Summary

Heather McGhee's opening remarks to the Senate Banking Committee on the state of the American economy and inequality.

Widely shared middle-class prosperity is a signature of American society. It has made America the most hopeful and dynamic country on earth and it is a foundation of strong democracy.

Yet today, America’s middle class is in trouble—and those troubles long preceded the financial crash of 2008 and the downturn that followed. As a result of major economic and policy changes over the past three decades, the traditional routes into the middle class have become more difficult to travel and security has eroded for those already in the middle class. Many jobs do not pay enough to cover basic living expenses, much less allow workers to save money and build assets for the future. In fact, a quarter of full-time working-age adults are still not earning enough money to meet economic needs like housing, utilities, food, health care, and transportation for themselves or their families.

A college education has become ever more critical to moving up the income ladder—even as it has also become less affordable and the earning power of a college degree has stagnated. Building significant wealth assets for retirement or to help the next generation remains an impossible dream for millions. Many households are instead mired in debt. In short, too many people who play by the rules and do everything right find that they cannot climb into the middle class—or stay there.

The hard economic times of the past few years have compounded the long accumulating challenges facing the middle class. Jobs are harder to come by amid extended high unemployment. Many jobs lost during the recession may never come back as a result of corporate policies that have eliminated jobs, moved them overseas, or replaced people with technology. The nation’s new jobs disproportionately offer lower wages and fewer benefits than those they replaced.

The dream of homeownership has turned into a nightmare for millions of Americans who have lost their homes to foreclosure or now find themselves owing more on their mortgages than their homes are worth. Retirement savings accounts were hit hard by the stock market plunge of 2008-2009. Government investments in education and job training have declined amid draconian budget cuts and hundreds of thousands of once secure jobs in the public sector have been eliminated.

America’s economy has been an awesome engine of wealth creation in the past thirty years, but the new prosperity has disproportionately gone to the wealthiest. Between 1979 and 2007, according to the Congressional Budget Office, American households in the highest-paid 1 percent of the income distribution saw after-tax income gains of 275 percent—while the 60 percent of the households in the middle saw their incomes grow by just under 40 percent over this same period. And, according to much research, social mobility – the very essence of the American idea – has stagnated or declined in the United States, with many young people struggling to replicate their parents’ standard of living. For example, young men are earning 10 cents per dollar less than their fathers did 30 years ago, according to research from Demos. A persistent and growing racial wealth gap, with historic inequities and injustices exacerbated by the recent iniquity of predatory lending, restricts opportunity for people of color to join or remain part of the nation’s middle class. Princeton economist Alan Krueger observes that the economic data “challenge the notion that the United States is an exceptionally mobile society. If the United States stands out in comparison with other countries, it is in having a more static distribution of income across generations with fewer opportunities for advancement.”

A host of public policy choices created this state of affairs – including tax cuts that disproportionately benefitted the wealthy, financial deregulation, state divestment in public higher education, and decisions to let the minimum wage stagnate, to name only a few – and things are likely to get worse without major policy corrections. The long-term trends that have moved America toward a postindustrial service economy are here to stay and, in fact, have accelerated during the economic downturn. Over the next two decades, the Department of Labor projects that the largest job growth will be in low-wage jobs offering little opportunity for advancement and that do not offer health insurance or pay enough to allow workers to put money toward home equity and retirement savings. Meanwhile, most of the good jobs that are created will require a post-secondary education that is likely to remain out of reach for millions as college tuition costs continue to rise.

Even as structural changes have imperiled the middle class, national action has been lacking. Over recent decades, many political leaders have failed to reckon with a basic fact of the new economic era – for millions of Americans, no amount of individual effort or self-improvement or thrift can guarantee a secure middle-class life. The American social contract – a promise of opportunity and security for those who act responsibly – is fundamentally broken.

Dramatic new public policy initiatives are needed to accomplish two broad interrelated goals: to ensure that all Americans have a chance to move into the middle class and, second, to ensure greater security for those in the middle class. Such initiatives must move far beyond incremental measures and be of sufficient scale to permanently address the economic insecurities of what is now a vast number of U.S. households.

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