"Saving" the Middle Class

By Robert Samuelson

WASHINGTON -- Republicans and Democrats don't agree on much, but they do agree on this: the middle class. At their conventions, the two parties will compete fiercely for its support. Republicans will accuse Barack Obama of destroying the middle class through policies perpetuating high joblessness and feeble economic growth. Democrats will portray Mitt Romney as a tool of the rich who doesn't understand the middle class. To the victor may go the election, because "saving the middle class" has arguably become the campaign's defining issue.
This is mostly political symbolism. The idea that anyone can "save" the middle class assumes that it's in danger of disappearing, which it isn't, and that presidents possess sufficient powers to resurrect it, which they don't. Still, the symbolism is potent because most Americans equate the middle class with the kind of society we are and ought to be. It is a society where hard work and personal responsibility are rewarded -- where "getting ahead" is expected; where economic security and social stability are enjoyed; and where privilege is minimized.

The appeal of these beliefs -- across many economic, regional, religious and ethnic boundaries -- is a great unifying force. It explains why most Americans identify themselves as "middle class." A recent survey by the Pew Research Center asked people to state their social class. Only 7 percent of Americans called themselves "lower class," although the government's poverty rate is 15 percent. People don't define themselves out of the mainstream.
The same holds at the income spectrum's opposite end. Despite decades of rising inequality, only 2 percent put themselves in the "upper class." Many Americans with incomes of $200,000, $300,000 or more refuse to count themselves as rich. They minimize their wealth or privilege and emphasize the middle-class need to strive. Nine of 10 Americans locate themselves somewhere in the middle class. In the Pew survey: 15 percent in the upper middle class; 49 percent in the middle class; and 25 percent in the lower middle class.
Not without reason, the middle class is now routinely described as "besieged," "battered" and "beleaguered." The financial crisis and Great Recession subverted two core beliefs: that hard work ensures "getting ahead"; and that being middle class provides security. In the Pew survey, nearly three-quarters of Americans say it's harder to advance now than a decade ago; by 47 percent to 42 percent, more Americans don't think their children will live better than they do.
Home foreclosures and lengthy unemployment are visible engines of disillusion. True, they don't affect everyone (about 5 million unemployed are now jobless for more than six months; from 2007, completed home foreclosures total 4.5 million, reports Moody's Analytics). But the demonstration effect is strong. "There but for the grace of God go I," think millions.
This psychological pall is compounded by widespread wealth loss. According to Pew, the Americans in the middle half of the income distribution -- defined as households from $39,418 to $118,225 -- suffered an almost 40 percent wealth loss from 2007 to 2010. Adjusted for inflation, their wealth, consisting mostly of homes, stocks and bonds, was barely greater than in 1983. "Everyone was getting wealthier through the first half of the decade," says Pew's Paul Taylor. "Well, a lot of that was paper wealth and housing wealth" -- which went poof. Richer households didn't fare so badly, because they had a smaller share of their wealth in homes.
Obama and Romney can't do much to aid the middle class. They face a dilemma. The middle class can't regain its self-confidence and financial health without a strong economic recovery. But the economy can't recover strongly without a financially healthy middle class, which provides most consumer spending. Not surprisingly, the economic expansion is glacial. Household debt is reduced gradually. Wealth is slowly rebuilt through higher saving and stock prices -- and the hope that home values will follow.
There is also a larger conflict. Sooner or later, broad-based tax increases will be needed to reduce budget deficits. How large depends on how much federal spending is cut. This creates an unavoidable conflict between workers and retirees, because workers are the biggest taxpayers and retirees are the biggest beneficiaries of federal spending. Which middle class deserves support? Cut Social Security and Medicare and help workers. Raise taxes and help retirees.
For now, what's telling is the resilience of middle-class norms. About 11 million homes are "underwater," reports CoreLogic: Their mortgages exceed their values. Still, most owners make monthly payments even though defaulting might be advantageous. Similarly, long-term unemployed workers send out hundreds of resumes despite repeated disappointment.
Personal responsibility and a strong work ethic still matter and suggest a durable middle class. It will survive today's economic setbacks -- and political pandering.