Without a robust middle class, the nation’s economy is doomed to fail
General Motors’ announcement that it was closing five of its North American manufacturing plants was saddening, not only for the thousands of families who will face uncertainty this Christmas but the American middle class in general.
The closures represented a real-world symptom of the decline of the middle class. In an agonizing way, they brought to life the statistics we’ve all seen about the state of wealth distribution in the U.S. — how the top 1 percent is receiving a grossly disproportionate amount of the nation’s income at the expense of those at the middle and lower ends of the economy.
Worse yet, the announcement offered a textbook example of why the Republican Party’s 2017 tax cuts were so foolish.
In directing yet more wealth to the 1 percenters — rewarding the investing class over the middle class — the GOP accelerated the ongoing destruction of the customer base for goods and services.
Businesses thrive when they have customers, and since World War II, middle-class people like those GM workers have been the source of our economic prosperity. They’ve been the consumer class that was buying cars, refrigerators, homes and consumer goods of every type. Meanwhile, they contribute tax dollars to fund public education, health systems, infrastructure and so on.
When there’s a stable, growing and enthusiastic middle class, everyone in the economy benefits. That includes the wealthy and the investing class.
The best economies are those in which money flows actively. To make the nation and its businesses thrive, the key is to juice the middle class.
In a similar vein, people don’t join caravans to leave their countries if the economies of those nations are healthy and their middle classes are stable and growing. To control immigration and build American businesses — via new customers in other countries — the key is to help grow middle classes abroad, too. The whole world is safer, saner and more prosperous when we focus on strong middle classes around the globe.
The GM plant closures are an example of what happens when the middle class is sapped.
Conversely, the GM plant closures are an example of what happens when the middle class is sapped. The U.S. is becoming a nation where people can’t buy cars, can’t purchase homes, can’t send their kids to college without massive amounts of loans, and so forth.
And that’s not to mention how badly closures hurt communities where the plants are the largest employer. Widespread job losses cause all kinds of dominoes to fall — the economy takes an immediate hit due to the sudden loss of income, then continues to bleed out as laid-off employees move elsewhere in search of work. Businesses close, cities lose tax revenue they need to support programs and infrastructure, and property owners suffer as home values tumble.
Take Janesville, Wis. Closing in on 10 years since its GM plant closed two days before Christmas in 2008, the community still hasn’t matched the prosperity it enjoyed when the plant was up and running. And while unemployment has drifted back under 5 percent after reaching double digits, many of the jobs that have come back pay low wages — like a Dollar General distribution center where most workers get $15 or $16 per hour.
Cheerleaders in the GOP will undoubtedly point out that consumer confidence is running strong at the moment and the gross domestic product has grown at a good clip in 2018, but those numbers don’t tell the real story.
Yes, Americans are making purchases — Black Friday sales were robust, for instance — but that doesn’t extend to big-ticket items like cars and homes. And in consumer sentiment surveys, Americans have shown that they’re not feeling particularly confident in the economy heading into 2019. Those surveys are telling, because they measure a large array of factors and therefore offer a more complete picture than consumer confidence findings.
Among the outcomes of the University of Michigan’s most recent consumer sentiment index were that positive attitudes toward buying vehicles hit a five-year low and favorable home-buying conditions were at “depressed levels.” Those findings bode poorly for sales and orders of durable goods, which have cooled this year.
Meanwhile, economic activity spurred by the tax cuts has sputtered. That slowdown was completely predictable — the trickle-down economic theory has been disproven time and again.
“There’s a very clear spike in sales in the middle of the year obviously driven by the tax cuts, and there’s an equally clear reversal in the second half of the year,” said Ian Shepherdson, an economist for Pantheon Macroeconomics, a research firm, in a story in The New York Times. “It’s the sugar rush followed by the comedown.”
That being the case, Democrats and Republicans alike should focus their energy on a Marshall Plan for the middle class. The Green New Deal that has emerged from the fresh-thinking new members of the House could very well be a central component of that plan, as it would create jobs while also reducing environmental damage and helping curb global warming.
To their discredit, House Republicans unleashed a massive tax bill this week that they developed with no input from Democrats. The legislation, which tweaks the 2017 tax bill, is nowhere near the answer for revitalizing the middle class.
That’s unacceptable.
For far too long, middle-class Americans have struggled amid wage stagnation as more and more of the nation’s income gets pushed to the top. And as the GM closures show, the 2017 tax cuts are only accelerating the problem.
It’s long past time to spread the wealth back down the ladder.