Neither Party Dealing with More-Rigid Class Structure


President Obama’s most-recent pivot toward the issue of “inequality” and saving the middle class might be seen as something of an attempt to change the subject after the health care reform disaster. As the Washington Post’s reliably liberal Greg Sargent explains, this latest bit of foot work back to the “old standby” issues provides “a template for the upcoming elections, one that allows Dems to shift from the grinding war of attrition over Obamacare that Republicans want to the bigger economic themes Dems believe give them the upper hand.”

True, there’s something mildly risible about appeals to populism offered by a president whose economic record looks more like Herbert Hoover than Franklin Roosevelt. Some 95 percent of the income gains during President Obama’s first term flowed to barely 1 percent of the population, while incomes have declined for 93 percent of Americans. As one writer at the left-leaning Huffington Post put it, “[T]he rising tide has lifted fewer boats during the Obama years – and the ones it's lifted have been mostly yachts.”

Diminished prospects – what some describe as the “new normal” – now confront a vast proportion of the population, with wages falling not only for noncollege graduates but also for those with four-year degrees. Overall, median incomes for Americans fell 7 percent in the decade following 2000 and are not expected to recover, according to some economic models, until 2021.

This decline has infected the national mood. Today, more middle- and working-class Americans predict that their children will not do better than they have done.Overall, almost one-third of the public, according to Pew, consider themselves “lower” class, as opposed the middle class, up from barely one-quarter who thought so in 2008.

It’s not surprising, then, that the vast majority of Americans believe the president’s economic policy has been a dismal failure, at least for the middle and working classes. Federal Reserve monetary policy, in particular, appeared to favor the interests of the wealthy over those of the middle, yeoman class. “Quantitative easing,” notes one former high-level official, essentially constituted a “too big to fail” windfall for the largest Wall Street firms, and did little for anyone else. Faith in the economy, despite the soaring stock market and increased price of assets, has remained weak. Americans by a 2-1 margin rate the economy negatively.

These realities helped spark both the Tea Party and the Occupy movements and underpin the support for such disparate figures as Sarah Palin and Elizabeth Warren. At the same time, outrage at our current economy has undermined public esteem for almost every institution of power – from government and large corporations to banks and Wall Street – to the lowest point ever recorded.

Money goes to money

This repudiation reflects the fact that neither major political party seems ready to address the emergence, over time, of a class structure more rigid, and arguably less-penetrable, than in the past. Increasingly, wealth adheres to those who are best-positioned, by hereditary wealth and education, to take advantage in the evolving economy. In contrast, those born with fewer resources, even if they work hard, find moving up in society increasingly difficult.

To be fair, this problem well predates Barack Obama or the current Congress. Middle-class incomes have been declining, particularly compared with those of the wealthy, since the 1970s, with the decline persisting even in the relatively prosperous 1990s, with young workers starting out at incomes one-fourth lower than those of their parents.

Yet, solutions proposed to date by Obama and his fellow Democrats have done little to reverse this trend, in fact, worsening it. Whatever suffering they ameliorate, a growing reliance on food stamps and extended unemployment insurance, as Walter Mead points out, often ends up creating an unhealthy dependence on the state and fails to address the cultural issues associated with long-term poverty.

Some Obama proposals, like increasingly affirmative action, seem more like a nod to favored party constituencies than an elixir for the economy. Others, such as an increased minimum wage, promise benefits for some, but could also dry up sources of employment, particularly for part-time and new market entrants, particularly young workers.

Overall, “blue” policies, as currently constituted, have not been notably effective in reducing poverty or increasing upward mobility. Locales with the nation’s greatest levels of inequality, and the most rapid decline of the middle classes, are generally found in progressive bastions,such as New York and California.

Capitalism undercut

But let’s be clear: There is not much here that the Right should be giddy about. The inability of market capitalism to provide more people with a higher standard of living, and increased opportunity, undermines the fundamental promise of free markets. The spread of prosperity from 1950-2000, bolstered conservative, even libertarian, perspectives as the middle class and property ownership expanded. Now, with homeownership in decline and middle-class incomes stagnating, the appeal of “democratic capitalism” marketed by the Right has been somewhat diminished.

To address this challenge, conservatives need to acknowledge that economic inequality and rising class divisions stand as our nation’s existential political issue. Yet for the most part, their response has been largely to cut benefits to the poor amid hard times. Perhaps since they do not acknowledge the emerging credibility crisis facing capitalism, they feel little reason to address it.

This story originally appeared at The Orange County Register.

Joel Kotkin is executive editor of and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

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Party in Political People

Parties in between the political people have some other impact than the normal parties happening in our society. I think these type of parties should be arranged in some close rooms otherwise it affects the society.This blog providing the information regarding the Obama party that celebrated in their own risky to discuss different political matters.

Great topic, great take

Inequality--or more properly, opportunity--is a big problem that does need to be addressed. I'm glad that this post recognizes that this isn't a left or right issue--the left's policies have failed to tackle it, while the right seems to be allergic to discussing it. There's still a decided slant to this article (it conveniently forgets that Obama favors a huge expansion of preschool, for example; and see the other comments showcasing the fact that plenty of red states have high inequality as well), but it gets the big point right.

But the issue is really one of opportunity, not inequality. Inequality is the result, and we can't and shouldn't directly attack that if it was the product of the rules of the time. What we can do is create better rules that allow people to save more of their money over time and share in more of the gigantic profits of our businesses. A hereditary uber-class is distasteful and contrary to American notions of equality.

Cherry picking data?

"Locales with the nation’s greatest levels of inequality, and the most rapid decline of the middle classes, are generally found in progressive bastions,such as New York and California"

And Texas, and Alabama, and Louisiana, and Tennessee, and Mississippi, and Georgia.

Am I missing something or are you just cherry picking what you want to see?

Even the article you linked to shows Texas metros with high gini compared to some California metros.

At least give a correlation between statehouse/governor control over the past 30 years and gini if you're trying to tie income inequality to political leanings. You might find California & New York both had a lot of Republican control in their statehouses.

sources of inequality

It would help to understand better the actual sources of inequality. Much of the wealth that is concentrated in the hands of the wealthy is comprised of financial assets. Much of middle class wealth is in home equity with a smaller portion (in retirement accounts) made up of financial assets. The stock market is above its recession lows and home values have only just returned in some areas, so the wealthy did sprint ahead. A stock market crash would certainly even the stats up some, if anyone wants to see their 401k plans crushed in an effort to even up such stats.

We've also had a entrepreneurial boom over the past generation, and young firms that were successful and grew into big firms made their founders, initial investors, and early employees very wealthy. As many of these people are still alive many of these newer firms have a considerable amount of equity owned by relatively few people. If you don't like this sort of concentration then discourage business formation. Sooner or later these founders will die off and their ownership will dilute among heirs, foundations and taxes, once again helping to even up the stats.

Much executive pay is also now tied to stock options rather than cash wages, and it is the options that can (but not necessarily do) send executive compensation into the stratosphere. A weaker stock market would also help even up the stats, but do you want to tolerate a stagnant 401k plan account in the name of greater equality?

The action appears to be in the equity, so perhaps we should be thinking about policies that may spread the equity around more. We do this to some extent with ESOPs (Employee Stock Ownership Plans), where the seller of a private business might structure an ESOP to buy his shares which are held in trust for the employees who vest ownership in these shares. In return, the seller gets to avoid or defer taxes from the proceeds - another way of looking at this is that the government accepts less tax so as to give its portion to the employees. We could offer tax breaks for stock option exercises provided a portion of stock option grants are awarded to the rank and file. That would spread them around more and enable employees to participate more in any gains.

Finally, Mr. Kotkin makes some reference to the fact that there is greater inequality in progressive areas such as CA or NY. That implies that less progressive states (Texas comes to mind) are more equal. It would be very interesting to see that quantified further. Presumably, with the demand for blue collar workers along the Gulf Coast and prairie states that Mr Kotkin has written about previously (and the lower housing costs in these areas), ordinary people may indeed have more opportunity to get ahead in these states than they do in the more progressive parts of the country. Do state policies affect a working class person's prospects more than national policies?

sources of inequality

Yes, Kurland talks much about the difference between income and wealth (capital). He sees the need to allow for the accumulation of capital by the middle and lower income folks and goes into some detail as to how that can be accomplished via capital savings accounts, etc. Addressing this problem needs to look past just wage/salary income to wealth in its broader manifestations as well.

Class structure

This article is very much in sync with people like Alperovitz and Kurland who have been saying that some method of democratizing wealth has to be on the table. The concentration of wealth in the US alone is staggering with the top 1% owning almost half of the nations wealth and the top 5% owning around 70%. That violates any known values of conservative free markets or for liberal social justice. It is neo-feudalism at its worst. It is not just about wealth either, it is about power as the elites are able to manipulate these systems to their advantage and will do so with impunity. Alperovitz is of the opinion that the traditional solutions, either from the left or the right will increasingly no longer work and that we are in the prehistory of a new yet underdeveloped system which blends decentralism, cooperativism and employee ownership of businesses and other democratized wealth. Kurland would create monetary vehicles to democratize wealth over time as well. In the meantime we will not likely see collapse, but we will see decay, and decay, and pain and more decay and that alternate institutions may arise from that pain.

Capitalism: free markets versus cronyism

"....That violates any known values of conservative free markets or for liberal social justice. It is neo-feudalism at its worst....."


People all over the political spectrum fail to distinguish between free market capitalism and crony capitalism. Even on this discussion thread, the reaction of some has been "go after big business to give the workers a fairer share of the profits".

Henry George lamented way back in the 1800's, how the political representatives of "labor" expended all their efforts going after the employer class, when the real problem was the rentier class in property and finance.

The share of total profit made in the US economy by the "finance" sector was 15% in the 1970's. It was 45% by 2007 and over 50% now.

And we talk about going after employers to force them to pay their staff a "fairer wage"? The employers, as Henry George pointed out, are merely also victims of the rentier class who are sitting on the same branch of the tree as "labor".

We need "Tobin taxes", land taxes, and an end to the cosy symbiosis between now-traditional monetary policy and the banking system. We need LOWER taxes on investments in PRODUCTIVE capital and on the income from those investments. Company taxes are an absurd "spite tax" - profits not distributed as income to shareholders, is the only source of economic growth in the long term. Why tax profits at all if they are not distributed as income to shareholders but are reinvested in growth?

Ayn Rand, too, would have been quite clear about all this. I don't agree with her nasty objectivism or her condemnation of altruism, but everyone who wants to be politically informed should read "Capitalism: The Unknown Ideal", to get the difference clear in their minds between real free market capitalism and crony capitalists, who Ayn Rand said should be hung. Lenin said they'd sell the rope that would ultimately be used to hang them; Rand said it would be better to hang them before they sold the rope to the Communists.

BTW China has evolved from Communism to crony capitalism, not free market capitalism. It is in fact a kind of fascism, which co-exists nicely with crony capitalism. Communism and fascism are really adjacent on the political spectrum, the only difference is that fascists pretend to let you own property and keep your own earnings. But you might as well be in a Communist system for all the freedom and opportunity and rights to property there is.