American Dream and Middle Class in Jeopardy

Jeanna Bryner

Date: 09 October 2008 Time: 09:47 AM ET

The presidential candidates say they connect with and "get" the American middle-class. And the government's bailout plan for Wall Street has been billed as the best way to help Main Street keep its white picket fences.

Meanwhile, the financial crisis has only gotten worse since the $700 billion bailout package was announced, and it threatens to squeeze the middle class like never before, robbing people of homes, life savings and the economic security that has long been a staple.

Already, real income (which adjusts for inflation) has been stagnant since the 1970s, straining middle-class budgets and pushing wealth and power into the hands of the very few. Now some economists and sociologists fear the current crisis could make it all even more inequitable, putting the American Dream, the inspirational foundation of the middle class, at risk.

"The major reason I think the middle class is threatened is because most of the things we describe as revolving around the American Dream — owning a house in a good neighborhood and sending your children to good schools, owning and paying for a car or two, and saving money for retirement — all of that depends on having steady jobs with incomes that rise," said Kevin Leicht, a sociologist at the University of Iowa. "People are supposed to accumulate … a lot of debt when they're young and gradually pay it off as they age, and go less and less into debt."

Figuring out what's going on and what might happen is tricky, however, because sociologists and others agree the term is loosely defined at best. A Pew Research Center survey earlier this year showed a vast number of Americans themselves don't know what middle class is.

Origin of the Species

The term and concept of a middle class were used before the United States existed.

"The middle class first came into existence in early modern Europe as a new social class for which the economic basis was financial rather than feudal — the system in which the nobility owned land and others (serfs, peons) worked it," said Andrew Hoberek, associate professor of English at the University of Missouri-Columbia. Hoberek is author of "The Twilight of the Middle Class: Post-World War II American Fiction and White-Collar Work" (Princeton University Press, 2005).

The current middle-class concept, which is linked with "middle income" and the associated comfortable lifestyle, came into popular usage after World War II for various reasons, including an increase in education, prosperity and white-collar jobs, said sociologist Teresa Sullivan, provost and executive vice president for academic affairs at the University of Michigan.

With the ballooning middle-class, the so-called working class of blue-collar workers shrank.

"For the most part, [the middle class] has grown pretty substantially in terms of the number of people who have moved into what might be called the middle of the income distribution," Sullivan said, referring to the post World War II period.

The U.S. Census Bureau doesn't have an official definition for "middle class" but uses two measures to indicate class division. One measure involves the distribution of household income and how groups of households based on income stack up relative to the nation's overall household income. Another measure, called the Gini index, indicates the level of income equality in the population.

Today's middle class

Now, more than half of all Americans identify themselves as the middle class, according to the Pew survey.

"If you ask people, most people will tell you they are in the middle class," Sullivan said, adding that most people would probably accept the group as including families with incomes from the middle 60 percent to 80 percent of the income distribution.

That middle income is now between $46,000 and $54,000 a year, she said — a surprise perhaps to countless people who make significantly more and yet struggle to pay their bills.

Many people who are well below or above the wage thresholds commonly attributed to being middle-class see themselves as part of that group anyway. A third of people earning more than $150,000 a year, for example, see themselves as middle class.

For politicians, defining class allows them to target certain groups for new legislation. For sociologists, defining class can be a useful tool in understanding attitudes and behaviors of a certain group of people.

"Your class position tends to be predictive of a lot of other things, including your opinions about some issues, particularly political and economic issues," Sullivan said. "Going to college instead of going to work immediately would be kind of a typical middle class value because you understand your earning power would be greater after completing college."

Not everyone would use income and wealth to tag class divisions.

"I think that we need to get away from thinking of class and the middle class strictly in terms of income," said Michael Zweig, an economist at Stony Brook University in New York. "I think it's better to talk about a working class [and] a capitalist class as the two principle classes in a capitalist society, and a middle class that's in the middle of those two poles of the power grid in society."

While the working class has relatively no power over their work and time, the middle class would include small business owners and managers who do have some authority, though not enough to climb into the top echelons among capitalists, he said.

Middle-class profile

The iconic middle-class family, as depicted or debated in various sitcoms such as "All in the Family," got its start in Levittown, a suburb of New York City. Between 1947 and 1951, Levitt & Sons, Inc. built the first truly mass-produced suburb, molded to meet the needs of GI's returning home from WWII and settling into well-paying jobs and starting families.

Results of the Pew survey, conducted from Jan. 24 through Feb. 19 and including 2,400 adults, along with analysis of Census data and other demographic and economic statistics, paint a picture of today's middle-class American:

14 percent of the middle class lost their jobs in the past year. About 7 percent of the middle class say they fear they'll lose their job in the year ahead.
39 percent of the middle class said (when the survey was done earlier this year) they are "living comfortably," and about a quarter say they are just able to meet expenses or fall short.
40 percent of middle-class homeowners have paid off less than half of the money they owe on their homes.
67 percent of the middle class say they are doing better than their parents. But only about half expect their children to do better than they're doing, down from 61 percent in 2002.
Baby Boomers are particularly morose compared to younger and older generations, with 55 percent of Boomers saying their income won't keep up with the cost of living in the coming year.

On the threatened list

At this point, the middle class as we know it may go the way of the dodo.

"Certainly the current financial crisis represents a substantial threat to a lot of people in the middle class because it threatens their savings; it threatens their wealth, mainly the homes they own, because that's the principal wealth of most families," Sullivan said. "And if there's widespread job loss, and it's not clear there will be, but if there is, it'll threaten income as well."

Inequality between income brackets has shot up in the past few decades. Between 1969 and 1997, the share of total household income controlled by the lowest income group has decreased from 4.1 percent to 3.6 percent, while the share to the highest income group increased from 43 percent to 49 percent, according to the Census Bureau.

In 2006, the top 5 percent of households in terms of income were making some $297,405, compared with the lowest fifth of the population, who had an average household income of $11,352, according to Census data.

Such concentrated wealth was seen right before the Great Depression, said Richard Levins, professor emeritus in the department of applied economics at the University of Minnesota. "And then it gradually became spread out more during the 60s and 70s. "By the 70s, we had a very different distribution of income and wealth that, in my view, favored middle class."

But by 1980, Levins said, "that trend has gone back the other way to where we have a very large percentage of income and wealth in the hands of barely one percent of the people."

The average worth of someone on the Forbes list of the 400 richest Americans is currently $3.9 billion.

"When you have that kind of wealth in very few hands, these people become politically and economically very, very powerful," Levins said.

Levins said you can gauge the robustness of the middle class by looking at how evenly distributed the income and wealth is in the nation. So a top-heavy distribution would favor the rich, not the middle class.

"If you accept that as a measure of how the middle class is doing, I think it's clear the middle class was growing through the first part of the 20th century and declining toward the latter part of the 20th century," Levins said during a telephone interview.

Loss of homes

Loss of homes and jobs are signs of a stagnant or fading middle class. For instance, mortgage foreclosures have been rampant. A report by the Mortgage Bankers Association revealed that 2 percent of outstanding mortgages were in foreclosure in the fourth quarter of last year, an all-time high. Analysts say many more homeowners are late with payments or on the verge.

"Right now a lot of people who would think of themselves as solidly middle class have their home in foreclosure, so they're not homeowners anymore. And home ownership tends to be one of the hallmarks of being in the middle class," Sullivan told LiveScience. "People who get laid off from their job, if they're unemployed for a long period of time will no longer have either the income or wealth that would typically mark them as in that middle stratum."

Kevin Leicht, a sociologist at the University of Iowa, suggests stagnant wages and job loss are at the root cause of middle-class Americans falling into lower-class rungs. Leicht would say the crisis of the middle class began in the 1980s.

"What I think has caused more trouble is the end of the steady manufacturing jobs in the 1980s followed by the outsourcing and globalization of the 1990s and what we've seen very recently," he said.

Now with communication technologies, he said, white-collar jobs are also being outsourced to other parts of the world.

"The current banking crisis is kind of the culmination of various attempts to get around the stagnant wage issue," Leicht said. If people aren't making money, they don't have the resources for big purchases, like homes and cars. That's where unregulated loans come in.

"About the time American wages became stagnant (in the late 70s and early 80s) for most of the middle class, all of a sudden you could buy a car with no money down; you could buy a house with no money down," Leicht said. "There all sorts of ways to sell money to people whose incomes weren't going anyplace."

(In the late 1970s and early 1980s, the financial industry was deregulated, allowing such loans.)

Can the Dream survive?

A threatened middle class could have dire consequences for an entire way of life.

"To a great extent, the American economy relies on the purchasing power of the American middle class, and the rest of the world has come to rely on the purchasing power of the American middle class," Leicht said. "What we've done with the American middle class, we've exchanged paying them money with loaning them money."

The middle class symbolizes the American Dream, and so with the middle class possibly going down the drain, there goes the dream as well.

"To some extent, what the American middle class represents, not only in the United States but to a lot of other people in the world, is economic prosperity and the American Dream," Leicht said. This dream involved going to school to land a good job that would let you buy a house and pay for your kids' education, which would in turn give your children an even better future.

If that good job is hard to come by, and even hard work may not help you reach it, people could lose faith in the American Dream, he explained.

"If we don't have that [American Dream], if we lose that in the process of this financial crisis, I think something culturally very important will be lost and I'm not sure what will replace that," Leicht said. "It's hard for me to conceive what story will replace that."