Numerous recent articles have discussed the precarious state of our middle class. Polling results and economic statistics are cited by pundits to support their conclusion: The American middle class is declining. Various causes of this decline are listed, such as: the bursting of the housing bubble in 2007-08; the overall financial meltdown in 2008-09; economic and tax policies that favor speculative non-job creating investments; free trade policies that encourage foreign imports; and the ongoing export of American manufacturing jobs overseas.
No doubt the listed causes all contributed to the decline. However, Americans are conveniently forgetting that we made a fateful choice 66 years ago that is arguably the main cause of American middle class decline. In 1945 the United States was the only economic superpower in the world, with the largest manufacturing capacity in the world, and Americans used a disproportionate amount of the world’s resources. Almost everyone who could claim middle class status at the time was American. Americans were riding high on their end of the economic resource see-saw, and everyone else in the world was clumped together at the low end of the see-saw.
Since 1945 the American end of the see-saw has been coming down at an accelerating pace, and the end representing the rest of the world has been coming up. How did this happen? The American middle class decline might be thought of as an unintended negative consequence. Americans reached out to help the global downtrodden, and American wealth was used to initially build or rebuild underlying infrastructure and factories. Historical events show that American values and generosity began the sequence that started rebalancing the economic see-saw. In 1941 we essentially made the decision to save the world from fascist tyranny, and after the war we reaffirmed our commitment to global economic and political freedom by challenging communist tyranny. These fateful decisions made by the Roosevelt and Truman administrations were supported by the majority of Americans, perhaps without recognizing that by first saving and then helping Western Europe, Japan, South Korea and Taiwan rebuild their manufacturing capacity we helped create middle class societies that eventually competed with us for economic resources.
Later on Americans helped China develop a modern industrial economy, which ultimately led to the development of a huge Chinese middle class. In 1991 the Soviet Union collapsed and the liberated Eastern European countries became capitalistic and developed middle class societies. Elsewhere in the world countries began to emulate the American democracy/free market capitalism combination, leading to additional middle class societies, notably in India and Brazil. It is possible that the ‘Arab Spring’ revolutions of 2011 will create another surge of free market capitalism, manufacturing and middle class societies.
In the last 70 years the United States has expended almost 8 trillion dollars (current valuation) of American wealth helping the world. In essence our values and our generosity created our own demise. We helped establish our competition, and that competition is now making it difficult for us to maintain our current standard of living. According to a 2009 article in The Economist, approximately half of the world’s non-American population, over 3 billion people, is now middle class, compared to approximately 250 million middle class Americans. Consequently the non-American middle class has more buying power than we do, and economic resources inevitably shift to the group with greater buying power.
And now there is no going back. Americans will never again be at the high end of the economic see-saw, controlling the world’s resources. No individual or group is to blame for this sobering reality, unless we want to blame our own generosity. By the end of the century it is conceivable that most people on the planet will be middle class. Americans will need to redefine what it means to be middle class using a much smaller portion of the world’s resources, and perhaps even consider reconfiguring the American Dream.