Around 81% of Americans have seen their income fall or stagnate since 1999. That’s the disturbing reality revealed by a new Washington Post series called Why America’s Middle Class Is Lost.
The must read series reveals some disturbing truths about the modern American economy and where it is going. It also shows why discounters such as Costco Wholesale (NASDAQ: COST) and Dollar General (NYSE: DG) have been doing so well in recent years. Most Americans simply are not making that much money and have few prospects of making more.
Where the Recovery Is Not: Middle America
The most frightening part of the article is a graphic of American incomes that breaks the USA down county by county. The graphic shows that the vast majority of American communities are not sharing in the “recovery” and that many of them are falling behind. The most disturbing findings include:
- Incomes in 210 American counties peaked 45 years ago in 1969—the year Neil Armstrong walked on the moon.
- Incomes in 572 American counties peaked in 1979—the year the Soviets invaded Afghanistan.
- Incomes in 1,623 American counties peaked in 1999—the year of the great dotcom bubble.
By breaking the numbers down county by county and adjusting them for inflation, Post staffers Darla Cameron and Ted Mellnik reveal that much of the American economy is suffering a sort of stagflation. To make matters worse, incomes are steadily declining in many areas.
- In Champaign County, Ohio, just northeast of Dayton, the average household income peaked at $59,907 in 1999. It is now falling towards $40,000.
- In Clark County, Nevada, or Las Vegas, an area that has supposedly seen economic growth, the average household income peaked at $62,352 in 1969, back when Elvis and Dean Martin were still appearing on the Strip. The average household income in Clark County is around $55,000 today, or about $7,000 less than it was when Richard Nixon entered the White House.
- The average income in Miami-Dade County, Florida, another area often viewed as prosperous, peaked at $50,571 in 1969. Today it is around $45,000, or $5,000 less than in the era of hippies and moonshots.
- The average income in Los Angeles County peaked at $65,688 in 1989—the year the Berlin Wall fell. The average income in Los Angeles is around $5,000 less than it was in 1989.
This, of course, equals real bad news for the economy; it means less spending money for households, less consumer spending, and less economic growth. It also puts families in a terrible bind because inflation has not stopped even though income growth has. That’s stagflation, and it usually means no economic growth.
The situation is made worse by factors such as high housing costs. Families have less money to spend on housing, yet the cost of housing is rising. In places like Los Angeles and Denver, where the average household income peaked at $54,977 in 1999, housing bubbles have made buying even a basic home out of reach for the middle class.
The situation is even direr in some rural areas. In Lake County, Oregon, the average household income peaked at $49,714 in 1979; it is now around $36,000. That means residents of that county make $13,000 less than they did when Jimmy Carter was in the White House.
In Essex County, Vermont, the average household income peaked at $43,151 in 1969. Today it is under $40,000 in a state that has some of the highest taxes and utility costs in the nation.
The Economy Is Not Working for Average Americans
The bottom line is that the economy is not working for average Americans. Incomes are falling and destroying America’s economic health. Inequality is growing too as technology lets the affluent take advantage of opportunities such as the booming stock market while the average family has a hard time buying groceries.
What’s even scarier is that traditional solutions to this crisis, such as tax cuts, stimulus spending, and the Federal Reserve’s artificially low interest rates, have worked but haven’t helped average people. Yes we have full employment, but what good is full employment when a “job” does not pay enough to cover the payments on a decent house. The U.S. economy has grown by 83% over the past 25 years, but the majority of Americans haven’t shared in it.
One reason for this is technological progress; more and more work can now be done by machines or by software. Worker productivity in the U.S. has doubled, meaning we need half as many workers. Worst of all, technological progress takes away many of the kinds of skilled or semi-skilled jobs the working class used to do, such as painting cars on an assembly line or filing paperwork.
Nor are some of the traditional solutions, such as increased union membership, trade restrictions, an increased minimum wage, and a higher tariff, likely to help. Such moves are likely to make things worse by driving employers to replace more workers with automation and robotics by making labor more expensive. That work can often be done cheaper, faster, and sometimes better by machines.
One reason why the middle class and working class have lost ground is that the “product” they have to “sell”—labor—is less valuable than ever before. That trend is likely to continue with disastrous consequences for us all.
One thing is certain here: this situation looks like a sure-fire recipe for political and social upheaval. The cause of the Ferguson riots goes much deeper than a few acts of police brutality. We’re going to see more and more such civil unrest in the years ahead.
The Washington Post is to be congratulated for this series. Hopefully our leaders in Washington will read it and learn something.