Elizabeth Warren on ‘American Conditions’

You hear a lot about amerikanische Verhaeltnisse in Germany: nobody wants ’em coming across the Atlantic to Europe.  Meanwhile, the German middle class has shrunk (g) from 62% to 54% of the population, and the divide between the rich and poor is projected to grow even further (g) in the coming years if German growth remains anemic.  The problem seems to be that government programs that reduce these class divides are running out of money and will no longer be able to effectively counteract the forces driving wealth concentration and income inequality.

Something similar could happen across the Atlantic, although for different reasons: there, government policy and social transformations have eroded traditional institutions — such as strong unions and broad health coverage — that put the brakes on capitalism’s innate dynamic of accumulation.  Here’s law professor Elizabeth Warren on the "Coming Collapse of the Middle Class."

It’s not exactly Lost, but Warren interestingly challenges the conventional wisdom at points.  The long and short of it is that Americans are richer in real terms than they were 40 years ago, but much of this extra wealth is now already "pre-committed" to things like health and housing costs, which have soared in real terms.  The end result is that most of the income middle-class Americans now earn is already spent long before they earn it, leaving them with less and less money for savings or discretionary purchases.  Warren doesn’t think the U.S.’s negative savings rate show reckless consumption in middle America.  I’m not sure I agree there — there seems to be an awful lot of excessive consumption in the U.S.  But there’s no doubt, as Warren shows, that American families have much less economic flexibility than they did a few generations ago.  Millions live one illness or job loss away from a steep fall down the social ladder.

To sum up, you could say that the German government may no longer be able to keep its promise to help families stabilize their income; the U.S. government stopped making that promise altogether.