America’s Middle-Class: The World’s Richest No More

As the world’s richest country by a significant margin, it’s little surprise that the American middle-class — long the bedrock of our society, culture, and identity — has also long held the top spot for being the most well off globally. But a recent study just reported in the New York Times has confirmed what many in the U.S. have begun to notice: that in addition to its relative decline in global and economic clout, America’s  middle-class is following suit:

While the wealthiest Americans are outpacing many of their global peers, a New York Times analysis shows that across the lower- and middle-income tiers, citizens of other advanced countries have received considerably larger raises over the last three decades.

After-tax middle-class incomes in Canada — substantially behind in 2000 — now appear to be higher than in the United States. The poor in much of Europe earn more than poor Americans.

The numbers, based on surveys conducted over the past 35 years, offer some of the most detailed publicly available comparisons for different income groups in different countries over time. They suggest that most American families are paying a steep price for high and rising income inequality.

Although economic growth in the United States continues to be as strong as in many other countries, or stronger, a small percentage of American households is fully benefiting from it. Median income in Canada pulled into a tie with median United States income in 2010 and has most likely surpassed it since then. Median incomes in Western European countries still trail those in the United States, but the gap in several — including Britain, the Netherlands and Sweden — is much smaller than it was a decade ago.

In European countries hit hardest by recent financial crises, such as Greece and Portugal, incomes have of course fallen sharply in recent years.

…..

The struggles of the poor in the United States are even starker than those of the middle class. A family at the 20th percentile of the income distribution in this country makes significantly less money than a similar family in Canada, Sweden, Norway, Finland or the Netherlands. Thirty-five years ago, the reverse was true.

The results are all the more surprising given that the U.S. is not only still the world’s richest country overall, but a leader in various other metrics such as per capita gross domestic product that have continued to grow healthily. The discrepancy exposes the fact that these average do not reflect the actual distribution of income: a big share of all those continued gains in wealth and income gains is going to a relatively small number of high-earning households, a trend that’s far less pronounced in most other nations.

When one looks at median per capita income as opposed to average, it is $18,700 in the United States in 2010 — or, to put it another way, an after-tax income of around $75,000 for a family of four. While that’s up 20 percent since 1980 — when the U.S. middle-class was still the richest in the world — it’s been stagnant in real terms (e.g. after factoring in inflation) since 2000.

By comparison, when applying the same measure in to other countries in that span of time (between 2000 and 2010) the U.K. saw medium per capita income rise to about 20 percent , the Netherlands by 14 percent , and Canada by 20 percent. Furthermore, recent data mentioned in the article suggest that pay in Canada has risen faster than in the United States — and is now most likely higher — and has also risen higher in several European countries.

According to the study, one of the only other large economies to experience a similar level of stagnation over the past 15 years is Germany, whose heavily export-oriented economy has led policymakers to hold down the cost of exports by taking steps such as restraining wage growth.

But even in Germany, the poor and middle-class have fared better than in the U.S., where per capita income has declined far more rapidly across various income percentiles, and where Germany’s fairly generous public spending on things like healthcare and education don’t offer much respite from the ravages of poverty.

So what gives? Well, the Times article offers three probably explanations:

First, educational attainment in the United States has risen far more slowly than in much of the industrialized world over the last three decades, making it harder for the American economy to maintain its share of highly skilled, well-paying jobs.

Americans between the ages of 55 and 65 have literacy, numeracy and technology skills that are above average relative to 55- to 65-year-olds in rest of the industrialized world, according to a recent study by the Organization for Economic Cooperation and Development, an international group. Younger Americans, though, are not keeping pace: Those between 16 and 24 rank near the bottom among rich countries, well behind their counterparts in Canada, Australia, Japan and Scandinavia and close to those in Italy and Spain.

A second factor is that companies in the United States economy distribute a smaller share of their bounty to the middle class and poor than similar companies elsewhere. Top executives make substantially more money in the United States than in other wealthy countries. The minimum wage is lower. Labor unions are weaker.

And because the total bounty produced by the American economy has not been growing substantially faster here in recent decades than in Canada or Western Europe, most American workers are left receiving meager raises.

Finally, governments in Canada and Western Europe take more aggressive steps to raise the take-home pay of low- and middle-income households by redistributing income.

Indeed, the study confirms that wealthier Americans nonetheless retain their top spot despite the declining circumstances of most other groups:

 Americans at the 95th percentile of the distribution — with $58,600 in after-tax per capita income, not including capital gains — still make 20 percent more than their counterparts in Canada, 26 percent more than those in Britain and 50 percent more than those in the Netherlands. For these well-off families, the United States still has easily the world’s most prosperous major economy.

Granted, we mustn’t let the “grass is greener” mentality take hold. Middle-class families in other countries obviously have many worries of their own, some specific to their nation and others not unlike in the U.S. For example, many Europeans also wonder how they will pay for college, and hold a similar sentiment that the older generations had it better. Meanwhile, many Canadians nonetheless still struggle with the high cost of modern living, ranging from education to various bills. Furthermore, unemployment remains a consistent worry just about everywhere, with rates relatively higher now for most countries than before.

However:

“The crisis had no effect on our lives,” Jonas Frojelin, 37, a Swedish firefighter, said, referring to the global financial crisis that began in 2007. He lives with his wife, Malin, a nurse, in a seaside town a half-hour drive from Gothenburg, Sweden’s second-largest city.

They each have five weeks of vacation and comprehensive health benefits. They benefited from almost three years of paid leave, between them, after their children, now 3 and 6 years old, were born. Today, the children attend a subsidized child-care center that costs about 3 percent of the Frojelins’ income.

Even with a large welfare state in Sweden, per capita G.D.P. there has grown more quickly than in the United States over almost any extended recent period — a decade, 20 years, 30 years. Sharp increases in the number of college graduates in Sweden, allowing for the growth of high-skill jobs, has played an important role.

Elsewhere in Europe, economic growth has been slower in the last few years than in the United States, as the Continent has struggled to escape the financial crisis. But incomes for most families in Sweden and several other Northern European countries have still outpaced those in the United States, where much of the fruits of recent economic growth have flowed into corporate profits or top incomes. This pattern suggests that future data gathered by LIS are likely to show similar trends to those through 2010.

In other words, often-cited metrics of prosperity — such as economic growth, stock-market health, corporate profits, GDP (per capita and national) — mean little if the amount of wealth they represent isn’t actually being allocated in a way that benefits the broader society. Whether that redistribution occurs via the private sector — through investing more corporate capital in higher wages, benefits, etc — or through state-mandated welfare programs doesn’t seem to matter except in the technical details.

Ultimately, wealth needs to be better invested through some sort of mechanism — private, public, or both — to make the most out of a nation’s potential prosperity. This is especially relevant given that too much inequality and the subsequent decline in a broad, middle-class consumer base could  cause serious problems in the economy — for everyone. The U.S. clearly has the potential to do great things — from developing world-class nationwide infrastructure to funding big science initiatives and promoting a higher standard of living — but various socioeconomic structural problems are imposing visible limitations.

What are your thoughts?

The World’s Most Prosperous Countries

Measuring the prosperity of entire nations is no easy feat. The amount of data and research required is vast, and there are always concerns about methodology, subjectivity, and even conflicts of interest. Luckily, many different organizations – ranging from think-tanks and institutes, to publications and and nonprofits – have taken up the task, therefore providing us with a rough aggregate to work with.

So while the results will likely always be contentious, they’re likely to be as close to accurate as we’ll ever come (though methods are being improved upon each year). Below are some of the most up-to-date and popular indexes that purport to measure overall prosperity:

Forbes, a prominent business magazine, published a report on the world’s best countries to do business in. Nations were measured in 11 different factors obtained from 9 different sources. The countries are as follows:

  1. New Zealand
  2. Denmark
  3. Hong Kong
  4. Singapore
  5. Canada
  6. Ireland
  7. Sweden
  8. Norway
  9. Finland
  10. United Kingdom

The US places 12th, after Australia. This isn’t too bad, but it’s down from 10th place last year. Note how the majority of the countries at the top have such policies as high income taxation, subsidized education, and universal healthcare. The article details how some of them pull if off.

Meanwhile, the Legatum Institute, an international investment organization based in Dubai, has recently published its Prosperity Index for 2012, which is based on 89 different variables analysed across 141 nations around the world. Similar to the Forbes report, its source data includes Gallup World Poll, WTO, World Development Indicators, GDP, World Intellectual Property Organization, UN Human Development Report, World Bank, OECD, and World Values Survey. The 89 variables are grouped into 8 sub-indexes – such as education, health, and governance – which are averaged using equal weights. Their result was as follows:

  1. Norway
  2. Denmark
  3. Sweden
  4. Australia
  5. New Zealand
  6. Canada
  7. Finland
  8. The Netherlands
  9. Switzerland
  10. Ireland

As in the previous list, the US didn’t do too badly, also ranking 12th place. But arguably, for a country of such tremendous capital, innovation, and technology, we could do better.

Finally, the World Economic Forum has released its Global Competitiveness Report for 2012 to 2013 (in case anyone is wondering, the start of each new year is when all these indexes tend to get published). According to the WEF, the report “assesses the ability of countries to provide high levels of prosperity to their citizens. This in turn depends on how productively a country uses available resources. Therefore, the Global Competitiveness Index measures the set of institutions, policies, and factors that set the sustainable current and medium-term levels of economic prosperity.”

The study is quite extensive, being made up of over 110 variables, of which two thirds come from the Executive Opinion Survey, and one third comes from publicly available sources such as the United Nations. The variables are organized into twelve pillars, with each pillar representing an area considered as an important determinant of competitiveness.

Because it seems to prefer dividing countries by quartiles, this list ranks the top 30 (courtesy of Wikipedia).

  1.  Switzerland 5.72 (—)
  2.  Singapore 5.67 (—)
  3.  Finland 5.55 (+1)
  4.  Sweden 5.53 (-1)
  5.  Netherlands 5.50 (+2)
  6.  Germany 5.48 (—)
  7.  United States 5.47 (-2)
  8.  United Kingdom 5.45 (+2)
  9.  Hong Kong 5.41 (+2)
  10.  Japan 5.40 (-1)
  11.  Qatar 5.38 (+3)
  12.  Denmark 5.29 (-4)
  13.  Taiwan 5.28 (—)
  14.  Canada 5.27 (-2)
  15.  Norway 5.27 (+1)
  16.  Austria 5.22 (+3)
  17.  Belgium 5.21 (-2)
  18.  Saudi Arabia 5.19 (+1)
  19.  South Korea 5.12 (+5)
  20.  Australia 5.12 (—)
  21.  France 5.11 (-3)
  22.  Luxembourg 5.09 (+1)
  23.  New Zealand 5.09 (+2)
  24.  United Arab Emirates 5.07 (+3)
  25.  Malaysia 5.06 (−4)
  26.  Israel 5.02 (-4)
  27.  Ireland 4.91 (+2)
  28.  Brunei 4.87 (—)
  29.  China 4.83 (-3)
  30.  Iceland 4.74 (—)

In this case, the US seems to fare much better than in the other reports, and even China – which is usually a slouch in such indexes – does relatively well.  Meanwhile, countries like New Zealand, Australia, and Norway – which had all topped the prior indexes – rank relatively low. Take that as you will.

Finally, there is much-cited Human Development Index, undertaken by the United Nations Development Programme. The HDI is composite statistic of life expectancy, education, and income indices that ranks countries into four tiers of human development. Unfortunately, the 2012 report isn’t available yet, but rather than wait on that, I’ll share 2011 for now. It also works through quartiles, so here are the top 47 out of nearly 200 countries (again, courtesy of Wikipedia):

  1.  Norway 0.943 (Steady)
  2.  Australia 0.929 (Steady)
  3.  Netherlands 0.910
  4.  United States 0.910
  5.  New Zealand 0.908
  6.  Canada 0.908 (Steady)
  7.  Ireland 0.908 (Steady)
  8.  Liechtenstein 0.905
  9.  Germany 0.905 (Steady)
  10.  Sweden 0.904
  11.  Switzerland 0.903
  12.  Japan 0.901 (Steady)
  13.  Hong Kong 0.898 Increase
  14.  Iceland 0.898 Decrease
  15.  South Korea 0.897
  16.  Denmark 0.895 Steady
  1.  Israel 0.888 (Steady)
  2.  Belgium 0.886 (Steady)
  3.  Austria 0.885 (Steady)
  4.  France 0.884 (Steady)
  5.  Slovenia 0.884 (Steady)
  6.  Finland 0.882 (Steady)
  7.  Spain 0.878 (Steady)
  8.  Italy 0.874 (Steady)
  9.  Luxembourg 0.867 (Steady)
  10.  Singapore 0.866 (Steady)
  11.  Czech Republic 0.865 (Steady)
  12.  United Kingdom 0.863 (Steady)
  13.  Greece 0.861 (Steady)
  14.  UAE 0.846
  15.  Cyprus 0.840 (Steady)
  16.  Andorra 0.838 (Steady)
  1.  Brunei 0.838 (Steady)
  2.  Estonia 0.835 (Steady)
  3.  Slovakia 0.834 (Steady)
  4.  Malta 0.832 (Steady)
  5.  Qatar 0.831 (Steady)
  6.  Hungary 0.816 (Steady)
  7.  Poland 0.813 (Steady)
  8.  Lithuania 0.810 (Increase 1)
  9.  Portugal 0.809 (Decrease 1)
  10.  Bahrain 0.806 (Steady)
  11.  Latvia 0.805 (Steady)
  12.  Chile 0.805 (Steady)
  13.  Argentina 0.797 (Increase 1)
  14.  Croatia 0.796 (Decrease 1)
  15.  Barbados 0.793 Steady

Now, take into account that the standard HDI doesn’t factor in inequality, and the fact that many people in a given country don’t have access to the resources present. Here’s what happens when HDI is adjusted for inequality. The loss in percentage points due to inequality are also noted.

Rank Country IHDI HDI Loss
(%)
Rank
change
1  Norway 0.890 0.943 5.6 0
2  Australia 0.856 0.929 7.9 0
3  Sweden 0.851 0.904 5.9 5
4  Netherlands 0.846 0.910 7.0 -1
5  Iceland 0.845 0.898 5.9 5
6  Ireland 0.843 0.908 7.2 0
7  Germany 0.842 0.905 6.9 0
8  Denmark 0.842 0.895 6.0 4
9  Switzerland 0.840 0.903 7.0 0
10  Slovenia 0.837 0.884 5.3 7
11  Finland 0.833 0.882 5.6 7
12  Canada 0.829 0.908 8.7 -7
13  Czech Republic 0.821 0.865 5.0 9
14  Austria 0.820 0.885 7.4 1
15  Belgium 0.819 0.886 7.6 -1
16  France 0.804 0.884 9.1 0
17  Spain 0.799 0.878 8.9 2
18  Luxembourg 0.799 0.867 7.8 3
19  United Kingdom 0.791 0.863 8.4 4
20  Slovakia 0.787 0.834 5.7 7
21  Israel 0.779 0.888 12.3 -8
22  Italy 0.779 0.874 10.9 -2
23  United States 0.771 0.910 15.3 -19
24  Estonia 0.769 0.835 7.9 2
25  Hungary 0.759 0.816 7.0 3
26  Greece 0.756 0.861 12.2 -2
27  Cyprus 0.755 0.840 10.1 -2
28  South Korea 0.749 0.897 16.5 -17
29  Poland 0.734 0.813 9.7 0
30  Lithuania 0.730 0.810 9.8 0
31  Portugal 0.726 0.809 10.2 0
32  Montenegro 0.718 0.771 6.9 7
33  Latvia 0.717 0.805 10.9 -1
34  Serbia 0.694 0.766 9.5 9
35  Belarus 0.693 0.756 8.3 10
36  Romania 0.683 0.781 12.6 1
37  Bulgaria 0.683 0.771 11.4 3
38  Croatia 0.675 0.796 15.1 -3
39  Russia 0.670 0.755 11.3 7
40  Ukraine 0.662 0.729 9.2 14
41  The Bahamas 0.658 0.771 14.7 -3
42  Kazakhstan 0.656 0.745 11.9 5
43  Uruguay 0.654 0.783 16.4 -7
44  Chile 0.652 0.805 19.0 -11
45  Bosnia and Herzegovina 0.649 0.733 11.6 7
46  Trinidad and Tobago 0.644 0.760 15.3 -2
47  Argentina 0.641 0.797 19.5 -13

Pretty interesting stuff, eh?

Looking at all these indexes – which are still just a handful of many – what patterns do you see with respect to the countries that typically rank the highest? What characteristics do they generally have in common?

Is Trust the Key to Sweden’s Success?

Sweden has long been hailed for its near-utopian balance between prosperity, progressive civil liberties, and economic competitiveness. Indeed, it’s one of the few countries in the world that manages to provide a generous, tax-funded welfare system while nonetheless promoting high economic growth and business freedom (a combination of policies that are seen as impossible to many Americans). Continue reading

Gallery

How We Measure Prosperity

As someone who studied economics (both formally and personally), I’ve never liked the way financial analysts, economists, and policymakers rely on GDP growth as an indicator of economic health or social well-being. While the measure may sometimes help to determine … Continue reading

Rate this:

Is Africa Entering a Golden Age?

According to this book being reviewed by Foreign Affairs, Africa is entering an unprecedented economic boom. A continent that’s long been a byword for poverty, disease, and misery is presumably rising – although we shouldn’t be complacent, given that the same old problems remain, topped off by troubling new ones: rising inequality, the emergence of piracy on both the west and east coasts, and the threat of climate change on both crowded coasts and agricultural yields.

Still, it’s nice to think that Africa is finally moving past the stereotype of being a perennially blighted and hopeless continent. The Economist also provides an encouraging report in this regard:

From Ghana in the west to Mozambique in the south, Africa’s economies are consistently growing faster than those of almost any other region of the world. At least a dozen have expanded by more than 6% a year for six or more years. Ethiopia will grow by 7.5% this year, without a drop of oil to export. Once a byword for famine, it is now the world’s tenth-largest producer of livestock. Nor is its wealth monopolised by a well-connected clique. Embezzlement is still common but income distribution has improved in the past decade.

Severe income disparities persist through much of the continent; but a genuine middle class is emerging. According to Standard Bank, which operates throughout Africa, 60m African households have annual incomes greater than $3,000 at market exchange rates. By 2015, that number is expected to reach 100m—almost the same as in India now. These households belong to what might be called the consumer class. In total, 300m Africans earn more than $700 a year. That’s not much, and many of those people could be pushed back into penury by a small change in circumstance. But it can cover a phone and even some school fees. “They are not all middle class by Western standards, but nonetheless represent a vast market,” says Edward George, an economist at Ecobank, another African banking group.

As for Africans below the poverty line—the majority of the continent’s billion people—disease and hunger are still a big problem. Out of 1,000 children 118 will die before their fifth birthday. Two decades ago the figure was 165. Such progress towards the Millennium Development Goals, a series of poverty-reduction milestones set by the UN, is slow and uneven. But it is not negligible. And the mood among have-nots is better than at any time since the independence era two generations ago. True, Africans have a remarkable capacity for being upbeat. But it is seems that this time they really do have something to smile about.

Check out both links, especially the extensive one from The Economist, and let me know what you think. As tenuous as it may be, Africa’s prosperity seems more within sight than it’s ever been.

The Plight of the American Middle-Class

As America’s intractable economic malaise continues along unabated, there’s been a lot of introspection and debate about why it all went wrong, why it isn’t getting better, and what we can do – if anything – to fix it. Much attention has been focused on the stagnation – or even outright decline – of the middle-class, historically the bedrock of the US economy and a powerful symbol of the equitable prosperity provided by quintessentially American values of hard work, liberty, and entrepreneurial spirit. The pursuit of the middle-class lifestyle – well-defined throughout popular culture, television sitcoms, and commercial advertisements – was an inseparable component of the American Dream – a goal that was realistic, wholesome, and fulfilling.

Most importantly, a growing and vibrant middle-class is both the indicator, and the enabler, of a healthy economy and society. People make enough money to buy the goods and services that drive the growth of businesses, and that in turn leads to more expansion and hiring, more people joining the middle-class, and thus more people continuing this virtuous cycle of mutual beneficence. Granted, no economic system is ever this idyllic, but the point is that we once had a economic system that was as close to ideal as we could’ve hoped for. It produced a solid-middle class that defined our culture, values, social and economic trends, and national success. That foundation of contemporary American power and progress is now, by many accounts, crumbling.

Unfortunately, time constraints restrict me from committing to the more voluminous research that I tend to prefer; though in a way, that suits me fine, sine my intention isn’t to throw out a lot of charts and figures, but rather to raise awareness and start a dialogue about the issue. I find that people are far less receptive to just a string of data then they are to a combination of some basic statistics and a well-developed argument about their significance. People are given something to think about and analyze, and with either develop grounds for disagreement -and thus useful dialectical discussion – or get spurred to do further research, perhaps bolstering the validity of the claims and assertions.

Therein lies the main article I’m focusing on in this post, a piece titled “The Limping Middle Class published in the  New York Times written by Robert Reich, a former Labor Secretary in the Clinton Administration  In it he highlights the troubling trends that are weakening Middle-class America and threatening the economic future of this country. I find his argument compelling, especially in light of other data that also shows the pervasiveness of shrinking incomes, stagnant wages, and higher debt among the once commercially active middle-American. Most crucially, he is not just making a moral argument, but a practical one as well:

THE 5 percent of Americans with the highest incomes now account for 37 percent of all consumer purchases, according to the latest research from Moody’s Analytics. That should come as no surprise. Our society has become more and more unequal.

When so much income goes to the top, the middle class doesn’t have enough purchasing power to keep the economy going without sinking ever more deeply into debt — which, as we’ve seen, ends badly. An economy so dependent on the spending of a few is also prone to great booms and busts. The rich splurge and speculate when their savings are doing well. But when the values of their assets tumble, they pull back. That can lead to wild gyrations. Sound familiar?

In other words, our economy cannot sustain itself on just the purchasing power of a relative handful of Americans. If most Americans see their income shrink or stagnant, then that means fewer purchases, less domestic business growth, and higher unemployment. All this will in turn kick of a vicious and self-fulling cycle: people aren’t buying goods and services because they aren’t making enough money, and they aren’t making enough money because companies won’t hire anyone, or won’t pay high enough wages to those they  do employ,since they can’t sell their products in the first place.

A perverse but often overlooked detail in all this is the fact that many corporations are in fact making plenty of money- overseas. After decades of outsourcing jobs, companies are also finding plenty of consumers abroad too, tapping into fast-growing emerging economies that are flush with cash. More and more Fortune 500 companies, among the largest employers in the nation, are making over 50% of their profits outside the US, meaning that the fortunes of Americans – including the once crucial middle-class consumer – are no longer a factor in their success. This decoupling between worker and employer, and buyer and sell, makes the chances for a recovery very bleak. If businesses can do more with less, and don’t need to hire or pay higher wages to sustain their sales, then what could possibly incentivize them to help drive the economy with all those resources they have?

Of course, big business is hardly the culprit in all this. The government has done it’s share of damage with ruinous policies, sleazy collusion with industry, and considerable fiscal irresponsibility. As Reich notes:

Most telling of all, Washington deregulated Wall Street while insuring it against major losses. In so doing, it allowed finance — which until then had been the servant of American industry — to become its master, demanding short-term profits over long-term growth and raking in an ever larger portion of the nation’s profits. By 2007, financial companies accounted for over 40 percent of American corporate profits and almost as great a percentage of pay, up from 10 percent during the Great Prosperity.

Some say the regressive lurch occurred because Americans lost confidence in government. But this argument has cause and effect backward. The tax revolts that thundered across America starting in the late 1970s were not so much ideological revolts against government — Americans still wanted all the government services they had before, and then some — as against paying more taxes on incomes that had stagnated. Inevitably, government services deteriorated and government deficits exploded, confirming the public’s growing cynicism about government’s doing anything right.

Indeed, it used to be that there was a relatively successful social contract between government and the people, and most importantly between worker and employer. Wealth and income used to grow across all income levels; employees had more job security, better benefits, and wages that actually grew with productivity; for a brief time, government used to spend more within it’s means, or wrack up debts that weren’t nearly equal to 60% of GDP. But the last 40 years have seen this stability get shaken up like never before, and quickly. As this chart shows, economic growth is eluding most Americans and making long-term prosperity highly questionable.

None of this is inevitable either. It’s been argued that all this is the unavoidable consequence of globalization, technological innovation, and greater competition abroad. Indeed, America was at it’s most prosperous during a time when it was the dominant economic power, and once emerging economies started to rise most prominently in 1990s, are economy started showing signs of strain. But as the data shows, growing inequality and economic stagnation were occurring long before the rise of economic rivals. The growth of China, India, Brazil, and others has merely exacerbated the situation. It is not inconceivable to adapt and grow in response.

Some say we couldn’t have reversed the consequences of globalization and technological change. Yet the experiences of other nations, like Germany, suggest otherwise. Germany has grown faster than the United States for the last 15 years, and the gains have been more widely spread. While Americans’ average hourly pay has risen only 6 percent since 1985, adjusted for inflation, German workers’ pay has risen almost 30 percent. At the same time, the top 1 percent of German households now take home about 11 percent of all income — about the same as in 1970. And although in the last months Germany has been hit by the debt crisis of its neighbors, its unemployment is still below where it was when the financial crisis started in 2007.

How has Germany done it? Mainly by focusing like a laser on education (German math scores continue to extend their lead over American), and by maintaining strong labor unions.

I would also add that relations between the public and private sector is far more amiable in Germany. There’s a stronger culture of collaboration, better coordination between business and state, and more formal structures for dialogue between workers, bosses, and politicians. Everyone has their skin in the game, and everyone has a voice, preventing the drift between entire segments of society that is starting to occur in the US.

Keep in mind that I am not trying to oversimplify this problem – I know multiple factors are involved, and there is more going on with the middle-class – and by extension the economy – then what is touched upon in this brief article. My overall point is that average Americans are finding it harder and harder to get by, and this will make obtaining an education or finding a decent job all the more difficult, in turn making US prospects as a whole more precarious, as each generation finds itself more overworked, more indebted, and less able to carry the weight of the American economy (and by extension the American government, which will see tax revenues falls with taxable income). We’ve spoken far more about debt and deficit, and devoted far less public discourse on what is arguably a more pressing and crucial issue.