Rebuild the middle class

By David Madland

America's middle-class origins were central to our success as a nation, but our future greatness is in grave jeopardy because the middle class is now so weak.

When the United States declared its independence from the British, it was the most middle-class society in the world. America's carpenters, shopkeepers, and farmers enjoyed a higher standard of living than workers in other parts of the world, and economic inequality was lower than any place else, according to research by Jeffrey Williamson and Peter Lindert, economists at Harvard and the University of California, Davis.

Thomas Jefferson recognized that our economic origins were special when he wrote that "we have no paupers. ... The great mass of our population ... possess property [and] cultivate their own lands. ... The wealthy, on the other hand, and those at their ease, know nothing of what the Europeans call luxury."

The United States wasn't the richest country in the world - or even the richest New World colony. Places like Cuba and Haiti were richer, but the wealth America had was relatively evenly distributed, and this made all the difference in our development.

In part because of this economic equality, ordinary citizens in the United States had significant political influence, which led to investments in infrastructure and public education that helped fuel our future growth. In contrast, the former colonies in other parts of South and Central America were highly unequal, which meant that the wealthy controlled their governments and used their control to maintain power rather than invest in the development of the entire country.

As Kenneth Sokoloff, the late economic historian at the University of California, Los Angeles, and Stanley Engerman, an economist at the University of Rochester, explained: "Nearly all of the New World economies were sufficiently prosperous by the beginning of the 19th century to establish a widespread network of primary schools." But "few actually made investments on a scale sufficient to serve the general population." Literacy rates in the United States and Canada reached 80 percent by the 1870s, almost four times the rate of not only Cuba, but also Argentina, Brazil, Chile, and Jamaica - countries with much higher levels of economic inequality.

Unfortunately, over the past four decades, middle-class America has come undone as wages have stagnated for most workers and the rich have captured the vast majority of economic gains. As a result, we are starting to resemble less-developed countries more than we might wish to admit.

Like the former colonies in South and Central America, the United States is failing to make investments in public goods, like education and infrastructure, that drive future growth because in our increasingly unequal society, the middle class lacks the political power to translate its preferences into policy.

Polls clearly show that most Americans would strongly prefer greater spending on education and infrastructure. But these public goods generally aren't as important for the wealthy as they are for the middle class. Though the wealthy often support spending on schools and roads, they have less interest in paying taxes to support them and often can afford private alternatives to these public goods. When push comes to shove and priorities are set - making choices about what to spend money on and at what level to set taxes - the priorities of the wealthy have held greater sway. And that has meant America has underinvested in infrastructure and education.

In the United States, less than 40 percent of expenditures on higher education now come from public spending, compared with almost twice that for other advanced countries. Because college is harder to afford, fewer are able to graduate. Similarly, total federal, state, and local spending on infrastructure has fallen by about $60 billion per year compared with the mid-1970s. Because of this downward trend, the United States now spends far less on infrastructure than our competitors.

These failures of government have had clear consequences. As recently as 1995, the United States was still ranked first in the world in the percentage of the population with a college degree, but now it ranks only 15th. Similarly, U.S. infrastructure has deteriorated from being top-notch to ranking behind Barbados, Oman, and Bahrain, among many others, according to surveys by the World Economic Forum.

The weakening of the middle class is a concern not just for those who are suffering, but for all of us. A strong middle class is the source of our greatness and the driver of our economic growth. To get our economy and our government back on track, we need to return to our roots and rebuild the middle class.