Who Lost the Middle Class?


Forty years from now, politicians, writers, and historians may struggle to understand how America, once the quintessential middle-class society, became as socially stratified as Europe or even Brazil. Should that dark scenario come to pass, they would do well to turn their attention first to New York City and New York State, which have been in the vanguard of middle-class decline.

It was in mid-1960s New York—under the leadership of a Barack Obama precursor, Hollywood-handsome John Lindsay—that the country’s first top-bottom political coalition emerged. In 1965, Gotham had more manufacturing jobs than any other city in the country.programs failed. New York City responded by inflating its unionized public-sector workforce to incorporate minority workers.

Higher taxes to pay for bigger government joined higher crime to produce a massive exodus of manufacturing and middle-class jobs. Over the last 45 years, New York has led the country in outmigration. A recent study by E. J. McMahon and Robert Scardamalia of the Empire Center for New York State Policy notes that since 1960, New York has lost 7.3 million residents to the rest of the country. For the last 20 years, “New York’s net population loss due to domestic migration has been the highest of any state as a percentage of population.”

New York City, meanwhile, solidified its standing as the most unequal city in America. Twenty-five percent of New York was middle-class in 1970, according to a Brookings Institution study. By 2008, that figure had dropped to 16 percent, and the numbers have only plunged further since the financial crisis, with virtually all the new jobs in the city’s hourglass economy coming at either the high end or the low. Only high-end businesses can succeed in a local economy that has the nation’s highest taxes and highest cost of living—and even those businesses, in many cases, weathered the downturn only by living off the Fed’s policy of subsidizing banks. Despite the federal largesse, more of the city’s new jobs are in the low-wage hospitality and food-services industries than in the financial sector. The middle has lost its political voice in a city dominated by the politically wired wealthy and the public-sector unions that service the poor.

New York is the picture of what the Tea Party fears for the country at large. In the 1970s, liberal mandarins seized the high ground of American institutions in the name of managing social, racial, gender, and environmental justice on behalf of the disadvantaged. Their job, as they saw it, was to protect minorities from the depredations of middle-class mores. In the wake of the Aquarian age, the U.S. developed the first mass upper-middle class in the history of the world. These well-to-do, often politically connected professionals—including the increasingly intertwined wealthy of Wall Street, Hollywood, and Silicon Valley—espoused what might be called gentry liberalism, a creed according to which the middle classes had to be punished for their racism, sexism, and excess consumption.

And they have been punished—with job losses. These losses are the inevitable result of the costs of an ever-expanding, European-style public sector; environmental restrictions on manufacturing, mining, and forestry, which push high-paying jobs offshore; and illegal immigration, which reduces overall wage levels. At the same time, the decline in the quality of K–12 schools has undermined what was once a ladder of economic ascent. After completing high school today, students are likely to require a raft of remedial courses in college. Then, after college, many middle-class students graduate not with an education but with a credential—and a bag of enormous college loans that paid for the intermittent attention of a highly paid, tenured faculty.

The private-sector middle class’s plight has been exacerbated by international competition and technological innovation, which have undermined job security, including for unionized manufacturing workers, who had enjoyed an unprecedented prosperity for about a quarter-century. Median household incomes have grown only marginally since the early 1970s, despite the mass movement of women into the workplace. Many dual-earner families have been caught in the two-income tax trap: on the one hand, they pay for services once performed by the homemaker; on the other, notes economist Todd Zywicki, they’re pushed into a higher tax bracket when the wife’s salary is added to the husband’s.

Adding to the woes of the middle and lower classes is that their families are far less stable than they were a generation ago. The decline of marriage has been driven not only by changing mores but also by a decline in male employment. In 1970, only one of 14 working-age men was out of the workforce. Today, notes Nina Easton, one in five is either “collecting unemployment, in prison, on disability, operating in the underground economy, or getting by on the paychecks of wives or girlfriends or parents.” Whites who don’t attend college have out-of-wedlock birthrates approaching those that triggered Daniel Patrick Moynihan’s concerns about the black family in 1965. Today, four in ten American babies are born out of wedlock.

During the current downturn, the black and Hispanic middle class has been particularly hard hit. From 2005 to 2009, according to a recent Pew survey, inflation-adjusted wealth fell by 66 percent among Hispanic households and by 53 percent among black households, compared with 16 percent among white households. These families worry with good reason that in the face of continuing high unemployment, they may fall out of the middle class. For the Obama administration and the public-sector unions, the solution to this slide is to force the nearly one in four employers that have contracts with the federal government to pay above-market wages. Here again, New York has been a pacesetter. Recently, public-sector unions and their allies tried to force a developer rebuilding a decayed Bronx armory to follow their wage and hiring guidelines; the deal collapsed, leaving one of the poorest sections of Gotham in the lurch.

There’s a major difference, though, between New York and the country as a whole. The New York option—move somewhere else—doesn’t apply to private-sector middle-class workers fighting adverse conditions that exist throughout America. So they’ve exercised the classic democratic right of political action, organizing themselves to compete in elections. The Tea Party is the national voice of the private-sector middle class—despite the demonizations heaped upon it by public-policy elites whose own judgment and competence leave much to be desired.

Middle-class decline should be front and center in 2012, which is shaping up as a firestorm of an election. It’s likely to be a bitter contest, in which the polarized class interests of those who identify with the growth of government and those who are being undermined by its expansion face off without the buffer of mutual goodwill. Liberals, unless they change their tune, will blame Tea Party “terrorists” for the tragedy of a fading middle class. They will continue to delude themselves into thinking, as Al Gore said in 2000, that their rivals represent “the powerful” and that they themselves act on behalf of “the people,” even though President Obama’s policies have poured money into Wall Street and the politically connected “green” businesses that form the upper half of his top-bottom electoral coalition. The question is whether the country will buy this line and, more broadly, whether it will follow the New York model. Should it do so, those future historians will no doubt look at the election of 2012 as the contest in which the middle class staggered past the point of no return.

This piece originally appeared in The City Journal.

Fred Siegel is a contributing editor of City Journal, a senior fellow at the Manhattan Institute, and a scholar in residence at St. Francis College in Brooklyn.

Photo by SEIU International.

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1913 was more influential than 1960

Prior to the 1910s, manufacturing plants were owned and operated at an extremely local level. Workers lived in workforce housing adjacent to plants and owners lived not far from their factories. The interests of workers and owners aligned quite often in this period of industrial development because the issues that effected one group usually effected the other. Owners also usually had an interest in sticking around town because that's where their family was established, where children were growing up and becoming attached to religious, political and educational institutions. In order to move a factory, one would also need to uproot their family and start over in a new place.
During the First World War, many owners took on debt service to expand their facilities to keep up with the government demand for supplies. The federal contracts often helped owners turn massive profits and reach peak production of their newly expanded plants. However, after the war, most factories didn't need all of those extra buildings, but rather than downsize and take cuts in profit margins, many local owners decided to nationalize ownership and take a big risk by diversifying production.
This placed efficiency over local worker's needs and community responsibility. A percentage less in taxes in one state trumped the needs of thousands of people already working in a factory in another state. This shift began the erosion of local ties that first went to a national level, then eventually to an international level after WW2.
These were not natural progressions that were inevitable. Legislation was integral in aiding corporations in their efforts for maximum efficiency.
Even the 1930s era unions were too late to counteract the massive shift in interest that occurred in the previous two decades when corporate consolidation was taking place. The 1960s era unions didn't push factories away anymore then the federal government enabled them to go. If these huge national corporations were allowed to continue wage slavery in the 1960s, yeah many probably wouldn't have relocated, but then we'd have a massive workforce that couldn't afford healthcare, higher education, or have vacations. But if legislation hadn't enabled these companies to move, then they couldn't have. They would have needed to stay and hire Americans and just take smaller profits.

Simpler Explaination

Other readers have made very valid points to rebut Fred's argument about why New York has seen middle class decline. There are many other reasons why New York and other cities and rust-belt states have seen domestic out-migration in recent decades. However, when it comes to Fred's attempt to draw a parallel between New York in the 1960's and the state of our nation as a whole today, to the extent that he makes valid points, the extent of his focus on the causes is inversely proportional to their actual influence.

About halfway through Fred states that "The private-sector middle class's plight has been exacerbated by international competition and technological innovation, which have undermined job security, including for unionized manufacturing workers, who had enjoyed an unprecedented prosperity ofr about a quarter-century". That's really 90% of the story here, and it has little to do with the rest of the factors discussed (except education). The United States was the only large industrialized nation with an intact manufacturing base after WWII, and there was an unprecedented demand for American's relatively unskilled labor to help rebuild Europe. Since the 1960's the supply of relatively unskilled labor in industrialized nations has increased dramatically. This is simple supply and demand, and there's no way the middle class lifestyle enjoyed by American manufacturing workers in the post WWII could have been sustained in the long run. The middle-class American lifestyle was primarily the by-product of unique historical circumstance, not a sustainable competitive advantage.

The globalization and the decline of our manufacturing base could not have been stopped by unions or our domestic policy any more than the recent protests in the middle east can be stopped by their authoritian regimes.

So, we can join Fred in bickering over who's to blame for the inevitable, or we, as a nation, can focus on inventing new industries and products to sell to the rest of the world if we want to reverse, or at least stem, our relative decline. The path to achieve that end is much more complicated and there are many valid alternative arguments, but I think how we got here is relatively simple.


Unfortunately the decline of the middle class is the fault of both political parties. In order to pass any legislation there must be a compromise, however, in Congress, compromise is more like blackmail. A bill sponsered by one party will only be passed if pork is added to the bill to win over enough delegates from the opposing party to pass it. Thus, we end up with s Bill that lets say was meant to fund military operations also contains provisions to support unpopular or unnecessary programs.

Additionally, once a program is created and funded that program never seems to go away. They linger on, forever and ever, like toxic waste to our economy.

Moreover, the budgets for certain programs never decreae, they only increase. If a program is funded $100 million dollars and spends only $80 million of the fund there would be $20 million dollar surplus. That is great news except for the fact the following year that program's funding may get cut by 40% to $60 million because they would be expected to run on the same $80 million they spent the previous year. (They would get the $60 million plus the $20 million surplus).

In essence, OUR GOVERNMENT DOES NOT KNOW HOW TO STOP SPENDING MONEY PERIOD!!! It should be quite obvious. The problem is that our two party system cannot fix this problem it can only excasperate it.

The spending has in turn overwhelmingly increased taxed on everyone for everything. Your income is taxed, your land, your cigarettes, your gas, your death etc.

Stop spending and stop taxing. Jobs will return to the private sector. It will take a while but it is what needs to be done. An austerity plan should be instituted. Make it simple. Every budget is cut 10% this year, 10% the next and so on and so forth. Furthermore, taxes should fair. A flat rate on income for everyone no matter how much they make and no matter what type of entity, individual or corporate.

Obviouisly, what I have outlined is a very simplistic approach. That is merely for the sake of brevity in my response to the article. I could go on adnausium with examples. But I'm not running for Congress or writing a book. I'm just trying to make a living to feed, shelter and cloth my family.

New York Middle Class

Siegel's argument is little more than propaganda from the right.

New York and other major metro cities were already losing their residential luster due to the lure of suburbia, sylvan fields, deteriorating housing stock, and minority inmigration, well before WWII. The war temporarily delayed the exodus because of folks streaming to the cities for war work and other industrial and service jobs, many available because of workers entering the armed services.

Rentals were scarce, many doubled up, and the pent up demand for better housing coupled with overcrowding during the war, veterans benefits for education and home ownership following it, new highway building policies, the post-war baby boom, and a spate of clever, well-organized developers like the Levitts able to acquire cheap peripheral farm land (compared to most urban land prices)to cultivate thousands of acres of tract housing. The predatory redevelopment policies of Robert Moses became the piece de resistance to the decline and destruction of many surviving and still viable neighborhoods throughout Manhattan and the Bronx.

Racism may have played a direct part in the exodus, but inner-city ethnic poverty and economic stagnation was guaranteed by private lending policies including redlining, and because of CC&Rs prohibiting real estate sales to Jews, African Americans, and other minorities in both pre-existing and the expanding neo-suburbia. The implication that middle-America has no racist history is silly, but the claim that progressives were somehow "punishing" the middle-class is inane at best. Progressives were critical of regressive social values, to be sure, but were essentially motivated to make sure America lived up to its Constitutional ideals of equity and fairness before the law. A large part of that effort was to open up education at all levels to minorities.

Cities are typically more expensive to live in than newer suburban neighborhoods, but only if the expense of the private garage and the family car(s)is ignored, along with the higher cost of energy in single family dwellings. Public transit must be subsidized, but it is easily overlooked that the private auto is subsidized to the hilt. Freeways and thru-ways, intersections and signalization, and signage are not free, but are paid for by taxes. User taxes, in large degree, but taxes nonethless. Additionally, the government only subsidized public housing in the cities, but subsidized suburban homes not only by guaranteed loans at low interest, but by morgage deductions. Many of the often poorly designed urban "projects" in turn became a social burden because they came to be occupied by increasingly poor and disenfranchised minority urban dwellers unable to escape to the suburbs.

In the wartime and postwar industrial economy, unions worked for increased wages and benefits for all workers, enabling them to stimulate a consumer economy via greater discretionary income. Union busting and an increasingly service economy, coupled with corporate globalism more recently, have caused a general decrease in the dollar's buying power since 1969.

If the suggestion is that K-12 education has been undermined by integration, check the stats again. Wealthy districts have continued to do well, poorer ones not so well, especially those forced to deal with non-English speaking immigrant students and parents. If the system has been degraded, look to its mandate to serve all, to poverty, to the increasing inability of a liberal education alone to serve technological complexity in the workplace, to the stresses of unresolved social inequality, and to private philosophic and religious motives for undermining the public school system.

More than twenty years of foot-dragging by conservative thinkers and intransigent Dixicrats went by between the end of the war and passing of the Civil Rights Act, co-incident with the unparalleled expansion of suburbanism. It has taken even longer to finally erase redlining and discriminatory real estate practices. Educational opportunity is still playing catch-up.

Thus, it should be obvious that the middle-class would be much larger and "healthier" as a governor on political extremism and an economic gyroscope if minorities had entered it at proportionately the same rate as whites had, if we were still largely an industrial economy lacking global international competition, were most new employment not lower paying service jobs, and had unionism not been undermined by the influence of powerful industrial, banking, and commercial interests.

Don't blame NY City for national phenomena, or single it out as some sort of exception to what has been a much wider political and economic trends. Besides, the Big Apple is doing quite well at the moment, even if the bill is being picked up largely by a neo-gentry looking for urban convenience and access. It is still a mecca for interesting architecture, culture, corporate headquarters and international finance, tourism, and a model for lowered energy consumption. There is a reason the 9/11 terrorists chose NY City as their target: 9/11 was a tragedy, but also an unwitting if hideous compliment.

The truth behind urban decline

The middle and upper-middle classes began to leave cities like New York in the and 30s as a result of the New Deal's restructuring of the farming system in this US. The consolidation of farming that occurred in the wake of federal legislation left many struggling farms throughout the country eager to sell land for development. This land was accessible for higher-end residential use thanks to the Federal Highway Act of 1921, which built many of the countries rural Parkways. And thanks to the Federal Housing Act of 1934, and the creation of the Home Ownership Loan Corporation (HOLC) - the precursor to the Federal Housing Administration (FHA) - land could be opened up for lower end middle class residential development because native, white home owners could qualify for inexpensive, government-backed mortgage loans for new single family housing. Immigrants and blacks and people that lived in older single or multi-family houses could only qualify for expensive, high interest loans because the HOLC studies that banks used to qualify people were blatantly racist and anti-urban.

The real urban exodus, however, occurred after the passages of the GI Bill, the Federal Housing Acts of 1949 and 1954, and the Federal Highway Act of 1956, which contracted laborers to build millions of homes, lay miles of asphalt, and essentially reconstruct the entire country from the urban centers to the agricultural hinterland. Initially, only returning GIs were given inexpensive mortgage loans to buy newly government-contracted homes in the suburbs, but with the passage of later Housing Acts, those same types of opportunities were awarded to white, middle class citizens. The FHA, like its predecessor the HOLC, only secured inexpensive, low-interest loans for newer suburban single family housing. While loans for urban housing were possible to secure, they were again high-interest, which meant very few people got them and very few urban buildings received the investments and repairs they needed. Many white middle class people that wanted to stay in their neighborhoods couldn't practically make the decision to pay more for a loan.

Manufactories at this time also began moving away from central rail locations in cities and out to highway interchanges in rural locations (although they soon became suburban and the advantages of highway access were mitigated by traffic, which lead many companies to move to ex-urban locations or seek lower operating costs in other countries). Many factory jobs also went away because they made products that were of no use in our rapidly changing post-WW2 nation. A third factor in manufacturing job losses had to do with the end of the government contracts associated with the war effort. Many factories that had been running 24-7 for years, suddenly had no need for 10s of thousands of employees to make weaponry. Due to the changes in the way we fight wars now, we haven't needed to contract millions of factory workers to make supplies in recent conflicts.

The middle class urban exodus preceded the sharp rise in crime that cities like New York experienced in the late 60s. Less people, more abandoned buildings, and no millions of government contracts for factory workers was a recipe for disaster. Riots in the late 60s throughout the country were the last straw for many urban stores, which began flocking to suburban strip malls in the years after to be closer to consumers. Businesses followed and relocated to suburban office parks. Many new suburban municipalities saw a massive increase in tax revenue from largely federally and state funded efforts of reorganizing the living arrangement. This tax revenue, in many cases, was used for tax incentives for retail and office development, which cities and their increasingly smaller tax bases couldn't compete with.
Even a city like New Haven, CT, which had a comparable urban renewal mayor to John Lindsay, was unable to counteract long-term industrial erosion even though the city managed to retain several large manufacturing plants within the city thanks to federally-funded relocation funds to move businesses from central city locations to highway-adjacent land within the city.

Another problem is that federal industrial farming subsidies artificially suppress the agricultural value of rural and suburban land by consolidating investment in the mid-West. This leads to continued sprawling development, which is the key factor in bankrupting the middle class because it is so unaffordable to live suburban lifestyles.

I see two ways to bring back manufacturing. One is to listen to what businesses say and lower corporate tax rates, lower the minimum wage, change the employer-provided health care system and repeal environmental protection laws. Doing so might result in more domestic manufacturing, but it wouldn't employ a workforce of people who enjoy a middle class standard of living.
Another way would be to massively cut wasteful government spending in places like the Pentagon, defense contractors, weapons development, and programs like welfare, MedicAid, food stamps, public housing, and the low-income heating subsidy. Then some of that money could be redirected towards jobs bills that repair industrial facilities in the northeast and the Rust Belt. The rest of the money could go towards government contracts for consumer product assembly jobs. These contracts could last 10 years, and during the years that they are active, federal legislation could be passed to make it illegal for US companies to export the means of production abroad and make it a requirement that if American businesses want to sell to the largest consumer group on the planet - the American middle class - then they have to hire Americans to make those goods and provide those services.

For reading about the fall of industrial urbanism I would suggest a case study on New Haven, which shares many similarities to New York although on a much smaller scale.

Rae, Douglas. "City: Urbanism and Its End" (New Haven: Yale University Press, 2003)

Not the Whole Story

Considering that every major urban area has seen increasing costs and labor problems that inevitably squeeze the middle class, I am not so sure this can be boiled down so neatly into a culture wars saga with New York as the villain. Despite their laissez faire political views, I would find it hard to believe that any Tea Partier would allow denser developments, new or widened highways, and/or transit lines that are the necessary ingredients for cheap land and housing. Like it or not, the only American characteristic that transcends all class and cultural boundaries is that we are a nation of anti-development NIMBYS. I think it is recognized even in Texas that the major widening of the Katy freeway (I-10) is probably the last major URBAN transportation project at that scale in the state. Even population growth in that city will create more congestion and higher land costs that will squeeze the middle class from there as well.

Don't forget that New York has a more conservative upstate and a legislature that has not consistently been liberal over the last few decades. It is the more conservative upstate areas that have suffered the most, not the yuppy John Lindsay loving Manhattanites. Despite the decline, there are still many middle class people in NYC in areas like eastern Queens, the north Bronx and Staten Island, large parts of Staten Island, etc. That doesn't even include the middle priced suburban and exurban areas. Please also note that even the poor are being squeezed out of NYC as previously decrepit neighborhoods are fixed up and crime remains very low.

racial politics

Fred’s chronicle of New York City’s decline in blue-collar jobs has a lot of merit. But racial politics in the city, for example, were very complicated in the 1960’s and 1970s. Remember how the city’s sanitation workers demanded “parity” with cops and firemen, based on the fact that blacks had been systematically frozen out of those jobs and could get work only as “garbage men”? It’s true that unionized civil service employment became a civil rights issue. Rightly or wrongly, that was seen as a remedy for generations of discrimination. I agree with Fred, though, that the loss of working-class employment in that city and across the nation has been tragic.

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