Decline of the American Middle Class

The concept of a large, affluent middle class is the cornerstone of the American dream. A dream in which anyone with a high school diploma and hard work could easily afford a nice house in the suburbs and two cars. Americans assume that this is the way the universe should work. That Americans have the "God given right" to the American dream. 

However, this reality of a wealthy and prosperous middle class is not the natural state of things, but a by product of a very unique set of historical circumstances, specifically, the end of World war II.

At the end of the Second World war, the US was the only major industrial power left with its industry and infrastructure unscathed. This gave the US a dramatic economic advantage over the rest of the world, as all other nations had to buy pretty much all the manufactured goods they needed from the US, and use their cheap natural resources as form of payment As a consequence, the American owners of the capital and means of production had to rely heavily on the American relatively small (on a Global scale) and highly skilled work force, since they had no one else to hire to men the factories. 

This gave the working class a lot of leverage to claim for itself a decent share of the high profits the American industrial complex in the post world war II world. This allowed for the phenomenal growth of the US middle class we saw in the 50s and 60s. A growth so incredible, that while the US middle class made up less than 5% of the world's population, it consumed 1/3 of its resources.

However, over time, the other industrial powers in Europe and Asia rebuild themselves and started to compete with the US. Not only that, but countries like Brazil, South Africa, Argentina, India, China, Mexico, Thailand, Turkey, South Korea, Vietnam and more also became industrialized. 

This meant that they were no longer selling their natural resources cheaply in exchange for US made industrial goods. Quite the contrary, they themselves started to bid against the US for natural resources to fuel their own industries. 

And more importantly, the US work force was no longer was the only one qualified to work on modern factories and to have proficiency over modern industrial processes. This meant that the US middle class could no longer easily outbid pretty much everyone else for natural resources, and the owners of the capital and means of production no longer dependent solely on this small and highly skilled work force. 

Many other countries now had an industrial base that rivals or surpasses that of the US, and a qualified work force to operate modern factories, if US companies chose to move productions out of the US. This meant that they also had their own middle classes that was able to bid against the US middle class for those limited global resources. And more importantly, manufacturers now can engage in global wage arbitrage, by moving production to a country with cheaper labor.

And the consequences of this global wage arbitrage? 

A dramatic, unprecedented and unimaginable drop in world poverty. 

Where once the American middle class was so wealthy that it voraciously consumed 1/3 of the world resources, that wealth has been redistributed around the world, thanks to globalization. This means that we are going back to the normal, where the US middle class is not that different from the middle classes from the rest of the world. 

The US middle class will get poorer, while the rest of the world will leave abject poverty and join a new, more modest middle class. And both the poorer US middle class and the emerging global middle class will meet at some middle ground. 

It is a "return to the mean" and that cannot be changed.  This is where the decline of the US middle class is coming from. There are no political solutions for it. It is the way it is. Any politician who claims to be able to restore "the good old days" is lying.

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