Death of Democracy?

The concentration of wealth, and the destruction of the middle class

By Mike Krauss
Bucks County Courier Times
27 September 2011

The changes have been taking place for 40 years, but so gradually that the American middle class was not alarmed. People are like that. We can adjust to enormous change if it occurs gradually.

So it crept up on the American middle class: 40 years of flat wages, expensive credit substituted for income, two wage earners and multiple jobs to keep heads above water, jobs off-shored and American manufacturing decimated, wages further depressed by an over-supply of labor created by unchecked and mostly illegal immigration, taxes that favored the wealthy, banking laws and deregulation that allowed the finance industry to get a stranglehold on the American economy and government.

It is as if the American house had been infested by termites, but nobody noticed until the roof began to fall in. Suddenly, we can see how the house has been ravaged.

Poverty is rampant, millions of the middle class pushed down the ladder which generations expected to climb. Fantastic wealth has been concentrated among the few as never before.

The massive damage done is expressed in a chart recently published with surprising candor by the Federal Reserve and labeled “Owners Equity in Household Real Estate.”

It shows that in 1951 Americans held about $250 billion in home equity; about the time the GI Bill began not only to put veterans through college, but also to support the home ownership which created the modern suburbs and middle class.

By the time of the 2008 Wall Street crash and bail out, that equity had grown to almost $14 trillion, its growth virtually immune to the periodic recessions in the U.S. economy.

Even adjusted for inflation, that is a lot of wealth and represents what post World War II Americans achieved: the creation of the greatest and most broadly shared prosperity the world had ever seen — the rise of the American middle class.

With the crash, home equity fell off a cliff and has now been cut more than in half. It is falling still. Those Americans who owned most of that real estate, the middle class, have lost about $7 trillion of their wealth.

That wealth will not disappear. It will be transferred to the already wealthy. The new American way.

An industry trade group, Realty Trac Inc. reports that the sale of foreclosed homes accounted for 31 percent of home sales in the last quarter. These homes were not purchased by the poor, the unemployed or the struggling middle class. They were purchased — at bargain basement prices — by the already wealthy. Why would they do such a thing in a depression?

Because the economy only moves one of two ways: up or down. And when this depression ends, home prices will once again go up, and these assets will make the wealthy even wealthier.

Meanwhile, these homes will be rented. And millions of once middle class Americans will go from homeowners to home renters, and their wages will not be invested in an asset, but instead will go as rents to the wealthy.

Further, the Obama administration has floated the idea of ending the home mortgage interest deduction in the tax code, and providing rental assistance.

So the middle class taxpayer who still owns a home and pays taxes will lose that deduction, and be taxed to provide the money to be paid as rents to the new suburban slumlords.

Middle class Americans are experiencing a disaster of historic proportions. It was entirely man made. But, what to do about it?

A place to start is to stop listening to the prevailing narrative that Washington is dysfunctional and can’t get anything done because of partisan wrangling. That is a false and intentionally misleading narrative from a captured national media, whose owners fear the day the American middle class wakes up.

Washington gets plenty done. Doing nothing is a policy, the policy of keeping things the way they are.

Americans must wake up to the fact that high unemployment, home foreclosures, and out-of-control militarism, the destruction of the middle class and the legislation of every device known to man to preserve, protect and defend the wealth of the wealthy are the intended policies of the federal government.

The American political establishment is not bumbling. It is bought.

Political power flows from wealth. When the wealth of a nation is shared among the many, when there is a middle class, democracy can flourish. When wealth is concentrated, democracy dies.