A MIDDLE CLASS MANSION

My parents married on January 12, 1957 at the ripe old age of 24. Until that time, my mother lived with her parents (Dorothy and Edward McGrath) in their rental apartment on Sacramento Blvd. (The photo above depicts my mother racing out of their apartment building – late for her own wedding after crawling around in the apartment on her hands and knees in her wedding dress helping my grandfather look for his lost cufflink!)? ?

Like my mother, my father also lived with his parents (Bernice and Patrick Harney) in a rental apartment. They lived on Damen Ave. Neither set of my grandparents ever owned their own home. My parents grew up living in rented apartments all of their childhoods and continued to be renters for several years after they were married. ?

?So it was a big deal when my parents were finally able to purchase their own home. It was an even bigger deal that this new home was also new construction. The neighborhood where my parents purchased their home (Ashburn) mostly consisted of single family homes. It was a middle class neighborhood of firemen, policemen, and city workers. Most every family owned their own home and were securely situated in the middle class with strong wages and solid pensions.??

America's middle class was at its height then, in the late 1960s. But it has been shrinking ever since. The rich are getting richer and the poor are becoming poorer. This is mostly due to increasing income disparity.? Between 1970 and 2021, the share of U.S. aggregate income earned by the middle class shrunk from 62% to just 42%. At the same time, high income earners increased from 29% to 50%.? ?

A main cause for the widening income disparity is the huge pay gap. According to one study, CEO pay skyrocketed by 1,322 percent between 1978 and 2020, while typical worker compensation rose just 18 percent. In 1965, the CEO-to-typical-worker pay ratio was just 20-to-1. In 2021, it was 399-to-1. ?

It was not always that way. ?

In response to the inequality of the early 1900s, policymakers had leveled the top down through?taxation and leveled?the bottom up mainly through unionization.?There was gang buster growth in America post WWII. The U.S. had an advantage over much of the world. It did not have to be rebuilt. This gave the U.S. a competitive advantage to make and sell stuff to other countries who were rebuilding. We had little world competition. It was a great time. But it wouldn’t last.

?By the late 1970s two things happened. Other countries started to catch up, becoming market competitors. And American policies coupled with the oil embargo resulted in high inflation, which, in turn, bloomed into a recession.

?Simultaneously, business theory began shifting. Milton Friedman’s “greed is good” influence of maximizing corporate revenues to increase returns for shareholders began to resonate. Consequently, companies sought to lower costs and maximize profits by moving operations wherever cheapest. Typically, that meant offshore. Plus, in going offshore companies avoided more stringent U.S. workplace and environmental regulations, allowing working conditions offshore that would be illegal in the U.S.?

?The?1970s dismal economic situation was the catalyst for 1980s government policies that promised to stimulate more economic growth. These policies did stimulate growth. But it was uneven. The main beneficiaries were the rich.?

?Labor unions came under attack. Top marginal tax rates were reduced in an attempt to direct more money toward private investment rather than the government. And the deregulation of corporate and financial institutions was enacted. This resulted in mergers of companies who then gained market power, raised prices, held down wages, and influenced government policy.

?With the offshoring of manufacturing and increased automation, non- college-educated workers in the South and Midwest were disproportionately harmed. Once the strength of unions declined, so did our shared prosperity. Since 1973, labor productivity has almost doubled, while median wages have only increased by 4%.?

?Can the middle class be saved?

?There are many ideas floating around. Most require government or corporate policy changes. Some include enabling employee ownership, decoupling health insurance from work, subsidizing child care, making home ownership more affordable, and enacting worker tax credits.?

?Surprisingly, one long term idea involves A.I. One researcher likens A.I.’s future impact to that of the industrial revolution. Initially, the industrial revolution was feared by workers as it obliterated the work of skilled artisans. Eventually, manufacturing required some skill and created many more good paying jobs than it destroyed–jobs that did not require a college education.?

Similarly, A.I. may initially displace some workers.?But it could make lower-skilled workers much better at their jobs. One study found that less-skilled writers using Chat GPT ended up getting much better at writing. These lower-skilled workers summarized literature, wrote a decent document, organized a schedule, did medical analysis, and designed a product. In other words, jobs that are currently reserved for more elite workers could be done with lower-skilled workers. That not only could make products and services cheaper, it could also open up opportunities for more people.

?For now, experts say there still are some things the middle class can do to help hold their place in the economy. They can get serious about investing, pay off debt, and acquire skills that will lead to? better?paying jobs.

Many people believe that estate planning is only for the rich, not the middle class. They are wrong. Everyone can benefit from estate planning. It allows you to keep the court system out of your and your family’s lives, reduce costs, and make things all around easier on everyone.