The decline of the American middle class has been happening since the 1980’s. If you are younger than 40 years, you probably do not notice it that much. Let me recount what I have experienced. To begin, what do I mean by the middle class? Well, if you think you are neither rich nor poor, the middle class means you, and me too.
I came to America for the first time as a foreign college student in 1968. The things that impressed me most were: the multilane highways, the big cars, gasoline at 25 cents per gallon, cheap food, cheap housing, low medical costs, and plentiful jobs. None of these exists nowadays except the multilane highways that need repair. This is a self-inflicted wound due to long years of corruption and lack of investments for the future, despite the fact that the politicians and a segment of the population want to blame globalization and other countries for their own government’s failures.
What hurts the middle class most is high inflation across a broad range of life essentials. The two most obvious are health care and college education. If wages rise and jobs increase, the people will not feel the pain. However, wages and jobs have not kept pace with the inflation rate in America. Uncontrolled inflation can easily wipe out the middle class and lead to social instability as amply demonstrated by the hyperinflation in Germany after the First World War that eventually brought Hitler to power.
Health care inflation has made life miserable for the American middle class. Up to the mid 1960’s, doctors in private practice would come to the patients’ homes for an affordable consultation price. Are you surprised by that? Nowadays, the doctor cannot even tell you how much a consultation costs. The insurance companies have taken complete control as the biggest middlemen between patients and doctors. You pay the insurer a monthly premium and you will receive medical care under the unfair terms such as “preexisting conditions” and “deductibles” that lead to fast rising prices and limited access for sick patients.
In 1993 when I became self-employed, I had to buy health insurance that was no longer provided by my employer. The premium was still affordable at around $350 for my family of two adults and two kids. However, it kept on rising faster than the general inflation rate. By 2014, the monthly premium had swollen to $1800 for just me and my wife even after the kids were kicked out by the insurance company. Fortunately, Obamacare came to the rescue with a $1300 federal subsidy that reduced my monthly premium to $500 for two people.
The high insurance premiums had caused 50 million Americans unable to afford health insurance by 2014. In two years Obamacare has reduced this number to 30 million, which is still too high for any developed country. Furthermore, Americans spend more than twice the amount on health care compared with other developed countries, nearly all of which provide universal health care for every citizen. In addition, the quality of health care delivered in America was far worse than that of the other countries. I think this shameful state is a result of corruption that involves the insurance companies, the hospitals, the big pharmaceutical companies and the US government; and to some extent, the health care professionals who remain purposely silent while reaping the high profits.
Besides health care, college education has gone through the roof that puts huge financial burdens on the young generation. Back in 1970 when I was studying at the University of California, my cousin who was a California resident paid $400 for tuition per year. He had no problem with payment while staying at home with his parents. He worked full-time in the summer and part-time the rest of the year at an hourly rate of around $2 an hour (the minimum wage at that time). All he needed was to work a total of 200 hours during the whole year to cover his tuition. Despite being a foreign student paying a much higher tuition of $2,000 per year, I was able to cover half of my expenses through summer and part-time jobs which were plentiful. Nowadays, the annual tuition is $14,000 for California residents and $50,000 for non-residents. At the current minimum wage of $10.50 an hour, a California resident has to work 1,333 hours to afford tuition at the University of California. This means 33 weeks of full-time work per year. Is this possible? How much time will be left for school?
As a consequence, most young Americans need bank loans to pay for their college tuition. The banks are more than happy to offer student loans because young college graduates stand a better chance to pay off the loans than most other borrowers. The colleges (especially private ones) are more than happy to connect the students with the banks while charging more tuition every year without fear of their students’ inability to pay. So you must blame the colleges as well as the banks for this shameful state that turns millions of young people into heavy debtors even before they graduate and find a job. In 2016, student loans in America totaled a staggering $1.4 trillion spread out among 44 million borrowers, averaging $32,000 per head.
Since the US economy is heavily dependent on the auto industry, the continuous rise in oil prices since the 1973 Arab oil embargo has created enormous pressures on the American auto and associated industries. On the other hand, the auto industries in Japan and Germany, and South Korea in recent years have prospered and grabbed an increasing share of the American market. Can you blame the American auto woes on rising oil prices? Only partly. The real culprits are American companies failing to meet the oil challenge to produce better fuel-efficient and reliable cars than their foreign counterparts. Back in 1970 when I was a student, nobody wanted to buy the cheap Toyota sedan that looked and drove like a tin can. Today, I am a proud owner of a Honda and a Toyota in California because American cars still need to catch up to foreign quality standards after all these years. The auto industry is only one example of the falling American competitiveness that inevitably leads to job losses that hurt the middle class. Can you blame foreigners or globalization for that? You can but then you will never improve for it is your own fault.
To come back to my main theme, what is the big deal about the decline of the middle class? The big deal lies in the big picture. All over the world, poor and under-developed countries have no middle class to boast. The middle class demonstrates the richness and power of a country. The middle class is the inevitable result when a country industrializes and develops. The best example is the huge vibrant middle class created in China since its opening and industrialization that began around 1980. If a country is ruled by a dictator like North Korea, or Maoist China before 1980, the middle class cannot develop. In addition, the middle class is much weaker in an authoritarian or oligarchic country like Russia. Therefore, when the middle class in America is weakening for four decades now, what is going to happen to the big picture? We may be wise to note that in 1949 when the middle class in China had been decimated after many years of corruption, hyperinflation and wars, a communist revolution and dictatorship led by Mao took over the whole country. It was a successful revolt of the 99% poor that overpowered the 1% rich. The result produced no middle class but 100% poor with all the riches going to the communist party and being disguised as state assets.