Washington, DC, October 1, 2013 --  

America's political crisis has its roots in anger over the sagging fortunes of the middle class.

The populist infighting that shut down America's government this week looks pretty strange from afar. Outside the United States, intense anger over a government health insurance scheme appears crazy and unfathomable. And it would be crazy, except that's not what the fight is really about.

Five years after the financial crisis and 30 years into the decline of American manufacturing, middle America is angry at their sagging fortunes. In countries around the world, people in this situation fall easy vicim to populism. They look for easy answers and other people to blame. Depending not Americans' political leanings, the bogeyman might be Walmart for destroying family businesses and union jobs, CEOs for taking obscene salaries, multinational corporations for outsourcing jobs to China and India, Latino immigrants for driving down American wages, or America's first black president for imposing socialized medicine.

New numbers from the Census Bureau show that America's median household income has dropped below the level of 1989.¹ At the same time, America's total economic output, as measured by real GDP per capita, reached an all-time high in 2010, and has been marching slowly higher ever since.²

These seemingly conflicting statistics mean that America as a whole is doing pretty well, but middle class America is declining. Many American cities are sparkling and filled with new condos and playgrounds for the professional urban elite. Meanwhile, many workers have been left behind, with stagnating wages and little hope for the future. Given that many of these folks have no aptitude for law school and don't have what it takes to be a software engineer, there is little chance of them joining the new elite. That makes their future look pretty grim. Time to blame corporate fat cats. Or Obamacare.

While there have always been partisan battles, those of earlier decades were tempered by the knowledge that most people (relatively speaking) had it pretty good. A generation ago, Democrats' union allies hated Reagan's tax cuts. But they didn't want to blow up the whole system so long as 14 million private sector workers enjoyed their union cards.³ Simply put, most of the American public had too much to lose.

That's much less true today. Only 7 million Americans were in private sector unions as of last year.⁴ And shrinking unemployment is not much more than an illusion, because so many Americans have found a way to weasel into more lucrative disability benefits instead. Today 4.6 percent of working age Americans are on disability, compared with 1.3 percent in 1970.⁵ this all adds up to a huge number of Americans who have completely checked out of the labor force -- only 63.2 percent of working age Americans had jobs in August.⁶

Like the populist masses living from Argentina to Zimbabwe, these people are angry and have nothing to lose. So it should be no surprising when politicians seeking their favor behave accordingly.

Clearly, this situation is bad for America. But despite what the populists tell you, the problem of rising inequality has no easy answers.

Even if trends don't turn around, time will improve the problem to some degree. Many of those disengaged from the workforce are older workers who used to have it good, but now have little incentive to participate. As they age out of the system, they will be replaced by younger, less angry workers with more reasonable (i.e. lower) expectations of employment.

Better news might come from shifting influences that we cannot yet imagine. No trend lasts forever. With luck, America's rising inequality (and populism) will taper off while its democracy is still intact.

Please Paint My Ceiling, August 21, 2012

Dead Wood
The Unemployable Working Class, November 3, 2009

Worse than Worthless
The Coming Dependent Majority, October 25, 2005

Notes:

1. St. Louis Federal Reserve, Real Median Household Income in the United States, September 18, 2013 (Note: the primary source of the data is the U.S. Census Bureau, but its servers blocked data access on October 1 as part of America's government shutdown.)

2. World Bank, GDP in Current US Dollars, as posted October 1, 2013

3. UnionStats.com, Union Membership, Coverage, Density, and Employment Among Private Sector Workers, 1973-2012, October 2013

4. Ibid.

5. The Economist, The Missing Millions, September 28, 2013

6. Ibid.