Book review: “The Vanishing Middle Class”

13

a book review by: R. Sukhu

In his book “The Vanishing Middle Class: Prejudice and Power in a Dual Economy”,  Peter Temin, professor of economics  emeritus at MIT, describes the US as a divided nation – divided both economically and politically.  He describes how the wealthy have used their economic power to nullify the voting power of the majority, in essence dismantling democracy.

Professor Temin argues that the US now fits the dual economy described by W. Arthur Lewis in 1954. The Lewis Model divides a country into 2 sectors: the capitalist sector and the subsistence sector.  In Lewis’ time, his analysis was about underdeveloped countries.  Today the author applies the Lewis Model to the so called first world economies, specifically the US. That the US now conforms to the Lewis Model is telling.

Temin looks at the US economy as a dual-economy, the first part he calls the Financial, Tech and Electronics (FTE) sector and the second part is the rest.  The FTE sector consists of about 20% of the US population, the remaining 80% is made up of low-skilled workers or what he calls the low-wage-sector.

The author provides an analysis of how the FTE sector uses its economic dominance to control the political process, especially finance and taxation.  He shows how the elites, specifically the upper echelons of the FTE sector, have gained control over the levers of government by using their massive wealth to manipulate the process. The top 1% of the 1% provided over one quarter of all political contributions in the 2012 election – that buys a lot of influence.

The historical and widely accepted view of US democracy is one where elected politicians more or less, grosso modo, follow the views of the majority of voters. This is called the Median Voter Theorem.  Since the low-wage sector comprise more than half of the population, policies should tend to favour the low-wage sector.  But this is not the case as is clearly illustrated with the issue of the minimum wage.  The low-wage sector would prefer a higher minimum wage yet the minimum wage has not been raised for many years.

An alternative theory on how democracy operates is The Investment Voter Theorem.  It is based on the idea that investment is what is required to educate voters.  Just as business must spend money to get their messages to consumers so too must political parties.  Money is used to buy ads and provide political education to voters.  Investors use their money to compete to get their message to the voters. Of course, the funders or investors expect a return on their investment and naturally they will fund only initiatives and policies that benefit them. (Money driven politics.)

The research shows that: “When the interests of the majority opposed those of the elites, they almost always lost out in political contests. The strong status quo bias built into American politics also made it hard for the majority to change policies they disagreed with. In short, the Investment Theory of Politics is a far better predictor of political contests than the Median Voter Theorem.”

The book references research by Bartels that demonstrates that elected representatives ” … attached no weight at all to the views of constituents in the bottom third of the income distribution. The views of middle-income constituents seem to have been only slightly more influential.”

When the overwhelming majority almost always loses and elected politicians ignore the views of their constituents, this raises questions about the efficacy of democracy as practiced in the US.

Temin argues that the FTE sector’s goal is to keep the low-wage sector as low paid as possible.  Attitudes vary as one moves from the lower end of the FTE sector to the top 1% but in general they are unified in their desire to restrict spending on social programs.  Surprisingly, researchers ( Page, Bartels and Seawright ) were able to gather data from the very private top 1%.  The top 1% want small government, spending cuts on social programs and tax cuts that benefits the wealthy.  They favour privatisation of education, reduced regulation and they rejected federal programs designed to help the unemployed. Their goals are summarised by Temin “… they want to undo the New Deal. ”

“Racecraft” is Temin’s term for the technique used to convince the low-wage sector to support the policies of the FTE. The low wage sector is 80% of the population and the majority is white. Race is used to manipulate white low-wage voters to act against their self-interest.  How? By concocting and promoting the message that most welfare and social aid goes to blacks – this convinces white voters that their hard-earned dollars are being used to fund undeserving blacks.

The recent rejection of federal funds to enhance Medicaid by some states is an example of racecraft at work.  The federal government offered to pay the entire cost of Medicaid for three years and then 90 percent after that.  This offer by the federal government “has been vilified as serving African Americans” and 19 states have refused the Medicaid expansion.

What possible explanation can there be for 19 state governments refusing free money to help their citizens?  Temin’s explanation is that the US is substantially an oligarchy and “an oligarchy will not willingly provide social insurance for all.  Only a functioning democracy will do that.” The state governments (in the case of the 19 states) have to want to offer security and insurance but such a policy runs counter to the goals of the FTE sector. It is the FTE sector that sets policy, this combined with the use of unlimited private money to manipulate political messages ends up convincing those in the low wage sector to forego a program that will benefit their lives.

One of the only ways out for low-wage families is education.  In its zeal for spending cuts, the FTE sector is looking towards the privatisation of the education system.  The following dismaying quote sums up Temin’s position:  “It might be thought that schools that serve the poorest children would get the most resources in a democracy, but the opposite is the case in the United States today. This is because the FTE sector does not want to help the low-wage sector; history matters, and we live in an oligarchy rather than a democracy.”

The conspicuous point made by Temin is that the US is essentially an oligarchy.  The litmus tests for democracy are that elected politicians reflect the views of their constituents and that the government more or less reflects the wishes of the majority.   The political equality of all citizens is fundamental to democracy. The research shows that in the US, these tests for democracy fail; politicians rarely vote in the interest of their constituents.  Political equality is a farce.  Policy decisions are consistently set by the very wealthy and benefit the very wealthy. Voting once every four years is not democracy.

Does Temin offer any hope for the future?  He makes a direct link between the decline in democracy and the growth of inequality.  He uses France as a counterexample to the US; since 1980 France has not seen a growth in income inequality.  French policies have opposed income inequality whereas American policies encourage it.  The last words of the book are a quote from Piketty “The resurgence of inequality after 1980 is due largely to the political shifts of the past several decades, especially regarding taxation and finance.” If there is any hope of restoring democracy we must address income inequality.