A Divided Economy Will Not Stand

America and 'The Vanishing Middle Class'

by Hans Rollman

28 April 2017

As America starts to resemble a developing country, racism plays a key role in the One Percent's seizure of power.
cover art

The Vanishing Middle Class: Prejudice and Power in a Dual Economy

Peter Temin

(MIT Press)
US: Mar 2017

It’s an increasingly accepted notion that growing inequality is the greatest threat facing capitalist democracies, especially the United States. The much-vaunted middle class is disappearing—or has disappeared already—and we’ve slipped back into a societal mould more akin to the early 20th century than what we would expect in 2017, say a growing number of voices.

MIT economist Peter Temin makes the argument in a tight and compellingly argued study that goes beyond much of the recent work on this subject by foregrounding it with a vitally important race analysis. In doing so, it’s appropriate that he draws on the work of Nobel Prize-winning economist W. Arthur Lewis. Lewis, of Caribbean origin, is the only black Nobel laureate in the field of economics, and one of only 15 black Nobel laureates in total (out of over 800 recipients of the prestigious award). Lewis pioneered the notion of the ‘dual economy’, which Temin describes thus: “a dual economy exists when there are two separate economics sectors within one country, divided by different levels of development, technology, and patterns of demand.”

But Lewis’ economic model has serious political implications. “[T]he political policies that grow out of our dual economy have made the United States appear more and more like a developing country,” writes Temin.

Temin’s basic argument is this. The US is now characterized by a dual economy. On the one hand are the rich elites—what he refers to as the ‘FTE sector’ because they are predominantly though not exclusively comprised of people working in the finance, technology and electronics industries—and the low-wage sector. Instead of a single economy, with a healthy middle class connecting the rich elites and the low-wage sector, the middle-class has disappeared. A minority of the former middle-class have entered the elite FTE sector; the majority have slipped into the low-wage sector.

The two economies are separate and it is the FTE sector that has the political power in today’s society. Temin demonstrates that most policymakers listen almost exclusively to the demands of the FTE, not the majority low-wage sector. This underscores the erosion of democracy in the United States, since it’s supposed to be the majority, not the minority (however rich), that holds sway.

The FTE sector has also become effective at political campaigning, and dominates political discourse through a variety of methods (which Temin briefly explores), ensuring that in the rare instances where democratic choices are put to the public, its candidates and policies prevail. This is also achieved by the more blunt process of excluding low-wage workers from democratic decision making, either by making it too difficult for them to vote, i.e., costly identification cards, elections held during working days and hours when precarious workers can’t get time off to vote, or other limitations to the voting process; denying them the education they need to make an informed vote, or the more blunt tool of outright exclusion, i.e., through the mass incarceration of low-wage workers, including African-Americans and Latinos.

Additionally, the FTE sector promotes policies that benefits only its members, not the broader economy. In fact the self-serving policies it promotes—tax cuts, spending cuts, privatization of public services, etc.—are actually damaging to the broader economy. Yet it is this elite sector, with its policy goals that sink the economy, to which policymakers (mostly elite themselves) now listen.

Historically, the way out of the low-wage into the middle-class, or from the middle-class into the elite FTE sector, was through education. Yet in order to ensure a precarious, desperate and low-wage workforce, the FTE sector has rammed through policies which have systematically destroyed the public education system. At the K-12 end they’ve undermined school funding for all but the elite private schools; at the post-secondary end they’ve shifted the burden of funding onto the backs of students by increasing tuition fees, with the result that students are now too burdened with debt to either complete their degrees, achieve higher income levels, or effectively contribute to the economy and achieve upward mobility.

The other important element of this, which Temin interjects to the analysis, is the role of race, or as he describes it, ‘racecraft’ (this reflects the fact there’s no biological basis to race; it’s a construction which serves specific political and social goals). The FTE sector has achieved many of its pernicious policies by actively exploiting racism. Welfare cuts are sold to a majority white populace by implying (incorrectly) that it’s mostly African Americans who benefit from welfare and that this isn’t fair to hard-working white people. Similarly, mass incarceration is enabled by convincing majority whites that African Americans are dangerous.

In actual fact, far more poor whites suffer from the resulting policies than African Americans. Yet blinded by the illusions of racecraft (in other words, racism), whites continue to vote for or allow such policies, not realizing that they are in fact the ones most negatively impacted by them (numerically speaking). And now that Latino immigrants outnumber African Americans, the same exploitation of racism—‘racecraft’—is deployed against them as well, while ultimately facilitating policies that ensure the dominance of a small and almost exclusively white tier of elites over everyone else in American society.

The phenomenon of a vanishing middle class is not a new one, but Temin does an incredibly effective job at interjecting a broader race and class analysis into the phenomenon. He offers a powerful indictment of America’s ongoing legacy of racism. A society which was built on slavery purportedly rejected slavery over 150 years ago, yet it still oppresses the descendants of slaves in a powerful and deliberate way. He charts the trajectory of this process, from Jim Crow laws and segregation in the post-Civil War southern US, to President Nixon’s efforts to target African-Americans through the ‘war on drugs’ and fiscal policies in the ‘70s. Nixon’s legacy has been perpetuated by a powerful white judicial and legislative establishment which has systematically eroded the small and brief gains of the Civil Rights Movement of the ‘60s.

Contemporary examples of this ongoing oppression abound. Under slavery, it was illegal to educate slaves. The African-American descendants of slaves continue to be deprived of education through deliberately underfunded public schools in black neighbourhoods. Under slavery, slaves could not vote. Today’s African-Americans are also widely denied the right to vote through the mechanisms outlined earlier. Slavery relied on brutal surveillance and disciplining of slaves; African-Americans face similar treatment today through mass incarceration. While white elites routinely escape serious punishment for major drug infractions, African-Americans are punished disproportionately for even minor ones. And while the policies that make this racism possible are generally supported by a fearful white majority population, what the majority of poor whites fail to realize is that those policies are also used to target them, as well.

It sounds like a bleak analysis, and it is, but it’s refreshing in its unabashed exposure of the role of racism and pure greed on the part of elites which is what’s sinking today’s economy. Tar from a rhetorical manifesto, which it might otherwise come across as, Temin’s analysis is rigorously reinforced with empirical data, as befitting an economist’s take on the situation.

Nor is the situation entirely hopeless. Temin’s aim in exposing the nature of contemporary inequality, like that of other recent writers on the topic like Thomas Piketty, is to show that the outcomes we’re experiencing in today’s economy and society are the result of deliberate policy decisions. There was, and is, nothing inevitable about any of this. There are plenty of occasions, he demonstrates, where America could have changed course, with significantly different results. And that means we still have the ability today to make policy decisions that could turn the worsening situation around.

Temin offers several urgent recommendations in conclusion: publicly-funded universal education including post-secondary; elimination of mass incarceration and the policies that support it; renewing public infrastructure and forgiving low-wage debt; strengthening democratic governance by expanding public services; and putting a special focus on achieving the integration and reconstruction that never really effectively happened after the US Civil War. But the more inequality grows, the more our window of opportunity to turn things around shrinks.

There are a great many books to be read on the problem of growing inequality and the attendant social, political and economic issues that both cause it and result from it. If you had to read only one book on the growing crisis, The Vanishing Middle Class is it. Its powerful combination of race and class analysis doesn’t hold back any punches in exposing the deliberate and systematic exploitation of the poor and the racialized by a minority of wealthy and mostly white elites in today’s America.

The Vanishing Middle Class: Prejudice and Power in a Dual Economy


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