Editor’s note: Marshall Brain – futurist, inventor, NCSU professor, writer and creator of “How Stuff Works” is a contributor to WRAL TechWire. Brain takes a serious as well as entertaining look at a world of possibilities for Earth and the human race. He’s also author of “The Doomsday Book: The Science Behind Humanity’s Greatest Threats.”
What if we, as American citizens, started asking ourselves questions like these:
How can we make life better for all Americans? How can we improve the economy so that everyone benefits? How can we strengthen and enlarge the middle class in the United States? These are questions that should be near and dear to all of us. If we are going to live in a society, why not live in one that is working to make life better for most of its citizens?
Last year, one of the most popular articles I have written on WRALTechwire focused on the enormous wage gap that has opened up for middle-class America.
The article calculates the cost to live a “normal middle-class life” for a family of 4 in the United States today. The family wants to live in a normal house, drive normal cars, eat normal food, take the occasional vacation trip, etc. in a typical city like Raleigh, NC. What we find in the article is that, if we add it all up, it takes more than $200,000 per year in income today to live this normal lifestyle. America has arrived at the point where it is becoming nearly impossible for most “normal Americans” to be stereotypically middle class anymore. Only 3% of households make $200,000 per year.
Why has this happened? It is a combination of wage stagnation (AKA the wage gap), and what we now refer to as the cost-of-living crisis. There has also been a set of policy decisions that batter the middle class. It starts to feel like death by a thousand cuts.
It is incredibly helpful to look at some of these policies and trends, especially in combination. And to make it more fun, let’s do it with a set of memes that are floating around on the Internet. Each meme tells a part of the story. If we could reverse all these regressive trends, life for everyone would be better.
To put it another way: Where has all the money gone? Why are Americans being paid so little? Why is the cost of living rising so fast? Let’s take a look …
Let’s start with share buybacks
“Share buybacks” might sound like a rather esoteric thing to start with, but buybacks clearly demonstrate how money is being taken from the middle class and handed to the wealthy class. Here is a typical meme from the Internet:
A “stock buyback” occurs when a company uses money from its profits to buy back shares of its own stock from the stock market. This generally has the effect of raising the stock’s price by reducing the supply of stock in the market. Classic supply and demand stuff. Since a large portion of all stock is owned by the wealthy class rather than the middle class, the benefits of stock buybacks go disproportionately to the wealthy class.
Not so long ago, stock buybacks were illegal. They were considered to be a form of price manipulation. But they were legalized and companies started buying back their own shares in droves.
Here is a typical headline; just one example: Alphabet authorizes $70 billion buyback
“Google parent company Alphabet said on Tuesday that its board of directors authorized $70 billion in share repurchases. If Google ends up spending the entire amount on buybacks, it would represent a continuation of last year’s pace. Alphabet announced $70 billion in share repurchases in April 2022.”
In order to understand how much money $70 billion or $140 billion is, think about it this way: There are approximately 125 million households in the United States. Therefore, whenever we talk about a billion dollars, we are talking about $8 per household. When Alphabet uses $140 billion for stock buybacks, it represents $8 * 140 or $1,120 for every single household in America.
$1,120 is a staggering amount of money per household. And Alphabet/Google is just one company. Many large companies in the United States are doing stock buybacks. What if, instead of doing stock buybacks, Alphabet/Google sent a check for $1,120 to every household in America? It would be a huge win for American households. Now imagine if all of the companies doing stock buybacks did the same thing. It would be an amazing renaissance for the American middle class.
Or Google could create jobs. Imagine if Google created jobs paying $100,000 per year. $70 billion per year would fund a staggering 700,000 jobs.
A person well-versed in employment costs would point out that, in order to create a $100,000 job, it costs a lot more than $100,000 due to hiring costs, benefits, FICA, equipment costs and so on. Therefore, let’s assume that, all-in and in round numbers, it costs $200,000 to create a $100,000 job. Imagine what would be happening in the U.S. economy is there were 350,000 new jobs paying $100,000 per year. And then if hundreds of companies were doing this instead of stock buybacks. If all companies behaved this way, they could create millions of new, high paying jobs.
It helps you understand one facet of the problems facing middle class America. There is plenty of money to pay employees more and create lots of high-paying jobs, but huge piles of money are pouring into stock buybacks instead.
This video can help understand the problems with stock buybacks.
CEO and executive pay
Watching the prior video is so revealing. Besides explaining stock buybacks, it also explains why CEO and executive pay has exploded:
“Investors wanted to keep that money flowing. So they changed the ways that CEOs got paid. Instead of just earning a salary, CEOs could get a bonus if the company’s stock price went up. The quickest way to raise the stock price was to do a buyback, so CEOs started doing buybacks all the time. In 1982, the biggest American companies spent less than 1 percent of their profits on stock buybacks. By 2008, just before the recession, that share had jumped to 77 percent. Fast forward to today, and companies are spending 65% of their profits buying back shares of their own stock. The pay gap between American CEOs and workers has grown from 15:1 to 220:1 in less than a single lifetime.”
The explosion in CEO and executive pay is just like stock buybacks. The money could be going to workers – the middle class – instead of the executives – the wealthy class. And not so long ago, the money did go to workers as described in the video. By funneling the money to executives instead of workers, the middle class takes another hit.
Healthcare costs in the United States are out of control
Everyone in America, and especially any American who gets sick or hospitalized, knows that the healthcare landscape in the U.S. can be treacherous. Here is the first meme that gets at the problem:
Decoding the flags, what this meme is saying is that, taken together, Germany + France + the UK + Italy + Spain + Austria are spending about $1.2 trillion to provide universal healthcare to about 335 million citizens. Meanwhile, in the United States, we are spending about four times the money to provide healthcare to the same number of people. And even with that immense expenditure of money, a huge portion of the U.S. population is uninsured or underinsured, and many Americans are affected by medical debt. In addition, lifespans in the United States are declining.
How is America spending all this money on healthcare? It comes from:
- All the employers in America who are paying their part of the costs for employee health insurance policies.
- All of the employees in America paying their part of the costs for health insurance, including monthly insurance premiums, copays, deductibles, etc.
- All of the other Americans who use Obamacare and pay for their own health insurance (either because their employers are not providing a healthcare benefit, or a poor one).
- All the government subsidies that help pay for Obamacare.
- All the government spending on Medicare and Medicaid and the VA.
And so on…
If we take all these expenditures and add them up, the total is $4.5 trillion per year.
Here is the second meme, which describes one of the problems with a for-profit healthcare system:
Here we see share buybacks hitting the middle class again. Why is this practice allowed in the healthcare system? It is impossible to believe.
Here is one way to think about healthcare spending in the United States. Let’s imagine that we could create a universal healthcare system for America, just like all the other developed nations have. And let’s imagine that we wanted it to be the very best universal healthcare system in the world. Therefore, the United States is going to spend $2.4 trillion per year on our amazing, gold-plated, universal healthcare system for every American citizen. This is twice what other developed nations are spending on healthcare, but it is worth it because America has the very best system that is the envy of every other country on the planet.
If the United States did this, America would save approximately $2 trillion per year on healthcare compared to America’s current expenditures on its for-profit, not-universal system.
$2 trillion in healthcare savings represents $16,000 for every American household. And America would gain a far better healthcare system in the bargain. Imagine if we sent a check for $16,000 to every American household every year. It would be an amazing, uplifting experience for every American household. The benefits would be profound.
Housing costs in America are also out of control
Here is the first meme about housing:
This meme is talking about a current trend in corporate America, where companies are buying up thousands of houses in America and turning them into rentals. Here is a typical headline: Bezos-Backed Company Surpasses $100M In Single-Family Home Acquisitions While U.S. Housing Shortage Worsens
“The billionaire tech entrepreneur isn’t the only one betting on the U.S. becoming a nation of renters. Last November, JPMorgan Chase & Co. announced its joint venture to acquire and develop $1 billion worth of single-family rental communities. MetLife Investment Management estimated that institutions owned some 700,000 single-family rentals in 2022 and expects that number to reach 7.6 million homes by 2030.”
As these companies buy more and more houses in America, it causes at least three problems for middle-class Americans:
- It is harder and harder for normal middle-class Americans to buy a house and therefore to build equity through home ownership.
- The cost of housing rises.
- The rich get richer.
AirBnB has created a similar dynamic, taking houses and apartments out of the housing pool.
Here is the second meme about housing:
What this meme is getting at is the explosion in rental costs. In the current environment, many landlords can raise rents seemingly with abandon, and there really is nothing to stop them. It is often referred to as “the affordable housing crisis” in the United States.
“This year’s State of the Nation’s Housing 2023 report from Harvard University’s Joint Center for Housing Studies paints a stark picture of record unaffordability, near-record housing shortages and major barriers to first-time homeownership.”
The problem is that housing is essential. We cannot have households without housing. With the cost of housing rising so much, it can take a bigger and bigger chunk out of a household’s budget. Misery for the middle class rises.
The enormous cost of college
You might have heard an idea along the lines of, “boomers could pay for their college education with a summer job, while today this is impossible because of the enormous increase in the cost of a college education.”
As evidence, let me use the cost of my own college education. I went to a private university in Troy, NY, called Rensselaer Polytechnic Institute (RPI). This is the bill I paid for the Spring 1980 semester:
You can see that this bill covers tuition, room and board along with health insurance and an “activity fee”. In other words, this is the entire cost of a college semester in 1980 with the exception of books. Back in 1980, college textbooks were quite reasonably priced compared to today.
We can take the amount due here and multiply by two to get the annual cost of going to a private university in 1980: About $7,000.
If we look up the federal minimum wage in 1980, it was $3.10 per hour.
Therefore, in 1980 I could pay for a year of tuition, room and board at RPI by working 2,258 hours at a minimum wage job. We can see here that I could not pay for my college education at a private university with a summer job. However, if I had paid in-state tuition at a state school, it would have been close. This page says that the cost of annual in-state tuition at UNC in 1980 was $364, much lower than the $4,790 at RPI.
Now let’s look at the cost of college today. At RPI, the annual tuition has risen to $62,000 per year. Add in room and board and we are talking about perhaps $75,000 per year in round numbers. The federal minimum wage is $7.25. Therefore, it would take 10,345 hours of minimum wage work to pay for a year of college in 2024.
2,258 hours of minimum wage work in 1980. 10,345 hours of minimum wage work in 2024. This is the cost-of-living crisis for middle-class Americans brought to life. The same kind of thing has been happening with housing costs, healthcare costs and so on.
The concentration of wealth
This January there has been a flurry of articles talking about the massive amount of wealth flowing to the world’s richest people. For example:
“The world’s five richest men — LVMH chief Bernard Arnault, Amazon’s Jeff Bezos, investor Warren Buffet, Oracle co-founder Larry Ellison and Tesla CEO Elon Musk — have seen their wealth double since 2020 and are earning $14m an hour, Oxfam’s report said … Oxfam also found that wealthy people who hold shares in the world’s biggest food and energy corporations reaped dramatic profits in 2022. As those companies recorded huge returns, doubling their profits that year, they also paid out large amounts in dividends.”
“The richest 1 percent grabbed nearly two-thirds of all new wealth worth $42 trillion created since 2020, almost twice as much money as the bottom 99 percent of the world’s population, reveals a new Oxfam report today. During the past decade, the richest 1 percent had captured around half of all new wealth.”
“The report found that the combined fortune of the world’s wealthiest people — Tesla CEO Elon Musk, LVMH boss Bernard Arnault and family, Amazon founder Jeff Bezos, Oracle founder Larry Ellison, and veteran investor Warren Buffett — has jumped from $405 billion in March 2020 to $869 billion in November 2023. Oxfam used data from Forbes and Wealth X which has not been independently verified by CNBC.”
Think about this: Five people on planet Earth own $869 billion, and this is twice what they owned just a few years ago. All this wealth could be flowing to the middle class, but instead there is this concentration of wealth in an elite few.
The billionaire class as a whole owns trillions of dollars. In other words, they own unfathomable amounts of money. Instead of allowing all this money to concentrate in these few people, the money could instead be flowing to everyone else.
In this article, we have gotten a taste of the economic problems faced by middle class Americans. But we have barely scratched the surface. We are looking at the tip of the iceberg here. We would easily write a book that would also include:
- Tax cuts for the wealthy and corporations
- Additional facets of the cost-of-living crisis
- Corporate dividends
- Enormous cash holdings inside corporations
- The rise in corporate net income and profits
- Monopolies and duopolies
- The PPP loan fiasco
- Declining life expectancies
- Student loan debt
- Car prices
- The decline of unions
- And so on…
We could also talk about policies that are friendly to the middle class, like the Alaska Permanent Fund, and ways to drastically expand them for all Americans.
The point being that there are so many things that the United States could do to improve the lives of middle-class Americans, and to increase the size of the middle class.
The question being: will we ever do any of these things? For decades the American middle-class has been hammered by so many policies and trends that are economically detrimental. That’s why it is becoming so difficult to live a middle-class life in America today.
Will the United States come up with a comprehensive set of policies to improve things for the majority of Americans, or will the wealth continue concentrating instead?
- https://www.census.gov/quickfacts/fact/table/US/HSD410222 – number of households in United States.
- https://www.youtube.com/watch?v=ylLTMYt24lA – How American CEOs got so rich
- https://www.axios.com/2024/01/10/wealthy-own-record-share-stock-market – “About 93% of U.S. households’ stock market wealth is held by the top 10%.”
- https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/historical – “U.S. health care spending grew 4.1 percent in 2022, reaching $4.5 trillion or $13,493 per person. As a share of the nation’s Gross Domestic Product, health spending accounted for 17.3 percent.”
- https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/nhe-fact-sheet – “Medicare spending grew 5.9% to $944.3 billion in 2022, or 21 percent of total NHE. Medicaid spending grew 9.6% to $805.7 billion in 2022, or 18 percent of total NHE.”
- https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1447684/ – “We used to say that the United States shared with South Africa the distinction of being the only industrialized nation without universal health insurance. Now we don’t even have South Africa to point to. Almost 20% of the nonelderly population in this country lacks health insurance at any given time, and the disparities in access to care and health outcomes are very much greater in the United States than anywhere else from which there are reasonable data.”
Where you can find these memes
The memes shown in this article are easily found across the Internet, but here are specific examples of places to find them: