In a recent Yahoo!Finance article, Michael Snyder is reporting that the middle class is fast shrinking and he blames it on globalism and "free trade." Being the editor of the blog The Economic Collapse, this is no surprise coming from Snyder (being the stereotypical dismal economist that he is).
Among the interesting statistics he shares are:
* The bottom 50 percent of income earners in the United States now collectively own less than 1 percent of the nation’s wealth.
* The top 10 percent of Americans now earn around 50 percent of our national income.
* 66 percent of the income growth between 2001 and 2007 went to the top 1% of all Americans.
* In 1950, the ratio of the average executive's paycheck to the average worker's paycheck was about 30 to 1. Since the year 2000, that ratio has exploded to between 300 to 500 to one.
* In America today, the average time needed to find a job has risen to a record 35.2 weeks.
* Despite the financial crisis, the number of millionaires in the United States rose a whopping 16 percent to 7.8 million in 2009.
* More than 40 percent of Americans who actually are employed are now working in service jobs, which are often very low paying.
* The top 1 percent of U.S. households own nearly twice as much of America's corporate wealth as they did just 15 years ago.
Now, first of all, you start asking which jobs are we talking about that corporations are instead looking at low-wage, labor-intensive foreign countries for manpower? Well, according to Snyder, it's not really because most companies are outsourcing manpower (because if you think about it, corporations that do so are mostly firms from the I.T. industry). It's because companies are moving operations out of the U.S. What remains are traditional service sector industries (e.g. retail) who pay lower wages. So who benefits are the rich, the owner of these corporations.
It's hard to deny the facts put forth by Snyder, and as I've already mentioned, globalization can lead to increasing inequality. Because face it, what is happening is also a symptom of increasing inequality: disappearing middle class can lead to widening income, since what is left are the rich, on the one side, and the poor, on the other. From my recent paper with Rana Hasan, Rhoda Magsombol and Ajay Tandon, we mentioned that increases in inequality may well be a part and parcel of the growth process of a developing economy.
Or maybe it's not really about that at all. We were analyzing India, a developing country. But U.S. is already developed.
The thing then is, some other factors in the economy might be contributing to this diminishing middle class. Paul Krugman at an Economic Policy Institute's 2007 conference suggested looking at the U.S. tax and social insurance system:
"But the amount of inequality in the United States is substantially less than it would be if we did not have still at least somewhat progressive taxation, and still a pretty extensive, though not nearly extensive enough, system of social insurance. And that makes a big difference. Certainly if you're looking at say the United States versus Canada, a lot of the difference between the two countries is just that Canada has more of a better safety net financed by somewhat higher taxation.
And if you're looking for a progressive agenda, certainly from my point of view, a large part of that ought to be straightforward orthodox stuff, which is still very hard to do politically. It would be essentially restoring progressivity of the tax system, and using the revenue to improve social insurance and, above all, health care."
Well, the whole point is, we don't need to go back to that "blame globalization" routine again, because it may not be the case. The diminishing middle class is actually not new. Discussion of such issues have been around since the 1980s. Charles Beach in his 1989 paper "Dollars and Dreams: A Reduced Middle Class? Alternative Explanations" cites four reasons for the diminishing middle class that stand out--and none of them is about globalization (Beach's thesis is that it has something to do with structural changes in the economy).
Globalization does have its benefits. And it has costs. But I don't think it is solely to blame for the upcoming (and hopefully avoidable) extinction of the middle class.