Barack Obama’s economic record looks great. The economy he inherited was in the worst shape since the Depression, with the financial system on the ropes and the labor market in shambles. America’s excesses were blamed for spreading the crisis around the world, so its economic leadership was suddenly in question.
But over the past six years the ship was righted and, amidst bleak economic news elsewhere, the United States once more stands as a paragon of economic strength. All three major stock market indices are at all-time peaks, corporate profits are at a record and the jobless rate is back to its pre-crisis lows. Consumer confidence and consumer spending are rising along with an uptick in wages.
But there is a paradox at the core of Obama’s legacy. No other president has spoken more about the need to help the middle class, and yet on his watch the middle class suffered an unprecedented deterioration of its economic position, both in relative and absolute terms. Various statistics, including the tri-annual survey of consumer incomes and net worth by the Federal Reserve, show that the recovery has been shared unevenly, with the lion’s share of gains accruing to the highest income brackets.
Much has been made about the enormous enrichment of the top 1% of households, or the richest 0.5%, who now own as much wealth as the bottom 90%. But the scary part of the story occurred in the middle third of the income brackets. According to the Fed, between 2010 and 2013, the years of economic recovery, the top third of American households saw an increase in their net worth measuring 7.3%, to over $600,000 in constant dollars. The bottom third suffered an 11.4% decline, to less than $10,000. The middle third was stagnant, at $96,500.
What actually happened within this middle-income third is the stratification of the middle class. Some households saw their assets increase even as others experienced a decline. The resultant impact was a wash.
Adding to this problem are different rates of inflation faced by those who have money and those who don’t. Luxuries and even quality products have been rising in price much faster than basic goods and services included in the standard consumer basket. Incidentally, their ability to raise prices accounts for the fact that companies in the luxuries sectors have been consistently strong performers in the stock market—with healthy results maintained during economic cycles.
In the auto industry, while producers of family cars have been on a rollercoaster ride, BMW and Daimler have been consistently profitable. Volkswagen is vying for global leadership among volume car makers largely thanks to strong profits at its Audi and Porsche brands.
Divergent economic positions have led to social divisions. America is still a land of opportunity, and college education remains the surest path to success. But tuition at private school averages $40,000 a year, more than twice the $15,000 at public schools. Student now graduate with $30,000 in debt—even though most attend state schools.
While Bloomberg publishes articles headlined “The Value of a College Degree is More Obvious Than Ever”—and a recent study puts the average lifetime difference in earnings between college and high school graduates at $1 million—Mike Bloomberg (ranked 14th on the Forbes billionaire list) advised American high schoolers to become plumbers.
Higher paid jobs are concentrated along the coasts and in metropolitan areas in the heartland. Real estate values in cities have been rising—along with inequality. The National Association of Realtors found that in 90 of the 100 urban areas it surveyed, homeownership rates have declined, leading to a rise in the Gini coefficient, the common measure of differences in income.
Bureau of Economic Analysis data show that in coastal states consumers spend 50–70% more on health care, food and shelter. Even though both average and minimum wages are also higher there, many low earners are moving to lower-cost regions.