Chapter 6: How the American Dream of a middle class helps democracy

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How the American Dream of a middle class helps democracy

The Organization for Economic Cooperation and Development (OECD) was created out of an earlier Europe-only group (that led, in part, to the European Union) in 1961. Its purpose stated purpose was to promote economic “progress” and trade among nations. Its member nations include most of the developed world, encompassing 1.4 billion people and representing fully 62.2 percent of nominal global GDP.

Its first members included Austria, Belgium, Canada, Denmark, France, West Germany, Greece, Iceland, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, United Kingdom, and the United States, with Japan, Finland, Australia, and New Zealand added in the 1970s.

The OECD was formed out of an earlier neoliberal consensus that argued increasing unregulated trade among nations would inevitably lead to more democracy and a more robust middle class. Sadly, that belief has not panned out, as I explain in detail in The Hidden History of Neoliberalism.

In 2019, the OECD completed a multi-year comprehensive analysis of the state of the economies and citizens of its country members. What they learned, following four decades of free trade, tax cuts on the rich, a dialing back of the welfare state, and significant deregulation of corporate and monopoly activity (these being the four “pillars” of neoliberalism) must have been disheartening to those still pushing these policies.

Titled Under Pressure: The Squeezed Middle Class, the report was blunt in its findings. In its foreword, it pointed out that a middle class — the essence of the American Dream — is essential to sustain both a functioning economy and a democracy.[lxi]

“A strong and prosperous middle class,” its authors wrote, “is crucial for any successful economy and cohesive society. The middle class sustains consumption, it drives much of the investment in education, health, and housing and it plays a key role in supporting social protection systems through its tax contributions. Societies with a strong middle class have lower crime rates, they enjoy higher levels of trust and life satisfaction, as well as greater political stability and good governance.”

Sadly, they note without quite admitting it, their previous promotion of neoliberal policies has had an outcome quite different from their original goals:

 “However, current findings reveal that the top 10% in the income distribution holds almost half of the total wealth, while the bottom 40% accounts for only 3%. The OECD has also documented that economic insecurity concerns a large group of the population: more than one in three people are economically vulnerable, meaning they lack the liquid financial assets needed to maintain a living standard at the poverty level for at least three months.”

All in all, the statistics across the OECD — and particularly the trend lines — resemble those of the US over the years since the Reagan/Thatcher revolutions. The good news is that this has led the OECD to rethink their previous neoliberal policy proposals and advocacy, reinventing themselves for the 21st century:

“For its part, the OECD has called for a new growth narrative that puts people’s wellbeing at the centre. Its New Approaches to Economic Challenges and Inclusive Growth initiatives aim to upgrade the OECD’s analytical models and measurement tools, to better understand the functioning of our economies and promote policies that integrate considerations of equity ex-ante.”

The state of the American Dream isn’t that different from what the OECD found across their member states, as virtually all have embraced, to greater or lesser degrees, the neoliberal policies promoted by Reagan and Thatcher in the 1980s. When Reagan came into office, for example, a bit over 60 percent of all income in the US went to middle class families; by 2020 that number had collapsed to 42 percent.[lxii] Meanwhile, the income of the top ten percent of Americans went from 29 percent in 1981 to over 50 percent today.[lxiii]

As the Rand Corporation points out, this forty-year-long trend has hit families hard.

“Earnings have been flat or stagnant for many middle-class workers in the United States while health care, education, and housing costs are rising.”

When Reagan was elected in 1980, healthcare costs were only 8.9 percent of GDP, in large part because almost every state required hospitals to be nonprofit and the drug marketplace was diversified and competitive.[lxiv] A large effort by the Reagan Revolution was to encourage states to drop that nonprofit requirement, and in 1983 President Reagan directed his DOJ, FTC, and SEC to largely drop prosecutions for anti-trust violations.

When I grew up in Lansing, Michigan that state had a law requiring hospitals to be nonprofits: there were three nonprofit hospitals in town (Sparrow, St. Lawrence, and Ingham Medical). That law was repealed in 1980, so now all three are now for-profits.[lxv]

As a result, today healthcare costs are nearly 20 percent of GDP (19.7% in 2020) and mark a significant drain on the income of both working people and the federal government.[lxvi]

It’s the same story with education costs. Doing away with federal education support was a big part of Reagan’s agenda (he ended free college via the University of California system as governor in the 1970s) and, as a result, today America’s students and former students carry over $2 trillion in student loan debt.[lxvii]

And housing costs have also exploded, in large part because hedge funds and institutional and foreign investors have jumped into single-family residential housing as an investment have overwhelmed the market, particularly since the Bush Crash of 2008. As CNBC financial analyst Emmie Martin CFP noted in 2018: “Houses weren’t always this expensive. In 1940, the median home value in the U.S. was just $2,938. In 1980, it was $47,200, and by 2000, it had risen to $119,600. Even adjusted for inflation, the median home price in 1940 would only have been $30,600 in 2000 dollars, according to data from the U.S. Census.”[lxviii] The median home price in 2022 was $390,000.

When the middle class is buffeted by the winds of neoliberalism and the richest in America suck up most of the income and wealth, the impact isn’t only economic. People experiencing financial hardship often look beyond democracy to smooth-talking strongman types to “save” them. FDR pointing out that “necessitous men are not free men” is only part of the equation; necessitous men (and women) often stop seeking or valuing freedom, trading it away for what they believe will be financial security.

As the OECD noted in the report mentioned earlier:

“The middle class champions political stability and good governance. It prevents political polarization and promotes greater compromise within government. Middle classes also provide a solid basis to build a democratic state, not only by financing it through taxes but also demanding regulations, enforcement of contracts and the rule of law.”