Overview from the issue on Middle-Class Squeeze (March 6, 2009)

By Thomas J. Billitteri

Cindy Dreeszen, 41, and her husband may have seemed like unlikely visitors to the Interfaith food pantry last month in affluent Morris County, N.J.., 25 miles from New York City. Both have steady jobs and a combined income of about $55,000 a year. But with “the cost of everything going up and up” and a second baby due, the couple was looking for free groceries.

“I didn’t think we’d even be allowed to come here,” Ms. Dreeszen told The New York Times. “This is totally something that I never expected to happen, to have to resort to this.”

Countless middle-class Americans are thinking similar thoughts these days as they ponder their suddenly fragile futures.

Millions of families who once enjoyed the American dream of upward mobility and financial security are sliding rapidly down the economic ladder – some into poverty. Many are losing their homes along with their jobs, and telling their children to rethink college. And while today’s economic crisis has made life for middle-class households worse, the problems aren’t new. Pressure on the middle-class has been building for years and is likely to persist long after the current recession – now 14 months old – is over.

The middle class “is in crisis and decline,” says sociologist Kevin Leicht, director of the Institute for Inequality Studies at the University of Iowa.

“Between wages that have been stagnant [in inflation-adjusted terms] since the middle of the 1970s and government policies that are weighted exclusively in the direction of the wealthy, the only thing that has been holding up most of the American middle class is access to cheap and easy credit.”

No official definition of the “middle class” exists. But most Americans – except perhaps the very richest and poorest – consider themselves in that broad category, a fact not lost on Washington policy makers.

Indeed, President Barack Obama announced a 10-year budget on Feb. 28 that takes direct aim at the challenges facing America’s middle class and the growing concentration of wealth at the top of the income scale. Key elements of the plan include shifting more costs to the wealthiest Americans and overhauling health care to make it more affordable.

In further recognition of the importance of the middle-class, Obama has named Vice President Joseph R. Biden to chair a new White House Task Force on Middle Class Working Families. It will examine everything from access to college and child- and elder-care issues to business development and the role of labor unions in the economy.

“Talking about the middle class is the closest that American politicians and maybe Americans are willing to go to emphasize the fact that we have growing inequality in this country,” says Jacob Hacker, a political scientist at the University of California, Berkeley, and a leading social-policy expert. “A very small proportion of the population is getting fabulously rich, and the rest of Americans are getting modestly richer or not much richer at all.”

What’s at stake goes far beyond economics and family finances, though, experts say. “A large middle class, especially one that is politically active, tends to be a kind of anchor that keeps your country from swinging back and forth,” says sociologist Teresa Sullivan, provost and executive vice president for academic affairs at the University of Michigan and co-author of The Fragile Middle Class: Americans in Debt. What’s more, she says, “there are typical values that middle-class families acquire and pass on to their children,” and those values “tend to be very good for democracy.”

Right now, though, the middle class is under threat.

In a study of middle-class households, Demos, a liberal think tank in New York, estimated that 4 million families lost their financial security between 2000 and 2006, raising the total to 23 million. Driving the increase, Demos said, were declines in financial assets, then-rising housing costs and a growing lack of health insurance.

“In America the middle class has been a lifestyle, a certain way of life,” says Jennifer Wheary, a co-author of the study. “It’s been about being able to have a very moderate existence where you could do things like save for your retirement, put your kids through school, get sick and not worry about getting basic care. And those kinds of things are really imperiled right now.”

In another study, the Pew Research Center found this year that “fewer Americans now than at any time in the past half-century believe they’re moving forward in life.”

Among the findings:

* Nearly two-thirds of Americans said their standard of living was higher than that of their parents at the same age, but more than half said they’d either made no progress in life over the past five years or had fallen backward.

* Median household income rose 41 percent since 1970, but upper-income households outperformed those in the middle tier in both income gains and wealth accumulation. The median net worth of upper-income families rose 123 percent from 1983 to 2004, compared with 29 percent for middle-income families.

* Almost eight in 10 respondents said it was more difficult now for those in the middle class to maintain their standard of living compared with five years ago. In 1986, 65 percent felt that way.

Lane Kenworthy, a sociology and political science professor at the University of Arizona who studies income inequality and poverty, says “the key thing that’s happened” to the middle class over the past three decades “is slow income growth compared to general economic growth.” Moreover, Kenworthy says a bigger and bigger portion of economic growth has accrued to the wealthiest 1 percent, whether the measure is basic wages or total compensation, which includes the value of employee-sponsored and government benefits.

Even the economic boom leading up to today’s recession has proved illusory, new Federal Reserve data show. While median household net worth – assets minus debt – rose nearly 18 percent in the three years ending in late 2007, the increase vanished amid last year’s drastic declines in home and stock prices, according to the Fed’s triennial “Survey of Consumer Finances.” “Adjusting for those declines, Fed officials estimated that the median family was 3.2 percent poorer as of October 2008 than it was at the end of 2004,” The New York Times noted.

A hallmark of middle-class insecurity reflects what Hacker calls “the great risk shift” – the notion that government and business have transferred the burden of providing affordable health care, income security and retirement saving onto the shoulders of working Americans, leaving them financially stretched and vulnerable to economic catastrophe.

“Over the last generation, we have witnessed a massive transfer of economic risk from broad structures of insurance, including those sponsored by the corporate sector as well as by government, onto the fragile balance sheets of American families,” Hacker wrote. “This transformation . . . is the defining feature of the contemporary American economy – as important as the shift from agriculture to industry a century ago.”

The challenge of solving the problems facing the American middle class will confront policy makers for years to come. Some experts say the key is growth in good jobs – those with good pay, good benefits and good, secure futures. Others argue that solving the nation’s health-care crisis is the paramount issue.

One thing is certain, experts say: Leaving the fate of the American middle class to chance is not an option.

“We’re believers in hard work, and we’re increasingly in a situation where the difference between whether or not a middle-class family prospers comes down to luck, says Amelia Warren Tyagi, co-author of The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke. “And that’s an idea that makes us really uncomfortable.”

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