First Principles April 2007

The Phantom Menace

What war on the middle class?

And who could this Other, this segment profiting at the expense of the mid­dle class, be? The poor? That hardly seems likely. So this leaves just the rich—that sliver of chauffeured plutocrats—and foreigners. Designating the rich as the enemy, though, is likely to be counterproductive. Thriving enterprise and magnificent rewards at the top tend to go together. So do a vibrant economy and liberal regimes for international trade and immigration. If you doubt it … well, I already said that.

Admittedly, America’s plutocrats have been pushing their luck recently. They were already doing fabulously well by any standard, even before the remarkable and somewhat mysterious surge in their pretax incomes that started in the mid-1990s; also before the tax cuts of 2001–2003, so brazenly skewed to their advantage. One wonders whether the administration has actually done the rich any favors, by piling it on that way. Most of the tax cuts (due to expire in any case in 2010) are likely to be reversed by the new Congress. For the good of the broader economy—for the good, that is, of the middle class—the backlash probably ought to stop there, but who knows? If it goes further, the plutocracy will have Bush to thank. Foreign trade and immigration are different cases, and more straightforward. Assaulting those particular enemies (foreign businesses and immigrants) will be instantly self-defeating. Any kind of new restriction is going to hurt the middle class by slowing growth or raising prices.

Is the American middle class really as beleaguered as it appears to think? That’s debatable, at least. The stagnation of real incomes—that much-cited statistic—seems belied by a steadily improving quality of life. Capturing improvements in the range and quality of products, so that meaningful comparisons of incomes can be made over time, is a difficult statistical problem, and the statistics must be taken with a grain of salt. Who really believes that ordinary Americans are barely any better off in material terms than they were in the early 1970s? There were no cell phones back then, no video games; few homes had microwave ovens. There were no iPods, if you can imagine. Life was hard.

The claim that job insecurity has worsened in recent years also seems exaggerated: Overall measures of job tenure and job displacement show no marked change. The idea that the middle class is burdened by unprecedented amounts of debt—that people are having to borrow to make ends meet—is overstated. Most personal debt is mortgage debt, generously subsidized by taxpayers, and backed (for the moment, at least) by highly appreciated holdings of property. Delinquency is rising, especially for “sub-prime” borrowers (those with weak credit histories), but the proportion of households getting behind in their debts is still very small. You may be surprised to know that more than 40 percent of middle-income households carry no credit-card debt at all.

America’s middle class does, however, have some tough choices to make. The public retirement-savings system is broken and will require a lot of taxpayers’ money—or extra years of work before retirement, or both—to fix. Large parts of the public-school system are failing, and the cost of a college education keeps rising faster than incomes. The country’s health-care system is unsustainable in three ways: Demographic pressures are rapidly making Medicare unaffordable; per-patient costs are rising out of control; and companies are using improving technology (the ability to predict who is going to fall ill with what) to declare uninsurable some of the people who are likely to need health insurance the most. These are real issues. The middle class has grounds for anxiety, all right.

But addressing these challenges is not something that can be done at others’ expense. That is the drawback of having a middle class that includes nearly everyone. Clawing back the plutocrats’ tax windfall of the past few years is fine, and it will feel good, but it won’t come close to paying for solutions to those problems. If America’s broad middle class is going to have to pay—and it is—hard questions will follow about how to share the burden between the struggling middle, the comfortable middle, and the luxurious middle. The middle will need to be unpacked a little, and the politics might get messy.

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Clive Crook is an Atlantic senior editor.

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