
The Crisis of the Middle Class and American Power - ph0rque
http://www.stratfor.com/weekly/crisis-middle-class-and-american-power
======
rdtsc
> The expectation of rising real incomes was built into the American culture

Ah that's the classic propaganda line:

    
    
        "I am not poor, I am just pre-wealthy."
    

...So I sure don't want to vote for anything that would jeopardize my wealthy
position when I get there.

The key in all of this is ability to manipulate the people into believing and
voting in a particular way. US has no shortage of zombies who don't think on
their won. Blame the education system, blame the system as a whole, I don' t
know. As long as people don't base their votes on reality they will end up
voting against their own good because they are being manipulated.

Basic health care, tax cuts for the super rich, trickle down wealth, futile
wars, all this things are being delegated (via votes) from un-informed people
to the politicians via a manipulative process. I see this within my own
extended family, I see it on the streets, in the stores, in school and at
work.

~~~
maratd
> US has no shortage of zombies who don't think on their won.

A human being is at the most juvenile when he encounters a view contrary to
his own and ascribes it to stupidity.

If only everyone was as enlightened, as educated, as brilliant as he ... then
everyone would understand.

No. Grow up.

I will never be wealthy and I will still continue to vote for a _fair_ tax
system. A _flat_ tax system. Because everyone should pay the same, regardless
of status or income.

I won't always be healthy and I will still continue to vote _against_ a
socialist healthcare system. Because everyone should pay for what they use, no
more and no less. Not just with healthcare, but with everything.

You don't believe what I believe? That's fine. But how dare you ascribe my
beliefs to ignorance? That in itself, is ignorance distilled. The refusal to
even consider anything but your own stunted views.

~~~
scarmig
A flat tax? That's a bit too socialist for my tastes... should a man making
$100k per year really be forced to pay twice as much as a man making $50k per
year, just for being more productive? Wouldn't a head tax be better, since
everyone would then pay equally? Plus you would not have the disincentive
effect on marginal labor of your "make twice as much, pay twice as much"
scheme.

Also, why should I be forced to pay for your military and your police force?
Shouldn't it be my choice to consume what I want?

~~~
lostlogin
What if your paying the way for the other guy, who is 20 years your junior,
allows him to better pay your medical bills when you get sick at age 70, and
have no money to pay yourself (through no fault of your own you have lost a
lot when X disaster occurred)? The swings and roundabout of the system aren't
ever simple. Likewise, what about the 5 year old who needs state help, has
contributed nothing, has had no chance to and has done nothing wrong. Who
should pay if the parents don't?

------
jeffdavis
I would be interested to see more statistics and trends of people over time.
Many of the statistics I see divide people into classes by income, but ignore
the fact that the people within those classes change.

For instance, let's say that people in the next generation decide to go to
college for 10 more years, leaving at 32 rather than 22. Then, when they get
out, they make 50% more income than the previous generation. Overall, they
might be better off throughout their life; but the statistics will make it
look like there is a huge lower class (who are in fact just young and haven't
reaped the benefits of their education yet).

The more our earning is concentrated to a small part of our lives, the more it
will _look_ like class divisions. And depending on how the accounting is done,
the upper classes may consist largely of people with temporarily high incomes
(from inheritance, selling a house, etc.).

[None of the above is meant to imply that there is not a problem. Just that
statistics can be deceptive, and can hide the real solutions from us.]

EDIT: Specifically, I think it would be interesting to divide people into
classes like: "X% of people will see an income over $80K sometime during their
lives". That seems like a better indicator of opportunity to me.

~~~
scarmig
You see that same issue when people complain that X% of the population doesn't
pay income taxes: it's true, as far as it goes, but it ignores that people
nowadays have extended periods of studenthood, sabbaticals, and partial
retirement (among other things). The daughter of two professors working on a
PhD in mathematics is not of a lower class than a high school educated
waitress, despite making a similar amount.

I dug up this paper, which seems like it might address it. Going to dig into
it sometime after work:
[http://economics.sas.upenn.edu/~manovski/papers/accounting_f...](http://economics.sas.upenn.edu/~manovski/papers/accounting_for_profiles.pdf)

~~~
jeffdavis
Interesting, thank you (haven't read it yet, but the first page looks
promising).

------
silentmars
Decent basic points, but superficial and often missing the real underlying
trends. For better analysis on the same general ideas, I recommend:

[http://www.ribbonfarm.com/2011/12/08/acting-dead-trading-
up-...](http://www.ribbonfarm.com/2011/12/08/acting-dead-trading-up-and-
leaving-the-middle-class/) [http://www.ribbonfarm.com/2011/06/08/a-brief-
history-of-the-...](http://www.ribbonfarm.com/2011/06/08/a-brief-history-of-
the-corporation-1600-to-2100/)

(ribbonfarm is my favorite blog)

~~~
magoghm
Thank you for those links. Interesting analysis.

------
jonnycoder
This article is a great explanation of what I've been thinking all along. The
rising tide has been in efficiency and technology but every American is
realizing these gains through computers, phones, and access to information.
The baby boomers were able to get an education, buy a house, a car, have a kid
and go on vacation, and all of those things have been squeezed to the breaking
point in the past two generations. On the other hand, you can consume all you
want on the internet, and with enough experience, cheat the system and
download unlimited music, tv shows, movies, ebooks and software. If you want
all the luxuries of the baby boomers, you have to be frugal and prioritize.
Education: go to community college and transfer to a cheaper state school.
Car: buy a cheap 90s honda. House: save for a down payment, but rent is still
the same or cheaper than buying and you have flexibility to move. Kids: that
may take more time.

~~~
pjzedalis
You make it sound like a community college education and 90's Honda are bad
things to have. They might not be as nice as your neighbor but it's certainly
nicer than 100 years ago, no?

------
awakeasleep
This sure fits an interesting middle ground sort of journalism. I don't think
I'm quite qualified to describe it, anyone up to help?

For one, it tackles the same insecurity subject conspiracy theorists like Alex
Jones approach. However, he keeps it in the realm of rationality. What is the
"It"? The main subject seems to be a description of the position and
orientation of classes in USA society, and how they're changing.

Now, why is this so different than what other publications publish? I've heard
before that Class in America is a touchy subject, and I don't see it mentioned
much in The New Yorker, the New York Times, on TV, or in any of the sites I
read online.

It seems like something in the idea of Classes conflicts with the Left/Right
narrative you hear in 'the media'. Classes should have interests within
themselves, not necessarily 100% split among party lines. And the media mostly
tells the stories from party perspectives. Does that make sense to anyone?
This is confusing to me.

~~~
amcaskill
Stratfor isn't really a news media company like the times or a tv station.
IIRC they sell analysis & forecasting services to governments and large
corporations.

The author of this article wrote a book called The Next 100 Years which is a
pretty interesting read.

~~~
jdunck
That is their public, shiny face. But they do a lot of intelligence and
paramilitary work as well.

<http://en.wikipedia.org/wiki/2012_Stratfor_email_leak>

------
pdonis
One thing I don't see addressed here (or in other articles linked to in this
thread): corporate governance. Abusing the standard corporate governance
model, where shareholders delegate to a Board of Directors, is one of the key
ways that rich people game the system.

~~~
chii
can you explain a bit more about this? i dont understand how delegating to a
board is an exploit.

~~~
pdonis
Delegating in itself isn't, but it opens up a security hole as soon as
corporate executives realize they can game the system by becoming board
members--both in their own companies and in each other's companies. If you
look at most corporate boards today, they are composed of executives of other
companies, and their main function is to allow said executives to rubber-stamp
each other's golden parachutes.

~~~
ahpeeyem
<http://theyrule.net/>

This is pretty old now (2000-ish?) but is a pretty great graphical and
interactive demonstration of how interlinked the big corporations' boardrooms
are.

Check out the 'popular maps' for some good examples.

Edit: It was connected to littlesis.org in 2011 ("a free database of who-
knows-who at the heights of business and government")

------
pinaceae
Related to this, Showtime is currently airing a rather brilliant set of
documentaries narrated by Oliver Stone called the 'Untold History of the
United States'.

It basically puts this article into broader context, from the entry to WW2
onward.

Would be interesting to know how much different the reception of those
documentaries is for a US-educated citizen. They definitely fit to the overall
history being taught over here in Europe, but might conflict heavily with the
official narrative in the US.

~~~
mcantelon
I'm currently watching that series... interesting stuff. Another must, for any
who haven't seen it, is the British documentary series "Century of the Self",
about American conditioning specifically.

~~~
macavity23
'Century of the Self' is indeed amazing (as is everything else by Adam Curtis)
and can be found for free here: <http://topdocumentaryfilms.com/the-century-
of-the-self/>

It's not specifically about American conditioning though... it starts with
Freud (Austria, then UK), wanders off to Edward Bernays (Austria, the US),
talks about the US PR/Advertising industry for a while (totally fascinating to
bear in mind while watching 'Mad Men' IMHO) and then ends up with Tony Blair
(UK) via Bill Clinton.

Thanks for the Showtime documentary pointer - will look that up.

------
ilaksh
Great points in this article and I agree with just about everything.

But I think that to really understand the problem you have to look at things
from a wider and more fundamental perspective.

First of all, the United States and what is happening to it does not exist in
a vacuum. The US is part of a global system which has a lot of integration.

We need to look at actual human needs and real resource distribution on a
global basis to understand the problem and come up with a solution.

We need to tie our financial and business calculations into human and
environmental needs in a direct way rather than relying on indirect regulation
by government. We also need to come up with a system that factors in massive
technological unemployment, including large sectors of the professional
workforce.

I think there are probably several different approaches that will work, but
you have to get away from the typical 'economic' arguments and go at things
from a more fundamental level. I believe the key is to find ways to ensure the
application and distribution of technologies that meet human needs. We may
need some new types of institutions.

------
mchannon
I'm confused about the perceived dichotomy of taxation and private investment.

If the government threatens to take their cash, wealthy individuals and
entities will find ways to use that cash to further their wealth instead of
giving it to the government.

So if the government's taxes are too high, the wealthy won't have the money to
invest, but if the taxes are too low, the wealthy have a no-risk, stable
return on their cash- sitting on it.

I think this is exactly what we're seeing- low taxes and low inflation are
encouraging inefficient use of capital- putting it neither into consumption
nor investment.

Just as a wave of unemployment lays the basis for a more efficient workforce,
couldn't a new wave of inflation (since taxes are politically impossible)
right the ship?

~~~
AnthonyMouse
The idea has possible merit, but I want to complain about how you're getting
to it. For one thing, the implication that inflation is politically easy is
probably not true. There is a large contingent of the right (e.g. the Ron Paul
crowd) who are always running around talking about auditing the Fed and how
fiat money is ruining everything, etc. More strategically, the people who have
the greatest _incentive_ to fight inflation are money lenders who own
outstanding fixed rate debt, i.e. banks, and as we've learned recently the
banks are not exactly without political influence. Though granted increasing
the rate of inflation probably is politically easier than raising taxes.

The second thing I want to question is this:

>So if the government's taxes are too high, the wealthy won't have the money
to invest, but if the taxes are too low, the wealthy have a no-risk, stable
return on their cash- sitting on it.

How does sitting on cash generate any return at all? You have to invest it in
_something_ to cause the value to increase, unless the value of money itself
is actually increasing (i.e. a period of deflation), which is almost
invariably its own brand of near-immediate catastrophic meltdown.

But you're on the right track, because the problem at present is that they
invest their money in _safe_ investments, like treasury bonds, as opposed to
higher risk private investments.

The relationship between the investor purchase of government debt and economic
growth is very squishy: It's effectively investing in the government. Higher
demand for government debt reduces the interest rate the government pays. The
money not paid in additional interest by government is then put back into the
hands of Congress which it can use to either reduce taxes or fund additional
programs at the same level of outstanding debt principal. If the government
uses the money wisely then it helps the economy; if they use it inefficiently
(or just less efficiently than private enterprise would have) then it hurts.

Naturally this leads to all of the arguments about who should get tax cuts and
whether government spending, or _what kind_ of government spending, is better
for the economy than putting the money in the hands of private enterprise.

But the other compounding factor is that the normal way we know of to cause
inflation is for the Fed to print money and buy government securities with it.
This will certainly drive private investors away from government securities,
because you simultaneously have the Fed bidding down nominal the interest rate
and the inflation reducing the real returns at a given nominal rate, but that
doesn't mean you don't you still have the same amount (or more) of capital
being "invested" in the government (i.e. the real interest government pays on
capital goes down not up), it's just that the Fed is doing the investing with
newly created money instead of private enterprise doing it.

Furthermore, if you drive the private investors away from government
securities, the question becomes what _they_ invest in instead. This is the
flip side of the "who should get tax cuts and what should taxes buy" question:
If investors tend to take their money and invest in R&D then we're in
business. If they tend to do commodity speculating with it then we're in
trouble.

It pretty much seems to come down to this: We need to find a way to get
investors to invest in things that help the economy. "Quantitative easing" may
cause them to do that either if the default private alternative to government
securities is economically beneficial, or if we can arrange for it to be using
e.g. tax incentives or government subsidies.

~~~
mchannon
I think we're grokking the same here, but one disconnect:

You're presupposing that the wealthy want _some_ return on their wealth, and I
think that in many cases, that simply isn't true.

Take a look at all of the money stranded offshore that corporate America is
waiting on Uncle Sam to allow into the US without taxing- that money is
probably not earning much if anything; think of the tinpot dictator or the
kleptocrat who squirreled away a nest egg in a Swiss or Cayman bank account,
and think of the smuggling kingpin south of the border with a swimming pool
full of cash.

They all share the following in common- highly liquid and inefficiently
invested wealth. They have little hope of increasing the value of this wealth
by investing it or consuming with it because to do so requires a big hit to
its dollar value (taxation or risk of seizure). The best return (for them) is
to let it slowly (in our case very slowly) inflate until a rainy day comes.

The only practical and sure-fire way to bring that money back to productive
use is to redistribute it via inflation.

~~~
AnthonyMouse
Why do you expect that capital held offshore for tax reasons is invested
inefficiently? These companies are not (in general) in violation of the law,
they're just exploiting transfer pricing[1] to accumulate capital in a foreign
subsidiary in a low tax jurisdiction. That subsidiary can for the most part
still invest it in whatever, including U.S. stocks and other securities. They
can in many cases even loan it back to their domestic sister company so that
it can use the money to grow its business (without paying tax on it, because
it's a loan instead of income), which often provides even more tax benefits
because the interest paid on the loan is often tax deductible in the higher
tax jurisdiction.

There are some restrictions, e.g. the U.S. company may not be able to issue a
dividend or do a stock buyback unless it reports at least some taxable profits
within the U.S., but as long as the foreign subsidiary's capital account keeps
growing, it causes the parent company's stock price to appreciate accordingly
and that provides investors with their ROI.

There are ways that this can be less efficient. In particular, the parent
company's investors may themselves have made more efficient investment choices
than the company's executives investing the money on their behalf if their
returns were provided in the form of dividends or stock buyback instead of
stock price appreciation as the existing tax code strongly encourages. And
this is actually very likely to be the case in practice, because e.g. Apple
executives are now sitting on a huge mountain of cash that it likely will
never be more cost effective to issue all of as dividends under the current
tax code than continue to invest in situ, which means that computer company
executives are now permanently in charge of picking stocks for however many
hundred billion dollars worth of the world economy. That doesn't guarantee
that those execs will make worse investment decisions (or will choose poorly
in hiring someone to do it), but it seems at least plausible that someone
hired primarily for their ability to sell iPhones or manage a global supply
chain will be a worse hedge fund manager than an actual hedge fund manager.
But this is just the capital gains tax debate all over again: As long as we
tax even reinvested dividends immediately but allow unrealized stock
appreciation to be tax deferred indefinitely we're going to spur that sort of
crazy economic machinations.

[1] <http://en.wikipedia.org/wiki/Transfer_pricing>

------
csense
Globalization is much of the reason.

When unions were strong (c. 1950-1980), they were essentially a monopoly on
certain types of workers that were vital to production in many industries.

This monopoly allowed the workers to extract a larger proportion of the value
of this industrial production through higher wages.

With the US focus on free trade (c. 1975-present), the unions no longer had a
monopoly on labor, since companies could now find labor in other countries.
Labor could no longer enforce their favorable monopoly pricing. (They tried,
and had some success in the US, but often the "victory" caused companies or
factories that paid good wages to their workers to be uncompetitive with
overseas companies or factories that did not, and forced to close.)

The bottom line is that I'm very much afraid that globalization and a rising
middle class are mutually exclusive, and will continue to be so for several
decades.

------
svdad
I hope his analysts are better than he is. This is shockingly insubstantial
analysis coming from the CEO of Stratfor.

------
gz5
surprised the corporate agility theme doesn't explicitly include globalization
displacing former US-based middle class jobs? globalization has positive
economic consequences for the US as a whole, but not to key parts of the
displaced middle class, at least not yet?

------
CleanedStar
When Karl Marx wrote Capital in 1867, he said capitalism would never be able
to get rid of credit bubbles, financial crises, high unemployment etc. He said
that over time the problems would get worse and worse with greater and greater
financial crises. Here we are about a century and a half later and you just
have to look at the housing bubble, the bank crisis, TARP and the government
bailout, unemployment in the US and Europe and the Arab countries which helped
cause the Arab spring to see how prophetic he was in this respect.

Marx and Engels wrote that the world has seen five economic systems. Each
system collapsed due to internal contradictions. The first system was hunting-
gathering, then Babylonian/Greek/etc. style slavery, then feudalism, and then
capitalism. They saw the Paris Commune as the harbinger for the next economic
system which would replace capitalism.

The central contradiction in capitalism Marx spells out clearly in Capital,
although its a little too much to explain in a comment. Basically workers
create $240 of wealth every eight hour work day, but are only paid $200 a day.
The $40 goes to profit, to get more capital, to make more commodities. But
what is happening here - the worker is shorted $40 a day, and what happens
with that money is commodities are made. Who are going to buy all these
commodities when workers are not getting all the wealth they create? Well
credit fixes that in the short term but creates a bigger long term problem.

The communist manifesto says "the commercial crises that by their periodic
return put the existence of the entire bourgeois society on trial, each time
more threateningly". I certainly feel this way. So apparently does Stratfor.
On this point, the left and right are in agreement.

~~~
martinced
Because socialism or communism works so much better right? People are
especially envious of the great freedom people in North Korea are enjoying?
Same as Cuba? Venezuela? Argentina? (wanna change your currency to another one
in Argentina to hedge yourself against a very strong inflation? you can't,
because the socialist state won't let you do that)

What's next after Karl Marx? That the homophobic racist murderer that was the
Che Guevara was correct?

The thing that saddens me the most on a forum supposedly made of entrepreneurs
trying to create wealth is to see that there are so many people who are still
failing for the poisonous words of a corrupt few who would have just loved to
rule the earth: be it Kim-Jong Ill or Kim-Karl Marx, it makes me very very
scared.

The first thing socialists and communists tries to do is to ruin everyone and
reinforce the power of the state.

I choose freedom. Even if it means bubbles and crises.

I prefer that to slavery.

"Better dead than red".

Thankfully I'm not alone.

~~~
rayiner
You know, a reactionary living in 19th century might have said "because
democracy works so much better right? People are so envious of the great
freedom people in France are enjoying." With the memory of the French
Revolution fresh in their mind, they probably would have been reasonable to
say so.

~~~
maratd
Liberal western-style democracy with open markets has certainly seen its
failures. And it has also seen its successes.

Pray tell, what successes has communism and radical socialism achieved?

~~~
scarmig
That's tricky, because it's not so much a question of successes relative to
the past (which I assume you'd agree are many) but a question of successes
relative to alternative worlds where a capitalist system had developed in
those countries. And there's also a question of what counts as
communism/radical socialism in your book--China, even now, has far more
government involvement in the economy than many Western countries, and even
more so under Deng. Does it count? What about Congress-style socialism in
India?

That said, and emphasizing I have no love of the following countries and think
some form of liberal democracy would have worked substantially better...

Cuba started from a fairly good baseline, so we shouldn't read too much into
it, but it has superior healthcare and education to much of Latin America.

The Soviet Union had a couple decades of breakneck economic growth: many
economists, perhaps even the majority, expected it to have outgrown the West
by the 1980s. This should be discounted somewhat, though, this time because
the UK and the USA also rapidly developed at various points in their history.

The USSR also excelled at generating a large class of engineers, scientists,
and mathematicians, who contributed a large body of knowledge to the world.
And it made some pretty good chess players, too, when it wasn't cheating like
crazy.

------
ucee054
_If we move to a system where half of the country is either stagnant or losing
ground while the other half is surging, the social fabric of the United States
is at risk, and with it the massive global power the United States has
accumulated._

Translation: If half the US citizenry is utterly suffering, we won't be able
to keep drone-bombing Yemeni infants, _Oh the horrors!_

You'd think that preventing the suffering of half of the USA might be an aim
in itself.

Also, what's wrong with leaving the Yemeni children alone? Oh, I forgot, we
want to provoke more terrorism. Maybe even hit the jackpot and start World War
3.

What a stupid article.

