This is Why the Middle Class is Shrinking


NEW YORK (MainStreet) — The 1970s in America--the time and place of Donna Summer, "Saturday Night Fever" and Watergate--brought forth a thriving middle class. The dream of property ownership and a secure job that paved the way to a family's future was intact. The cost of living was lower. Now, with 14 million Americans unemployed and 3 million who have given up the search for a job, the middle class is shrinking. The inkling many Americans have that it is simply impossible to get ahead is not just a feeling – it is a truth.

Boston University economics professor Laurence Kotlikoff has began to tap into the fundamental reasons behind the economic struggles of those in the middle of society.

"Workers, especially unskilled workers, are experiencing major problems competing with foreign workers who are increasingly skilled, outsourcing, and smart machines. Kotlikoff said, "Replacing people with automated machines is undermining the livelihoods of people. We have to manage it. It is benefiting a small segment of society. Workers are being displaced. We have to change direction. We have to change course."

Increasingly skilled foreign labor and outsourcing are part of the fairly new global economy. Globalization is not a process that can be reversed without an adverse effect around the world. Economies are now too intertwined to go backward. That does not help a factory worker who can no longer find work, and if a worker does find a job, the pay is not adjusted to present-day costs.

In fact, the in¿ation-adjusted median hourly wage for American men was higher in 1975 than it is now, and real median household incomes have grown by roughly 15%, according to Cornell professor Robert H. Frank. Of course, those at the very top of the economic spectrum, whose incomes have roughly doubled since the mid-1970s, have escaped the income slowdown.

Kotlikoff added that the country has redistributed wealth away from young people. He touched on entitlement programs but spoke about the country as a whole. "The country is completely bankrupt at this point," he said. "We have been hiding the truth about fiscal liabilities. It seems like we are heading towards a storm. There is only so much you can get out of young people to pay old people's bills. We have to do sensible long term planning."

There is a solution -- a bi-partisan initiative supported by 13 Nobel laureates in economics called The Inform Act. The act calls for honest accounting procedures on an annual basis in Washington.

If the United States wants to remain a healthy nation with a healthy middle class, the country cannot stay its current path. Innovation and invention are really what could change the course of the country. The United States brought the world the airplane, the computer, the telephone, the movie, and mass production of automobiles.

"What can you figure out that nobody else is doing that there is a special demand for," Kotlikoff says.

--Written by Leigh Held for MainStreet

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