Concerning the Middle Class
What is exactly the middle class? What does this class represent? The idea of middle class was created in the United States, in order to keep the Marx’s class concepts from establishing in American society. This class does not make any sense from an economical point of view, it is purely fictional, and this construct exists only because all the surplus financial resources are deliberately invested in the class. The only reason for the middle class to exist is as it includes the upper working class and the lower and middle bourgeoisie, and the management who surround the elites and through whom the elites can control the rest of the population. From the point of view of the modern bourgeois state, with its model of financial capitalism, the middle class is a group of people with standard consumer behavior, not only in terms of goods and services consumption, but also from the perspective of service policy. This class is incorporates the ideals of behavior supported by the whole system of advertisement and education aimed at the maximum growth of consumption and the DE facto ban of more meaningful values. Accordingly, this group is a major insurance of social and political stability of the modern “Western” state. Also, note that its creation was made possible due to reallocation of many less technologically demanding productions to the “third world” or “developing” countries and in turn this allowed shifting redistribution of income in favor of the “developed” countries.
At the same time, today there is a serious problem with the middle class. This is due to the fact that the main source of its existence today is weakly associated with real income received by the members of this class. More precisely, when the middle class first appeared in the 60′s – 70′s, the resources of its formation were derived from “redistribution” of income within the whole of Western society (in the U.S. in the 60’s top income tax rate was above 90%) and from “plundering” of colonies and the “third world” countries. However, after the crisis of the 70’s a problem of that no resources could ever be sufficient to keep the class “alive” became evident. In the early 70’s there was even a serious feeling that the Soviet Union was winning in the competition with the West. At that time a decision was made that to keep the class “alive”, the number people who belong to the middle class should be increased dramatically and the only way to do this is through the consumer credit.
The need for consumer credit arose from the understanding that the real income of households in the 70’s fell quite seriously. In fact, given the real, rather than the official inflation (which government statistics always underestimate), these revenues on purchasing power did not grow since the early 80′s and income corresponded to approximately 1962-63. It is understandable, especially given the significant growth of various mandatory payments such as to various types of insurance, means that achievement of any more or less comfortable life in the present conditions is not possible in any way. Especially, considering the dramatic and constantly increasing number of people that are supposed to have this comfortable lifestyle as part of the middle class.
As a result of the above, implementation of the “Reaganomics” policies began in the early 80’s, the basic meaning of which was not so much in liberalization of the economy, but in simulations of private demand for goods through lending to consumers. This program, as you know, had its drawbacks, chief among which was the fact that the loans had eventually to be repaid. Until the early 80′s to get a new loan, one had to pay off the old one. The exception to this practice was only with mortgage loans, but there an assessment of the quality of a borrower had been made before the funds could be issued. Thus, in this situation, it was impossible to stimulate the demand for goods for any prolonged period of time as if a person takes a consumer loan for a short time, his demand would not increase but decrease instead as he would have to return not only the borrowed sum itself but also the interest on that sum.
In turn, this led to the need to change the whole model of private lending, which now allowed credit refinancing, leaving a balance of the old loan covered by the new one. In this situation, a guarantee to return the debts were various valuables, primarily of which was the real estate. But in order under such circumstances to prevent the debt from accumulating too rapidly, the cost of credit had to be steadily decreased. What happened over time was that the d rate of the Federal Reserve System, the lender of last resort in the United States and the world, fell by the end of 2008 to zero from 19% in 1980.
When the rate of Federal Reserve dropped to zero, the accumulated debt (in the United States it is for the average household in the fall of 2008 amounted to more than 130%, despite the fact that prior to the beginning of “Reaganomics” did not exceed 65%) began to constitute a serious problem about which we read almost every day in the news. But even more importantly was that if the government cannot lend more for repaying the debts, how could the middle class be supported?
It should be reminded that the real household income is now at the level of the end of 60’s (this is not including much larger debts and budget deficits). Now, if members of the middle class reduce their consumption, which is practically inevitable, their real incomes, which are already low, will begin to fall even further because of the wage cuts due to decreases in goods manufacture. Theoretically, this means that the level of income will have to roll back to at least to the 50’s level. Going back to the 50’s level would mean that there would be no middle class, and most importantly, that there would be no propaganda of “consumerism” as is no consumer. Instead of consumers there would be people who are used to spend their resources rationally to satisfy their real needs, not the ones forced upon them by advertisement.
In this case we are not talking about hundreds of thousands or even millions of people, we are talking about dozens, if not hundreds, of millions of people. At this point, moving production back from the Southeast Asian countries will not save anyone here. Yes, this can create a number of jobs but cannot increase salaries to the levels expected in United States, as otherwise the whole process is simply not profitable. Thus, moving production back to the States cannot fundamentally change anything.
From all of the above it should be clear that the middle class cannot be “saved” as there simply no resources for that. Note that in the European Union the situation is even worse because people there have less resources that in the States. So today an answer to a question of how the US and the EU will come up with a solution for the problem of destruction of their backbone, the middle class, is of great importance. Most likely, the relevant discussions amongst country leaders are already underway, yet they are still not publicly announced. However, judging by the information leaks, the governments plant to increase state control over the people. The only problem with this “solution” is that more control does not change the economic model and this means that there should be some constructive solution instead. So far there are no any actions to do that, first of all because there is only a small group of people acquainted with the “ekonomiksism” model of economics.
Тranslated by Anton Toukaev. All rights reserved.
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The original material is in Russian and can be accessed at “worldcrisis.ru”.