Life in the Rear-view Mirror

End of the Golden Era

Without question, the three decades of the 50s, 60s and 70s were the golden era of social justice and equality. The favourite expression of landed immigrants was "this is a free country." Everyone was protected by the law and could do as he chose under the law. There was a strong sense of egalitarianism and a feeling of freedom, of being able to choose and express oneself as one felt. A good education was available to everybody. Everyone in my social circle finished high school, and many of us went on to university.

A middle class had developed and it included immigrants. Families were growing, and there was a feeling of optimism. I am not trying to romanticize the era, but there was a genuine feeling among the youth that everything was possible, perhaps because we were growing up, the economy was doing well, and the future looked bright. Despite the ups and downs everything was improving. Jobs were plentiful and anyone with an ounce of ambition could find a good-paying one. Trade unions were strong and protected its members from arbitrary abuse of power. It was not Utopia, but for many immigrants it felt like it.

The 80s ushered in a new era of capitalism that favoured those with money to invest. In 1982, the stock markets began one of the most spectacular bull markets in the history of capitalism. The Dow Jones started the year off at just under 1000 and kept going until the year 2000, when it reached a level of 11,000 — an increase of more than 1000%. In 2014 it reached the 17,000 mark, despite the setback suffered during the financial crisis of 2007/8. This phenomenal rise in equity values was matched by the big real-estate boom, which came to a bust in 2008.

These two phenomena, largely assisted by the U.S. Federal Bank, created enormous wealth for a small segment of society — those that had money to invest. The vast majority of the newly created middleclass got left behind. After a three-decade low, wealth and income inequalities started to grow in the 1980s and haven't looked back since.

Real estate and stock market gains were not the only factors that contributed to inequalities. The biggest factor was the new breed of corporate executives who were given the power to write their own pay cheques. During the same period of market gains, the wages of this elite group skyrocketed, not so much because they helped to create wealth, but because they happened to be there during an unparalleled period of economic growth, and more importantly stock market boom. The more the stock markets went up, the more their companies' stocks were worth, and the more they got to take home.

One percent of the population, comprising mostly management elites, now takes home 20% of GDP. In the 70s, it was about 10% of GDP. While the income of the elites doubled, the U.S. minimum wage, adjusted for inflation, is lower now than it was in the 60s and 70s.

The first three decades of the postwar period were about the ascendancy of the middleclass: the decades that followed were about its descent. While it hasn't disappeared, its wealth, as a percentage of GDP has decreased while that of the upper class increased.

In 1970, at its peak, the middleclass owned about 30% of national wealth, the upper class 65, and the lower class 5, even though it accounted for one half of the population. In 2010, the share of the middle class dropped to 25%, that of the upper class increased to 70%, while that of the lower class remained the same (5%). This says that 5% of national wealth was transferred from the middleclass to the wealthy. In absolute terms, tens of trillions of dollars were transferred from middleclass to upper-class Americans.

The wealth of the middleclass is being sucked by the upper class, and there is no end in sight. A recent study by Statistics Canada showed that, in 2012, the bottom 10% of the population had an actual net worth of negative $5,100, a significant increase from negative $2,000, in 2005, leaving no doubt that the poor are getting poorer, even as the country's GDP increased. A negative net worth arises when people have more debt than assets.

The same study showed that the bottom 50% of the population has only 5.5% of the country's net wealth, similar to the U.S., and the bottom 30% of the population just 0.4%. Meanwhile, the average income of Canada's wealthiest families grew from three-quarter million in 1999, to one million in 2004, and 1.4 million in 2012. The golden years of social justice and equality will not be seen again, at least not for a long time!

The evidence of a disappearing middle class is indisputable. The majority of North Americans live from pay cheque to pay cheque. More than one third have no retirement savings, and most have less than $10,000 in savings. Many are forced to work beyond retirement age and some have two jobs.

Since the 1970s, household income has failed to keep up with the cost of housing and GDP growth. For the first time, banks own the greater share of residential housing — that is, homeowners' equity is much smaller than the mortgages owned by the banks. Many people, particularly in the U.S. increased their mortgages to make up for their shortfall in income.

In 1950, the ratio of the average executive salary, to that of the average worker, was about 30 to 1. That is, the executive earned in one day what the average worker earned in one month. Now it's closer to 500 to 1, which means that the executive takes home in one day what the average worker earns in one and a half years.

In the postwar years, roughly one third of U.S. national income went to the top decile of the population: now that fraction is about one half. The top one percent of Americans own 50% of the wealth, while the bottom 50% own less than 1%. Even worse, the bottom 80% own less than 10% of the wealth.

The question is not, is America's middle class disappearing? But, why is it disappearing?

There are many reasons. One of them is that capitalism knows no boundaries, and capital flows to where the returns are highest. American capital has found a home in Asia, and China in particular. Asian labour is much cheaper and corporate profits much higher. At first it was Japan, then China, and India; now it's moving to Vietnam and Cambodia. North American workers simply cannot compete with their counterparts in Asia, at least not yet. But, as the middle class joins the ranks of the poor, they may be able to, in the not too distant future. By then, American workers will be earning the same wages as Chinese workers!

Another reason the middle class is disappearing is that the prices of natural resources, particularly the fossil fuels needed to transport manufactured goods from Asia to North America, don't reflect their true cost. As long as future generations are subsidizing the present one, Americans will continue to export jobs to Asia. Transportation costs that allow North American companies to manufacture in Asia and ship their products back to North America are too low.

The price of a barrel of petroleum reflects the cost of production and a big profit, but not the environmental cost and the replacement cost of a non-renewable resource. What will be the price of a barrel of petroleum when there is very little of it left? Nobody knows the exact price, but it will be a lot higher than the present one.

With the exception of Norway, future generations are not being compensated for the overconsumption of resources fuelled by cheap prices. We are stealing from Peter to pay Paul, so that he can enjoy a life of unimaginable luxury, but Peter is not even born yet!

However, the main reason the middle class is disappearing is because wealthy North Americans refuse to share the national wealth equitably, and refuse to pay their fair share of taxes. There would be no need for food stamps, in the world's richest country, if wealthy Americans had more of a social conscience, like the Norwegians, for example.