Economic Reality

There is an economic reality that without a strong middle class the economy of the United States will always be in trouble. Obviously the poorest among us do not have discretionary funds to spend and therefore do not create a great deal of demand for products and services other than necessities. The wealthy, while spending lavishly on non-essential products and services are too small a minority to act as economic stimulus. It is the 80% of the population that is in between the poorest and the wealthiest that, because of their large numbers can most influence the economy. When this group is fully employed and earning a reasonable income this group not only spends, but actually spends in excess of their actual earnings. This is a group that, in good times, is sufficiently confident that future earnings will increase and is not shy in spending up to the limit of hopeful future earnings. When this group loses the hope of increased future earnings they stop spending and no longer create the demand for products and services that is necessary for continued economic growth. Two things that have had the most detrimental effect on the growth of this middle 80% have been the promotion of supply side economics and the growth of executive compensation. Supply side economics or trickle down presumed that the focus of government’s economic stimulus mostly in the form of tax benefits towards the upper 10% would result in increased government revenues. Once in effect, this theory proved to be wrong, and as a result, government revenues declined. Along with the decline in government revenue was a decline in government employment and government spending. Both of these declines resulted in a loss of middle class jobs. The massive increase in executive compensation resulted in a significant loss of payroll revenue that could be directed towards middle class employees. Before the decline of the middle class growth, the top paid executives earned 40 times the lowest paid employees. Today, the top paid executive earns 400 times the lowest paid employee. The result is far less funds are available for lower and middle earners and massive down-sizing on the part of major employers of middle class employees. The third factor impacting the middle class and therefore the economy is the industrial engineering trend towards automation and less labor intensive uses of manpower. Lean manufacturing and robotics together combine to reduce the number of laborers needed to complete a particular task within a manufacturing organization. Finally, the trend to shift jobs off shore to countries with lower labor costs have resulted in job losses. Over the past few years, major employers of the middle class have eliminated over 2.5 million domestic jobs while, at the same time, have created over 2.9 million jobs in other countries.