Since the administration of President Lyndon Baines Johnson, the United States government has attempted to eradicate poverty with many social and welfare policies designed to help them. In that time, however, wealth redistribution in a time of economic collapse has helped both the poor and the wealthy, while the middle class has been buried.
A new chart released by the U.S. Census Bureau, Integrated Public Use Microdata and the University of Minnesota suggests that the wealth of the middle class has been deteriorating since 1989. The number of those earning between $30,000 and $90,000 has been steadily declining.
Meanwhile, when looking at data pertaining to the poor, incomes have gone up and the number of individuals exceeding the poverty rate has also gone up. The affluent in society earning more than $100,000 has dramatically spiked since 1989 when President George H.W. Bush entered office.
In Reuters’ special series titled “The Unequal States of America,” the news agency reported that there is a widening gap of rich and poor in Washington. The top five percent of households in Washington earn an average of more than $500,000 in 2011, while 20 percent generated an income of less than $10,000. This is a ratio of 54 to 1 from 39 to 1 22 years ago, which is the highest in the country.
It should also be noted that the top three earning counties in the U.S. actually surround Washington: Loudoun, Fairfax and Arlington Counties.
“The federal government does redistribute wealth down to struggling Americans. But in the years since President Lyndon Johnson took aim at poverty in his first State of the Union address, there has been an increasingly strong crosscurrent: The government is redistributing wealth up, too – especially in the nation’s capital,” the article stated. “The beneficiaries are not the billionaire financiers and celebrities who have come to personify income inequality in the 21st century. Yet the Washington elite are just as much part of the trend, having influenced laws and decisions that alter the entire country’s distribution of income.”
One important aspect of another chart shows that the median income in Washington has substantially soared since 1989 compared to the rest of the country, which has experienced a downfall of median income. In the same chart, the poverty rate is shown as roughly staying the same between 15 percent and 20 percent.
As ZeroHedge noted in its report Tuesday, “Crony capitalism for the wealthiest, scrappy socialism for the poorest, and everyone else (that soon to be extinct creature known as the middle class) left to fend for themselves.”
Indeed, the federal government’s policies have significantly helped the rich get richer. One example of corporatism, or crony capitalism, is the Trouble Asset Relief Program (TARP), which gave a $787 billion bailout to major financial institutions – Economic Collapse News reported that the figure swelled to $16 trillion.
Another example is the Obama administration’s loans and grants to green energy companies, such as Solyndra and Abound Solar, which left the taxpayers on the hook for approximately $2.6 billion. There are a lot of instances of crony capitalism in recent decades, including the gigantic tobacco industry supporting tobacco regulations and the giant pharmaceutical companies endorsing Obamacare.
(See this superb in-depth documentary about crony capitalism by Fox Business Network’s (FBN) John Stossel.)
One of the crucial ways to have influence in government is to have a lobbyist. That is why there was no surprise when it was reported by the Center for Responsive Politics (CRP) in 2009 that there were more than 12,000 registered lobbyists in Washington. These lobbyists spend nearly a quarter of their time swaying certain pieces of legislation that benefit their bosses, usually the large corporations.
When it comes to the poor, the U.S. federal government’s No. 1 expenditure is now welfare ($1.03 trillion). There are hundreds of social program, grants and social safety nets, like the Weatherization Assistance Program, Adult Basic Education Grants to States, Foster Grandparents and much more.
Many Austrian Economists argue that these policies that were designed to aid the less fortunate in the country not only hinder the poor from achieving economic success, but also makes them a dependent on the state.
The middle class may get hit hard with the potential fiscal cliff if Washington does not come up with a deal before Jan. 1, 2013. As ECN reported, 90 percent of American households will experience a tax hike; middle class Americans will see an increase of between $2,000 and $6,000 on their tax bill.
Furthermore, the policies of the Federal Reserve are also hurting the middle class and the poor because the freshly created money as it gets transferred throughout the economic system gets debased and is worth less. Also, the near-zero interest rates damage the savings of middle income individuals because as inflation devalues their savings and investments, there is hardly any interest on the amounts.
The decline in the middle class isn’t just prone to the U.S., but is a worldwide phenomenon.
According to Deutsche Welle, since 1998, the middle class has shrunk by seven percent from 65 percent to 58 percent, but officials note that the number is higher than most countries in Europe and in other parts of the Western world.
What to do about the middle class? Proponents of capitalism, free markets and Austrian Theory suggest lower taxes, a strong dollar, pro-savings public policies and getting the government out of the economy.