Wednesday, October 01, 2014

COTW: Middle Class Squeeze

Economist Paul Krugman penned in his New York Times column the economic hegemony of the rich in America is based on a "foundation of ignorance". The people at the bottom do not really understand how concentrated wealth is in this country and that the gap between the rich the rest of us is at an historically high level. Compensation for labor is no longer closely correlated with increases in productivity as it was from 1948-73. After that period of widespread prosperity productivity slowed and compensation became decoupled from productivity:


While real wages have fallen, the net worth of the top 20% has increased by 120% between 1983 and 2010. At the same time, prices for everything the middle class considers necessary for their economic well-being such as houses, cars, health care, child care, college and retirement savings has gone up:

charts source:  americanprogress.org
The median family experienced an 8% decrease in real income during the period 2000-12 yet the cost of basic security rose dramatically. Basic security cost $10,600 more in 2012 than in 2000.  Of course middle class wealth is responsible for a large segment of consumer demand and without demand, businesses owned by the rich go under.  In other words squeezing the middle class is bad for business.