Today´s Era Need Not Kill the Middle Class

22.08.14 Publication:

we are in trouble, we often look for a grand, systemic, ideally
epochal explanation, one that defines it as being somehow new and
unprecedented, or at least as far bigger than previous troubles. This
is comforting—it is more heroic to fight new battles than to repeat
old ones. But it also dangerous, as it erodes our sense of
responsibility by casting us as victims of history, as sufferers from
vast, perhaps irresistible forces, rather than from our own, more
mundane mistakes.

my view, that instinct is the background to the idea, explored
fascinatingly in
August 19th, that Western countries are experiencing “the end of
the middle class”, and that we must get used to the idea that
progress, at least measured in terms of rising living standards for
successive generations of the average members of our populations, has
come to an end.

course, either of these things might happen in coming years. It would
be complacent to rule out such a disaster as a possibility. But there
is no convincing evidence at present to support the idea that Western
countries and their middle classes are stuck ineluctably in a
long-term economic decline rather than struggling (as we clearly are)
to emerge from an unusually severe and long recession.

fact, if I look for long-term, structural trends in the West, then
they point to the opposite conclusion, at least about classes: the
coming decades could be a golden age for the middle class. If those
trends bring calamity to any class, it is likeliest to be the working
class, the poorest groups in society.

of the long-term trends we are familiar with. Economies dominated by
knowledge rather than physical work. Rapid technological change,
which favours those with creative skills and tertiary education.
Ageing demographic structures, which favour people with better health
and the mental skills to be able to remain in the workforce for
longer. These are middle class characteristics, and in an age when
western societies typically send 40-50% of their young people to
university they are getting more widespread, not less. The working
class are the ones who will be hurt most.

how has this idea of “the end of the middle class” taken hold?
Partly, it is because of American commentators’ domination of
international discourse. Americans have what in my view is a strange
definition of “middle class”: in their eyes, that class is
typified by a General Motors factory worker. And that view is
buttressed by citing statistics showing that average hourly wages
have barely risen, in inflation-adjusted terms, over the past quarter

workers have indeed fared badly, in the face of recession,
technological change and global competition. Yet manufacturing
workers make up only around a tenth of the American workforce
(compared with about 15% in Italy), so to align the term “middle
class” with them is highly misleading. And those wage statistics
are the wrong place to look: the right place is average household
incomes, especially as more households now have several breadwinners
and perhaps some pensioners too. Those incomes have shown a steady
rise. That rise has been outpaced by the rising incomes of the rich,
as inequality has risen, but the middle class has not ended, on this

is also a widespread confusion of short-term facts and long-term
trends. The short-term fact—one that has lasted for a painful six
years now—is that since the western financial crisis began in 2008,
people on middle incomes have indeed suffered more than the
wealthiest. Quite apart from the other advantages held by the
wealthiest 10% of society, central banks’ policies of huge
expansions to the money supply have helped anyone who owns equities,
bonds or property, of which the wealthy have more than most.

the middle class has suffered, and is certainly going through a
difficult period. But let’s not forget that it is the poor who have
suffered the most, whether in Italy, the rest of Europe, or America.

point is reflected too in the votes for extremist political parties.
The most dramatic protest votes in May’s European elections were
those for Britain’s UKIP and France’s Front National. Both
parties do have plenty of bourgeois supporters, but their core voters
are poor, white and working class. Those, after all, are the people
likeliest to feel that their jobs have been stolen from them by
immigrants or by automation. It is their alienation that is the
biggest threat to our democracies, not that of the bourgeoisie.

those who are worried about the state of today’s middle class could
well respond to my analysis by saying: yes, fine, but what if your
short-term facts do last for longer and longer? Larry Summers, former
US Treasury Secretary, has warned that western economies might now
suffer from “secular stagnation”, from many years stuck with slow
or no growth, rather as Japan has been since the mid 1990s.

first response is to say that Japan confirms my point: there, the
middle class have fared reasonably well, while inequality has grown
and along with it poverty. The second response is to point out that
worries about short-term troubles turning into long-term diseases are
hardly new: the job of policymakers is to deal with that.

the 1970s, we in the West came to believe that high inflation
coinciding with rising unemployment might be our permanent condition.
Moreover, when I graduated from university in crisis-ridden Britain
in 1978, many of us worried that the era of rising living standards
for each generation might be over. That partly explains why Britain
elected Margaret Thatcher as its prime minister in 1979. When I was a
student, about 15% of my age group went to university; today the
figure in Britain is over 40%.

his editorial on August 19
Gianni Riotta reminded us of a book published in 1989 by Paul
Krugman, the American Nobel-prize winning economist, called “The
Age of Diminished Expectations”. The key point about this book was
that it was looking for grand, epochal explanations, but turned out
to be wrong. It had followed a gloomy decade in the US (a decade that
in Europe too was known as “Euro-sclerosis”, by the way) of high
unemployment, budget deficits and seemingly invincible Japanese
competition. The book in fact marked a turning point to a new
American economic boom, during which the Clinton administration
repaid federal debt and living standards rose, strongly.

the title sends us in completely the wrong direction. Between 1960,
say, and 1989 when Krugman wrote the book, and in fact between 1989
and today, in both America and Europe expectations have not
diminished but have risen, hugely. That, indeed, is part of our
current predicament: a correct question to ask would be whether we
can still afford the much higher expectations that we now have,
compared with those of 20, 30 or 40 years ago, expectations about
education, pensions, health, job security, travel, technology and
more, expectations that our parents and grandparents could only dream

into the future, we cannot, by definition, know whether or not our
generation will meet this challenge. To do so, we ought to recall how
new many of our middle-class expectations really are, to avoid simply
taking them for granted. But we should also not evade responsibility
by treating the world as unchangeable, as the product of mysterious
structural forces beyond our control. Our parents and grandparents
solved the short-term crises that they faced. Our task is to do the