeeded in dismantling Depression-era financial protections, thus enabling predatory subprime lending over the next decade. When the “too big to fail” banks predictably defaulted, they were bailed out and no culpable banker was indicted, apparently “too big to jail.” Meanwhile, 10 million mostly middle-class homeowners were evicted because of this flimflam.

Whereas in the 1950s-1970s, wage growth was more equally shared, in 2017 workers in the lower 50th percentile earned just 16.8% more than their counterparts in 1979 – with an average annual inflation rate of 3.89%. Workers in the 90th percentile earned 46.9% more. The top 10% saw their incomes increase by 78%. The top 5% increased at 1,242%. Three Americans – Jeff Bezos, Bill Gates and Warren Buffett – now possess as much wealth as the lower U.S. 50th percentile.

With wage stagnation and middle-class erosion, there emerged differential effects on non- and college-educated workers: The former were more adversely affected than the latter; the former’s medium weekly income in 2010 was $628, the latter’s was $1,046.

One other manifestation was how these two demographics began to diverge politically, especially following the Great Recession. Conservatives more aggressively advocated Reaganomic deregulation, liberals variations of New Deal government regulation – the former believing that government wasn’t the solution but the problem, liberals the converse.

The most extreme political shift has been to the right. Psychological studies show that fear makes us more conservative in our beliefs. The best predictor of a Donald Trump supporter is no college education (i.e., whites who have lost the most in the last decade and whose economic condition continues to be insecure). There are convergences: Since 2000, college grads have also seen wages deteriorate and debt increase, hence Bernie Sanders. Both struggle with underemployment, affordable housing, child care and health care. Both are critical of “business as usual” politics. Consumers of both the Trump and Sanders brands view the Supreme Court’s Citizens United ruling with trepidation.

If democratic capitalism is to be salvaged, it is imperative that the middle class be resuscitated and thereby the political “vital center.” To paraphrase John Locke, government must ensure broad opportunity for the acquisition of and security of property, else revolution be possible.

John B. Hagney taught history for 45 years at Lewis and Clark High School.