A while back we heard a lot about the "squeezed middle", the decent, hardworking people who were having to tighten their belts or expand them according to the price of spelt. No more long breaks at Easter. More Lidl, less Ocado. Less discussion of house prices, more of the cost of education, all of this underpinned by a niggling anxiety about longterm employment. Sure, zero hours and freelance life is great for young "creatives". Less good if you have children, ever get ill, or (and this may come as a blow) you are not actually a "creative" but a worker. A middle-class one with a salary, but a worker nonetheless.

Workers should be able to save but are finding it impossible. The squeezed middle yelps. Indeed, on the latest statistics, it is gasping for air.

A sign of its distress is surely seeing Marx quoted in everything from the Daily Mail to the Spectator, publications not adverse to class war themselves. Now their fight is plaintive. It is for the middle class, which Marx said would be crushed by the logic of late capitalism. He spoke specifically about how the small shopkeepers and tradespeople would fail. There would be left the great mass of poor people and a tiny minority of the ultra-rich, and then of course violent revolution.

The diminishing middle class is not only a British phenomenon. Both America and Europe have shrinking middles. The real-terms incomes of many people on low and middle incomes have barely risen over the past 30 years. It is perhaps easier to see the downward spiral of the American middle classes as we gaze on the "ruin porn" of Detroit. Simply put, their share in the income pie has dropped, while that of the top 7% grows.

The same shifts have happened here alongside the same confusion about what class "is" (46% of Americans believe themselves to be middle class). Remember how, during the boom years of New Labour, John Prescott, of all people, said: "We are all middle class now." This was the aspiration. True and bleak.

Now class is often recast as generational division. Anyone born after 1985 does not have access to what their parents had: the traditional tools of social mobility – education, housing, steady income. We can follow the Jaron Lanier argument that suggests a combination of software and globalisation has taken away jobs from the middle class and therefore dispensed with the need for such a class to exist. It would then be possible to see the dismembering of the bourgeoisie as inherently radical but Lanier, like many, sees it as fundamentally detrimental to democracy.

We already see this disengagement from politics occurring. If the canaries in the mine are "the creatives" – writers, musicians and website designers who now work for free – what happens when this hits a whole class head-on?

We can see the ideologies that underpin middle–classness self-consciously working overtime. They are trotted out with dull Protestant regularity: sobriety, deferred gratification, self-restraint, patriotism. Work hard, save, get married, buy a house. But the values that have actually enriched the wealthy, the bankers and the baronets, appear almost as opposites: greed, lust, ostentatious consumption, arrogance, dishonesty.

While Thatcher brandished her elocution-lesson faux-poshness, Blair estuaried down his accent, but both coalesced around the aspiration to own property. The upper classes whose wealth remains fixed were untroubled by the smash and grab on social housing, but the idea that a room of one's own was the same as an inherited castle was bogus. The myth of classlessness prevailed. If you can get a mortgage here, you can make it anywhere. And where do we end up? A cabinet full of millionaires, an elite in all the professions, a third of our Olympic medallists privately schooled. None of this reflects the hard work so revered by the middle class; these are the children of the already powerful. Those at the top are increasing their wealth as wages fall.

So what will the middle classes do? Quietly despair? Their aspirations for their offspring have been dashed on the rock of austerity. Many have taken to blaming the poor, who are somehow fraudulent in their deprivation – they have big TVs! Cameron may represent himself as resolutely middle class, struggling under a towel in Cornwall, but this was a man who would have spent his holiday shooting deer if he could.

As this act wears thin, the running down of the middle class leaves us with little but a professional political class flailing around trying to act normally and looking more and more bizarre in the process. Some point to Brazil or Turkey, where we see the squeezed middle out on the streets. Will our middle classes riot or form an orderly queue to loot Debenhams? Will such people accept that their kids' lives will be worse than their own? For if the middle classes cannot invest even imaginatively in a better future, democracy falters. Rightwing pundits interestingly start talking about the "pointlessness" of work.

Taking money from the middle classes has been wrenching candy from a dozy baby. What matters now is that their value system holds together, as vague, priggish and narcissistic as it is. Because without this middle-class state of mind, this ever expanding inequality governed by aristocrats looks less like a democracy and more like a system that never shook off feudalism.

• This article was amended on 1 September 2013. The earlier version erred in a sentence that said average incomes in real terms had not risen over the past 30 years; the sentence has been replaced with one saying that the real-terms incomes of many people on low and middle incomes have barely risen over the past 30 years.