Why is the American middle class disappearing? Even though capitalism has been seen as the preferred economic system, people are beginning to wonder if that remains true about today’s capitalism.
Capitalism is an economic system that, through competition, drives the prices of goods and services to the lowest possible levels, which benefits the consumer while maximizing profits for the entrepreneur.
In order to drive the price of goods and services to their lowest levels, costs must be minimized. But since one of those costs is labor, there is constant downward pressure on wages, creating a natural deterrent to climbing the economic ladder.
In today’s capitalism, most of the income and wealth rise to the top one percent. While millions of families have a hard time making ends meet, the super-rich sit back and rake in millions each year without lifting a finger.
Sign Up and Save
Get six months of free digital access to the Lexington Herald-Leader
So while there is constant downward pressure on wages, there are vast amounts of money necessarily percolating to the top, creating a larger and larger disparity between the top one percent and the rest.
The fact that huge numbers of CEOs and investment bankers receive multi-million-dollar incomes every year, while middle-class workers earn a fraction, dramatizes the point.
Another problem with today’s capitalism is that very wealthy individuals and corporations can legally bribe elected officials to enact laws that provide lopsided economic benefits such as beneficial tax legislation, lucrative government contracts and relaxation of regulatory requirements on monopolies and environmental stewardship.
The quest for profits and low costs has created an explosion of outsourcing to low-wage countries, resulting in the evaporation of millions of middle-class jobs. The most recent example: Boeing is opening a factory in China. And large-scale mergers result in a reduction in competition with higher consumer prices while at the same time, they eliminate middle-class jobs — a double whammy.
If we want to save capitalism from itself, we need to repair it.
First, we need to somehow remove so much money from the political process. It will take a constitutional amendment, but with the increasing amount of money contributed by a relatively few billionaires, capitalism will probably not survive without a fix.
Next, tax reform needs to charge everyone with their fair share of the cost. It is shameful that the 30 richest hedge-fund operators, with a combined wealth of $150 billion, pay a lower percentage of income taxes than most middle-class Americans.
The repeal of the Glass-Steagall Act was engineered by Wall Street in 1999, allowing banks to gamble with depositors’ money. That bankrupted vast numbers of middle-class families. The law needs to be reinstated.
It is hard to understand that most presidential candidates want to substantially increase military spending. How much is enough? We already outspend the next nine countries on armaments, but once again, the special interests demand and receive these lucrative, wasteful military contracts to feather their nests.
For example, the F-35 fighter contract is now $163 billion over budget and seven years behind schedule. But it is “too rich to kill.” Further, most presidential candidates want to cut taxes on the super-rich, thus further exacerbating the rich-poor income disparity.
Finally, the most immediate, effective program to reinstate many to middle-class status would be a $15 minimum wage. It would lift almost all full-time workers out of poverty. It would explode consumer spending, create millions of jobs, business profits would soar in spite of slightly increased costs and the country would be put on a new prosperity trajectory.
Marty Solomon, a retired University of Kentucky professor, can be reached at firstname.lastname@example.org