The Consumer Society and the Low Paid Underclass

The stratospheric standard of living the American consumer has enjoyed since the early eighties is hurtling back to earth to leave a smoldering crater where the American economy used to be. When the dust finally settles, America likely will return to the modest and sober middle class society it used to be rather than the current meretricious and indolent one.

For three decades, American consumers, a moderately well paid middle class, lived high on the hog, enjoying goods and services produced by an emerging international and domestic underclass. The consumers bought and the workers produced. It was a symbiotic relationship, held aloft by high disposable incomes on the one hand, and low incomes on the other that couldn’t go up and up, on and on forever. Now, American consumerism, with it the childish strategy of “Let’s play let’s pretend”, is about to die a flaming fireball death.

The American economy has been creating jobs at a high rate, at least compared to Europe, since the beginning of the second Nixon administration; but, as the distinguished economist, Paul Craig Roberts, correctly reports these jobs have been, for the most part, low paid, low skilled, and concentrated in the service sector. What professor Roberts neglects to note is that these jobs also provide safe and reliable employment with acceptable benefits for modestly educated and unskilled employees who provide the cheap goods and services that the educated and skilled American middle class consumes. The demand for these employees has been almost insatiable, and has been augmented by high rates of immigration and aggressive outsourcing to low wage third world countries.

The big loser, of course, has been the highly unionized lower middle class with its high wages and generous benefits which the National Labor Relations Act,1935 created. This class was concentrated in manufacturing, a sector where technological advancements led to steady increases in productivity, and unions made certain that a fair share of this increase showed up in the workers’ paychecks. More than that, these increases in pay served as a benchmark for employees in other sectors, a kind of economic rising tide.

The problem was this class was overwhelmingly white, male, and surprisingly passive. By 1965, this paradigm had become socially and politically unviable, and was badly in need of an overhaul. The Civil Rights Act,1965 introduced a far more egalitarian and European style employment paradigm, accompanied by intrusive government regulations and high legal expenses. These high maintenance costs were passed onto the lower middle class in the form of lower incomes, once the unions were shoved aside, and the new paradigm quickly replaced the old. The impact was twofold. Because the costs of the goods and services it purchased declined, the standard of living of the middle class increased noticeable, although its contribution to American society did not, while the lower middle class standard of living began to fall.

By the time of the George W. Bush administration, the middle class had grown greedy, contemptuous of others, and detached from reality because it simply didn’t have the disposable income to support its resplendent lifestyle, and had become increasingly dependent on easy debt. Simply stated, it was living beyond its means, and had lost track of the fact that a society where most people are middle class has a rather modest standard of living. More importantly, it was living beyond its contributions to society.

Meanwhile, the lower middle class seethed with anger and resentment as it fought to stay out of the underclass. As the husbands’ high paying manufacturing jobs disappeared, the wives were forced to take low paying service jobs, while the quality of public services and public schools (deteriorating under mounting pressure from the new immigrants) declined. Meanwhile, the middle class sent its children to private schools they could now afford.

It was becoming clear to all that this employment paradigm had become as socially and politically unviable as the one it had replaced because the lower middle class was in danger of morphing into an unstable and potentially violent underclass. Allowing the lower middle class to accumulate a modest and controllable amount of debt was added to the model to correct for the imbalance. This change would create the illusion of an increasing standard of living, and banking laws and regulations were modified accordingly, incidentally, creating windfall wealth for the banks. Along with these changes, spending on public services was increased, creating more low paid jobs and, not surprisingly, more debt since taxes were not raised on the middle class.

But how could debt be used to create the appearance of wealth, and disposable income? Housing was the answer. Debt would create good paying jobs for the lower middle class, and at the same time, pull up the price of houses to create the appearance of real wealth. But, at the end of the day, there was just not enough disposable income. And when a blind man could see that all this make-believe wealth was suspended from skyhooks, it came crashing back to earth. And as for the fate of the pompous middle class consumer? It couldn’t happen to a nicer bunch of guys!