30 Sep 2018

Peter Temin: why the middle class is vanishing in the US

From Sunday Morning, 8:38 am on 30 September 2018

Total wealth held last year in the United States was almost $US63 trillion, almost treble the second richest nation - China with $US23 trillion.

Despite that, one highly regarded economist says the US has regressed to "developing nation" status.

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Photo: AFP / FILE

Professor Peter Temin applies a well-known economic model to outline a two-track economy - one part educated people with good jobs, and another much larger sector where people are burdened with debt, anxious about their job - if they have one - and poorly paid.

In between is the middle class which, he says, is disappearing.

His latest book The Vanishing Middle Class - Prejudice and Power in a Dual Economy has been named one of the 10 best economics books of 2017.

Prof Temin, the Gray Professor Emeritus of Economics at MIT, Cambridge, Massachusetts says he wrote it before the election of Donald Trump, and the situation in the US is now much graver.

"The Republican Party which seems to go along with everything Donald Trump suggests had a tradition of fiscal responsibility, but they abandoned that to pass a tax cut that will cost the economy close to $US 2 trillion over the next ten years."

The two-track model comes from a theory devised by economist Arthur Lewis in the 1950s to analyse post-colonial countries. Lewis' theory was that in developing nations the capitalist sector grows by taking labour away from subsistence activities and paying low wages.

"In modern terms I call the capitalist sector the FTE (finance, technology and electronics) sector and the other the low wage sector."

Prof Temin's analysis of the US economy is tied closely to race and the politics of racism.

"The FTE sector is not interested in hiring very many of these low-wage people and so it keeps its power by condemning black and brown people to low wages."

Prof Temin says the Jim Crow laws of the south that kept blacks out of civil life still operate today under the guise of mass incarceration.

"We can see that in the racist policies that the government runs, the notion that Trump ran on Making America Great Again is an easy-to-parse motto of Make America White Again."

He says the middle class (or lower middle class) in America has been squeezed for the last 50 years .

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Well paid manufacturing work is largely a thing of the past in the US. Photo: Wikicommons

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  • "For approximately 50 years people have been losing jobs, that process is a slow process and so what you have today is people who are still doing okay but their children are having trouble finding jobs.

    "The American experience that people had since the Second World War - that their children would have a better life than they had - is being negated in this 80 percent of the population."

    Social mobility has all but stalled, he says.

    "Most people are locked in, there are exceptional people who do well … but for most people, they can't.

    He says in the modern world, education is the way out.

    "But that is very hard, and the Trump government is trying to destroy the public school system to make it even harder."

    Lewis described capitalists in developing nations in the mid-20th century as imperialists, and Prof Temin says the modern Republican Party is acting in a similar fashion.

    He says neglect of the US infrastructure is tearing up the nation's social capital.

    Professor Peter Temin

    Professor Peter Temin Photo: Supplied

    "Putting people in jail, neglecting the educational system, having a lack of investment, destroying the social capital which brings people together while you're destroying the human capital by not [funding] the schools that alone will lead us to becoming a poor society, which the people at the top won't notice.

    "The FTE sector are trying to reduce support for the American poor, so people in poverty in the US will tend to get poorer rather than getting better. That increases the difficulty of getting out of that situation into a higher and better life."

    Professor Peter Temin's book The Vanishing Middle Class - Prejudice and Power in a Dual Economy is published by MIT Press.