“It’s expensive to be poor” was an old saying of the Catholic Worker movement. It is a true saying. Poor people, because of lack of access to transportation, information and credit, often wind up paying more than than middle-class or well-to-do people would pay for the same things. But now it’s getting to be true that “It’s expensive to be middle class.” The chart above shows the increase, over and above the rate of inflation, in the cost of goods, such as home ownership and college education, that define Americans as middle class.
In order to maintain a middle class material standard of living, American families took on more and more debt during the past 20 years. I believe the process of substituting debt for income has reached its limit. I believe that is why the Great Recession is so much worse than an ordinary recession, and why the effect of economic stimulus was so much less than hoped.
I think it is a good thing, not a bad thing, that middle-class Americans are paying down their debts and trying to live within their means, but there is going to be a painful readjustment as manufacturers not only in the United States, but Japan, China and other countries adapt to the changed American mass market.
There is a dilemma here. Private industry is not going to expand unless there is a market for its products. Americans are not going to increase their buying unless they have jobs at good wages. One thing that can help break the deadlock is for the U.S. national, state and local governments to continue to employ people to provide needed services such as public education, road maintenance and firefighting, and for the government to invest in long-range infrastructure and other needed projects.
Click on Growth and the Middle Class for the economic case for a strong and prosperous middle class by David Madland, head of the American worker project for the Center for American Progress, a liberal research center.
Click on The American Middle Class, Income Inequality and the Strength of Our Economy for a more in-depth study by the Center for American Progress.
Click on 5 Charts on the State of the Middle Class for more charts from the Center for American Progress.
Hat tip for the charts to The Big Picture.
Click on SUBPRIME AUTO NATION for reasons why the process of substituting debt for income may not have run its course after all. [Update]
Click on Procter & Gamble marketing strategy assumes middle class is disappearing. [Added 9/9/12]