How The Middle-Class Changed Sides Twice!

In my travels around the blogosphere I chanced upon the Economic Data Blog. I was intrigued with some of the graphs that upon study, gave some food for thought as to the the lay of the political landscape the past forty years.

Using my own recollections as a tool, I offer this totally unscientific observation.

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Back in the Seventies, I began my business career working for a large transcontinental trucking company. We were unionized and regulated by the ICC. During the decade, each time a union contract came up, the trucking companies would negotiate and after a lot of colorful discourse and a threat of, or a short strike, a sizable settlement was reached. We in lower and middle management were just as happy as our workers, because it meant we got raises to keep up ahead of the men we supervised. The cost of these increases were passed along to the shipping public in the form of increased rates rubber stamped by the ICC. This brief example is a reflection of how unions would earn raises that enabled many of their members to move into the middle class where they would begin to pay a larger share of their income in taxes to support the Great Society programs. Fast forward to the end of the decade. The vast majority of middle income earners in America were pissed off at paying for what to them appeared to be a failing series of social programs. Inflation was skyrocketing along with interest rates and people demanded a change.

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Take a look at the second graph above, comparing the change in weekly income of those in the financial sector with all other private workers. During the sixties and seventies there was some parity, with the private sector actually earning some greater gains until the late seventies when the bottom began to fall out of both groups earnings. Enter Ronald Reagan, who harnessed the anger of middle-class Democrats and converted them to his cause of lower taxes and reduced social entitlement programs.

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The early eighties saw the union's influence reduced, taxes cut and the government regulation of many sectors ended. Hence, the ICC no longer set trucking rates and carriers were able to expand in all states. Union carriers began to loose out to non-regulated carriers. Yours truly, joined with a partner and became a freight forwarder, using those non-union carriers to under bid the union carriers. We became wildly successful and saw our income take off. By the end of the decade, most union carriers had failed or were absorbed by a handful of mega-carriers who could weather the storm. Along with the transportation industry, the financial sector deregulated and their income began an upward climb that to this day has not stopped. Meanwhile, the rest of the private sector workers income went into a low glide pattern for the next ten years. Enough so that a few years ago the phrase "Decade of Corporate Greed" began to be used by some to discredit the Reagan years.

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The early nineties saw the end of the Cold War and a rise in income for all groups, with the financial sector taking off like a missile. During the nineties, the distance between the two groups continued to expand. This brings us to today, one year after the financial crisis and the anger of an electorate that bordered on falling out of the middle-class, turned to the Democrats and ensured a commanding majority in Congress and the White House. Dissatisfaction from the electorate continues as the electorate sees no change except a potential for increased taxes to pay for the unclaimed cost of the bailouts to the auto and financial sectors as well as a looming massive government health care program.

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If one looks at where the graph ended this past June, they will note that after taking a gnat sized drop, the financial sector grew at an all time high while all other sectors made a feeble attempt to reach the baseline before loosing steam and beginning to dip. It seems that no only are we not out of the woods, but those in power really like it the way it is. You have a society where the majority fall just below middle-class so that they can imagine themselves needing those government programs. Reagan enlisted that union created middle-class, then inadvertently weakened their power, while allowing the financial sector to concentrate more and more income in a smaller percentage of the population. As the middle-class constituency of my generation move off the world stage, many of their children are finding themselves trapped in low paying jobs and ripe to be exploited by those who would like to re-harness that dissatisfaction to re-distribute income and grow the power of government to control all aspects of American life.

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Simple observations that some may try and over analysis. I can only rely on my own experience to trace the course of the American economy and politics the past forty years.