Worried Middle Class

Barack Obama’s second term will not be joyful for the middle class, the U.S. pillar of democracy

When four years ago, amid the great recession, Barack Obama took over as president of the United State and moved into the White House, millions of Americans were once again full of hope about the future. Such expectations and optimism arise very frequently when a new president is elected. On Jan. 20, when Obama will be sworn into office for another four years, it will be extremely difficult to muster the same enthusiasm that people demonstrated four years ago.

As many as 82 percent of interviewed Americans expect a tax increase in the next 12 months, 68 percent of the respondents predict that there will be an increase in the crime rate, and 65 percent envisage another year of economic difficulty.

Economists see the light in this tunnel of skepticism. The real estate market has finally been revived, and housing prices are on the rise. Americans have also begun to buy more cars. According to experts, the salutary results of that tendency will be visible as early as the second half of the year. Nevertheless, it will take a lot more time to return to normality. At the time being, it is difficult to determine if such a comeback is even possible.

The reason for this uncertainty is the dwindling of the middle class, which has been the pillar of the American democracy for years. According to the Pew Research Center, in 1971, 61 percent of American households generated enough profit to belong to the middle class family group. Today, it is only 51 percent. During the recession, the value of households dropped by an astronomical $19 billion, mainly due to the decrease in the prices of real estate.

It is a result of the economic crisis, as well as the massive collapse of the employment market. Over 8 million workplaces were closed in the U.S. during the 2008 to 2009 recession alone. Middle- and high-paying jobs constituted an astounding 60 percent of them.

The government’s unemployment statistics say that 7.8 percent of Americans are jobless, but they do not reveal the whole situation on the labor market. They do not account for people who have ceased looking for work. The actual unemployment rate in the U.S. is much higher. According to the data amassed by the Bureau of Labor Statistics, over a quarter of 190 million Americans of working age — from 16 to 64 — were unemployed in November. Even though students also fell within this group, the real unemployment rate was at least two times higher than the official figures.

“There’s a great deal of economic shock in the U.S. because so many people are unemployed,” asserts Bob Baur, main economist at Principal Global Investors. Despite the economy, new vacancies slowly arise. December saw 155,000 new workplaces opened. This is 65,000 above the minimum, because to keep up with the population growth, the economy requires 90,000 [new] workplaces a month. At this rate, it will be years before the country will come back to the pre-recession employment rate. Economists predict that the process of overcoming the financial crisis, which started in 2007, will not have been finished by 2015 and might even be prolonged until 2019.

In 2013, the U.S. GDP will increase by slightly over 2 percent. It is not enough to ensure a stable growth of workplaces. In addition, the middle class has to face another threat, a decrease in net profit.

For a few years, the growth of prices has been disproportionate to that of incomes, which led to impoverishment. In 2011, the median household income was $49,103 and, after taking the inflation rate into account, was at a level similar to the income of 1989. When compared to 2000, the net income of an average American family is now almost $4,000 lower. One must also bear in mind that with the research methodology employed, half of the families generated an income below $49,000.

What is more, prognoses indicate that it constitutes another step towards a cutback in real wages. John Silva, chief economist at Wells Fargo Bank, predicts that salaries in 2013 will increase by 1.9 to 2.1 percent, with a simultaneous rise in retail prices by 2.1 to 2.4 percent. Food, rent, airfares, high education, shipping charges and stamp duties are all expected to go up. Gasoline might come a little cheaper, but it will be after two years of record high prices.

Household budgets have been already hit hard with the termination of the 2 percent pension tax relief, which was in force for the last two years. An average family with a $50,000 annual income will have to pay an extra $1,000 to the Internal Revenue Service.

Years of crisis have taught millions of people to be cautious, which is yet another hindrance to the economy’s reliance on domestic demand. “I just can’t afford any more increases,” says Mary Hausner, a 30-year-old teacher from New Jersey whose husband has been unable to find a job for a year. “I don’t even want to think what is going to happen once the prices of health insurance, gasoline or water go up.” Her budget already is very tight, virtually stretched to the last dime.

The process of coming out of the crisis is dead slow, and the pace at which new workplaces are being established by the economic sector excludes the possibility of returning to the time before the 2008 to 2009 recession. It is compounded by the fight over the fiscal cliff, as well as the gigantic public debt — a real ticking time bomb.

For the first time in the history of opinion polls, Americans relinquished the belief that the next generation’s standard of living will be better than that of its parents. In a recent survey by USA Today Daily and Gallup, 50 percent Americans believe that their country is past its prime.

George Friedman, chief intelligence officer at Stratfor, wrote in his latest expert evaluation, entitled “The Crisis of the Middle Class and American Power,” that he perceives the middle class crisis as a serious threat to the U.S. global role. He points out a fundamental change that has occurred over the last fifty years: In the 1950s and 1960s there usually was only one breadwinner, typically a man, per household, with a national level salary. The women’s role was to raise two or three children. Despite that, the husband’s salary was high enough to buy — on mortgage — a small house and maintain two cars: one new, one used. Moreover, the whole family could go on vacation or put something aside for a rainy day.

Nowadays, an American household with a national level salary could not afford all these luxuries. In many cases, achieving a standard of living comparable with that of the post-war years requires two decent incomes of both husband and wife.

“American society was never egalitarian. It was always accepted that there would be substantial differences in wages and wealth,” writes Friedman. He goes on to add that, on the other hand, it has always been assumed that even if some people become wealthy faster than others, the wealth structure of the rest improves as well. “What we are facing now is a structural shift, in which the middle class’ center, not because of laziness or stupidity, is shifting downward in terms of standard of living,” asserts the CEO of Stratfor.

Friedman warns of the long-term ramifications of the process. He claims that by losing the middle class, the U.S. will lose one of the pillars of its geopolitical superiority. This opinion is shared by other Americans as well — as many as 57 percent of the respondents predict that 2013 will be another year that the country’s power weakens.