Can the Middle Class Be Saved?

Here is an excerpt from an article written by Don Peck and featured in the September 2011 issue of The Atlantic. To read the complete article, check out other material, sign up for free email alerts, and obtain subscription information, please click here.

Photo credit: Andy Reynolds/Wonderful Machine

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The Great Recession has accelerated the hollowing-out of the American middle class. And it has illuminated the widening divide between most of America and the super-rich. Both developments herald grave consequences. Here is how we can bridge the gap between us.

IN OCTOBER 2005, three Citigroup analysts released a report describing the pattern of growth in the U.S. economy. To really understand the future of the economy and the stock market, they wrote, you first needed to recognize that there was “no such animal as the U.S. consumer,” and that concepts such as “average” consumer debt and “average” consumer spending were highly misleading.

In fact, they said, America was composed of two distinct groups: the rich and the rest. And for the purposes of investment decisions, the second group didn’t matter; tracking its spending habits or worrying over its savings rate was a waste of time. All the action in the American economy was at the top: the richest 1 percent of households earned as much each year as the bottom 60 percent put together; they possessed as much wealth as the bottom 90 percent; and with each passing year, a greater share of the nation’s treasure was flowing through their hands and into their pockets. It was this segment of the population, almost exclusively, that held the key to future growth and future returns. The analysts, Ajay Kapur, Niall Macleod, and Narendra Singh, had coined a term for this state of affairs: plutonomy.

In a plutonomy, Kapur and his co-authors wrote, “economic growth is powered by and largely consumed by the wealthy few.” America had been in this state twice before, they noted—during the Gilded Age and the Roaring Twenties. In each case, the concentration of wealth was the result of rapid technological change, global integration, laissez-faire government policy, and “creative financial innovation.” In 2005, the rich were nearing the heights they’d reached in those previous eras, and Citigroup saw no good reason to think that, this time around, they wouldn’t keep on climbing. “The earth is being held up by the muscular arms of its entrepreneur-plutocrats,” the report said. The “great complexity” of a global economy in rapid transformation would be “exploited best by the rich and educated” of our time.

Kapur and his co-authors were wrong in some of their specific predictions about the plutonomy’s ramifications—they argued, for instance, that since spending was dominated by the rich, and since the rich had very healthy balance sheets, the odds of a stock-market downturn were slight, despite the rising indebtedness of the “average” U.S. consumer. And their division of America into only two classes is ultimately too simple. Nonetheless, their overall characterization of the economy remains resonant. According to Gallup, from May 2009 to May 2011, daily consumer spending rose by 16 percent among Americans earning more than $90,000 a year; among all other Americans, spending was completely flat. The consumer recovery, such as it is, appears to be driven by the affluent, not by the masses. Three years after the crash of 2008, the rich and well educated are putting the recession behind them. The rest of America is stuck in neutral or reverse.

Income inequality usually shrinks during a recession, but in the Great Recession, it didn’t. From 2007 to 2009, the most-recent years for which data are available, it widened a little. The top 1 percent of earners did see their incomes drop more than those of other Americans in 2008. But that fall was due almost entirely to the stock-market crash, and with it a 50 percent reduction in realized capital gains. Excluding capital gains, top earners saw their share of national income rise even in 2008. And in any case, the stock market has since rallied. Corporate profits have marched smartly upward, quarter after quarter, since the beginning of 2009.

Even in the financial sector, high earners have come back strong. In 2009, the country’s top 25 hedge-fund managers earned $25 billion among them—more than they had made in 2007, before the crash. And while the crisis may have begun with mass layoffs on Wall Street, the financial industry has remained well shielded compared with other sectors; from the first quarter of 2007 to the first quarter of 2010, finance shed 8 percent of its jobs, compared with 27 percent in construction and 17 percent in manufacturing. Throughout the recession, the unemployment rate in finance and insurance has been substantially below that of the nation overall.

It’s hard to miss just how unevenly the Great Recession has affected different classes of people in different places. From 2009 to 2010, wages were essentially flat nationwide—but they grew by 11.9 percent in Manhattan and 8.7 percent in Silicon Valley. In the Washington, D.C., and San Jose (Silicon Valley) metro areas—both primary habitats for America’s meritocratic winners—job postings in February of this year were almost as numerous as job candidates. In Miami and Detroit, by contrast, for every job posting, six people were unemployed. In March, the national unemployment rate was 12 percent for people with only a high-school diploma, 4.5 percent for college grads, and 2 percent for those with a professional degree.

Housing crashed hardest in the exurbs and in more-affordable, once fast-growing areas like Phoenix, Las Vegas, and much of Florida—all meccas for aspiring middle-class families with limited savings and education. The professional class, clustered most densely in the closer suburbs of expensive but resilient cities like San Francisco, Seattle, Boston, and Chicago, has lost little in comparison. And indeed, because the stock market has rebounded while housing values have not, the middle class as a whole has seen more of its wealth erased than the rich, who hold more-diverse portfolios. A 2010 Pew study showed that the typical middle-class family had lost 23 percent of its wealth since the recession began, versus just 12 percent in the upper class.

The ease with which the rich and well educated have shrugged off the recession shouldn’t be surprising; strong winds have been at their backs for many years. The recession, meanwhile, has restrained wage growth and enabled faster restructuring and offshoring, leaving many corporations with lower production costs and higher profits—and their executives with higher pay.

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To read the complete article, check out other material, sign up for free email alerts, and obtain subscription information, please click here.

Don Peck is a features editor at The Atlantic. This essay is adapted from his new book, Pinched: How the Great Recession Has Narrowed Our Futures & What We Can Do About It.

A Quote for the Day From Seth Godin – About “What Are You Doing Well Today?”

The question is this:  what is your business today – what is your current business?  Not what was your business yesterday, but today?

Seth Godin

Here’s Seth Godin’s quote (part of a 10 minute “casual presentation” video by Seth Godin – watch it here):

“What you did well isn’t important anymore.
That’s the key shift. Now you have to do something else really well.
 
The industrial complex is falling apart. 
I can get it (your product, that product you sold yesterday) cheaper.”

So – what are you doing well today?  Not yesterday, but today?

The 12 Secrets of Highly Successful Women: A book review by Bob Morris

The 12 Secrets of Highly Successful Women: A Portable Life Coach for Creative Women
Gail McMeekin
Conari Press (2011)

How to discover your unique gifts, claim your personal power, and help others to do so

Gail McMeekin devotes a separate chapter to each of the 12 “secrets” and, in fact, none is a secret. Rather, an evidence-driven, experience-proven, eminently sensible admonition. There are no head-snapping revelations among them, nor does McMeekin make any such claim. The great value of this book, rather, is derived from the process of self-examination and personal transformation that McMeekin explains with uncommon clarity as well as conviction. She serves as her reader’s coach, mentor, and travel guide but also as a companion during what is inevitably for each reader a perilous journey of self-discovery. I hasten to add that men as well as women can learn much of great value from the various female exemplars on whom McMeekin focuses.

She wrote this book as a guide to help her reader to leverage abilities and avoid or overcome various pitfalls, such as the 18 she identifies on Pages 8-9. “Fortunately, there are remedies for all of these issues, and this book is your guide to creative success and peace of mind. Most of the creative liabilities are also strengths, but you must learn how to capitalize on them and redesign your strategies of being in the world.”
McMeekin immediately establishes a direct and personal rapport with her reader. I think she makes brilliant use of a series of exercises for the reader to complete. They serve several separate but interdependent purposes as self-diagnostics, reality checks, guidelines for decision-making, and reminders of key points. My own opinion is that they are also included to enable the reader to interact (emotionally as well as intellectually) with the abundance of material that McMeekin provides. Readers will also appreciate the provision of dozens of “Challenge” items that can help to sharpen and sustain focus while proceeding through the narrative.

Some of the most valuable material is provided in the final chapter, “Initiate Transformation for You and Your Team.” I agree with McMeekin that, until now, the book’s focus should be on helping the reader to clarify and then recommit to her or his personal/career values, priorities, goals, and objectives. Now McMeekin’s focus shifts to helping the reader to help others to initiate and then remain on their own “creative success path of transformation.” Those who follow her advice when attempting to do that will no doubt be surprised and pleased to sense their own growth.

Note: Gail McMeekin’s previous books are The 12 Secrets of Highly Creative Women: A Portable Mentor  (2000) and The Power of Positive Choices: Adding and Subtracting Your Way to a Great Life (2001); her next book, The 12 Secrets of Highly Creative Women Journal, will be published in November, 2011.

The power of Vu Déjà

Josh Linkner

Here is a recent post by Josh Linkner. For more information on creativity, visit his website by clicking here.

“In addition to my blog, you’ll find free videos, quizzes, articles, eBooks and more to help fuel your creative fire!”

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We’ve all experienced déjà vu, looking at an unfamiliar situation and feeling like we’ve seen it before.  It turns out the most successful and creative people flip this around and consciously practice Vu Déjà – looking at a familiar situation as if you’ve never seen it before.

Our brains are hardwired to play a devious trick.

We are masters at pattern recognition, so our brains quickly scan our memory banks when stimulated and identify how we handled a situation before.  The problem is that our first instinct is to quickly reach a previous conclusion rather than re-examine a situation with a fresh perspective.  This is great for some things (walking, using a fork, language) since we don’t need to re-learn those skills each time they’re needed.  However, this brain trap can be deadly when we fail to advance our thinking.

The way you solved a customer issue or launched a product in the past may have worked great, but the world isn’t standing still.  Quite the opposite – every night when we go to bed and wake up the next day, things have changed.  Those that get stuck in the past and lean on the golden ways of a time gone by are playing Russian roulette with their future.

Even when something is still working, it’s time to look at the situation with a clean set of eyes.  When you look at challenges from a fresh perspective, it breaks you out of the rut and allows your creativity to shine.

To get started with Vu Déjà, here are some fun techniques:

• Pretend this is your first day on the job.  What do you notice that your currently breeze by?
• When dealing with an issue, imagine you have a different profession.  If you’re a chemical engineer, ask yourself how an artist may solve your problem.
• If you are a graphic designer, how would an astronaut think about your situation?
• Pretend you are a different person altogether.  Instead of brainstorming as you, try pretending you are Steve Jobs, Rush Limbaugh, or Bono.  Pick your favorite movie star, sports hero, business leader, politician or author and take on their persona.
• Imagine you are a time traveler and look at a challenge from the perspective of 100 years in the future.  Or 200 years in the past.
• Each of these exercises will help you shake things up and get away from existing patterns.  A fresh perspective on team meetings, employee issues, product development, efficiency gains, hiring practices, marketing strategies, or even financial metrics can help you bust through the mud and find new, elegant solutions.

Make the familiar as unfamiliar as possible.  Vu Déjà.

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Josh Linkner is the New York Times bestselling author of Disciplined Dreaming: A Proven System to Drive Breakthrough Creativity. He is the CEO and Managing Partner of Detroit Venture Partners, a venture capital firm helping to rebuild urban areas through technology and entrepreneurship. Josh is the Founder, Chairman and former CEO of ePrize, the largest interactive promotion agency in the world providing digital marketing services for 74 of the top 100 brands.

 

3 Things Your Company Should Do on Twitter

Here is another valuable Management Tip of the Day from Harvard Business Review. To sign up for a free subscription to any/all HBR newsletters, please click here.

There is no doubt that Twitter is influential: This spring, the company announced that it signed up its 200 millionth account.

But how can your company reap the benefits of this popular service?

Try these three things:

1. Listen. You need to know what people are saying about you to the wide world. Use Twitter Search or sign up for a service such as Radian6 to help you track what customers are saying about your brand.

2.Talk. Get your voice in the mix to build a following. But, don’t just yammer on about how great your company and products are. Give your customers something useful, such as special offers or information.

3. Support. Twitter is a great place to find customers who need help. Solve their problems for them and they’ll often tweet to turn their complaint into a compliment.

Today’s Management Tip was adapted from “What the Heck Are We Doing on Twitter?” by Josh Bernoff.

To read that article and join the discussion, please click here.