Middle Class Facing A New Gilded Age?

 

The Middle Class is rapidly becoming a thing of the past, squeezed out by the 21st century oil and railroad barons now known as hedge fund managers and financial magnates. Early in the 20th century, the Rockefellers, Carnegies and J.P. Morgans controlled the economy and politics with their monopoly on oil and the railroads. They were the super-rich in a time called the “Gilded Age” when the dazzle of the few with money and power overshadowed the massive unemployment and poverty in the rest of society. Today the lucrative monopoly is in the financial sector of our economy. Two-thirds of net private assets in our country are held by only 5% of Americans. Put another way, the 400 wealthiest Americans own more than the “lower” 150 million Americans put together.

Society has become greatly distorted over the last 20 years. In an article by Thomas Schulz for SpiegelOnline, more and more economists and political scientists are speaking out about the consequences. Prior to the 1980s, income increased across the board at a rate of 3% a year. Since that time, the elimination of regulations and changes in tax policies have benefited the wealthy few at the expense of the rest of the country. Between the years 2002 and 2007 when our economy was growing, 65% of the income gains went to the top 1% of taxpayers and the trend is accelerating. This extreme disparity is dramatically slowing our economic growth. Resentment on the part of the “99 Percent” has begun to surface in the Occupy Wall Street protests and elsewhere.

Studies done by political scientists, including analysis of economic data from recent decades, provide a global contrast of what our economy has become. A generation ago our country was an affluent democracy with a mixed economy where fast growth was shared by all. Now we are more like Brazil, Mexico and Russia ? capitalist oligarchies. According to the dictionary, an “oligarchy” is a form of government in which all power is vested in a few persons or in a dominant class or clique; government by the few.

A recent Supreme Court decision to allow corporations to contribute unlimited amounts to political campaigns and the steadfast determination of certain politicians in our government not to raise tax revenues could further seal our fate. Executive salaries have also trended out of sight. In 1980 American CEOs earned 42 times more than the average employee. Now CEOs earn 300 times that of their average employee. In 2010, the 25 top earning CEOs earned more than their companies paid in taxes.

From Napa Valley, California to Reno, Nevada to New Bern, North Carolina, the “99 Percent” are living the dismal statistics. A recent article in USA Today by Marisol Bello and Paul Overberg gives examples of how lives are being eroded by the disparities. Families who previously made decent salaries and lived a comfortable lifestyle are now faced with losing their homes, working multiple part-time low paying jobs, doing without the smartphones or big screen TVs, shopping at consignment stores, postponing dental appointments, and leaving retirement to return to work. A Pew Study of the middle class in 2008 revealed 56% of Americans felt they fell behind or did not progress economically, the most pessimistic assessment in 50 years of polling by the center. In Napa Valley, California, where median income was once $72,136 in 2006, it dropped to $64,401 in 2010. Median housing values dropped from $657,300 in 2006 to $424,100 in 2010.

The American dream is to be able to go from rags-to-riches, to better oneself economically by hard work, and the disparities of income are tolerated when that can theoretically happen. As much as Americans dislike the comparison of our situation to that of Europe, the “American Dream” is more likely to happen in Europe. Only 4% of Americans ever make the leap into upper-middle class.

Page Perry, is an Atlanta-based law firm with over 125 years of collective experience representing investors in securities-related litigation and arbitration. Page Perry’s attorneys are actively involved in counseling institutional and individual investors. For further information, please contact us.