Middle-class

The average American family lost 40 percent of its net worth between 2007 and 2010, a study by the Federal Reserve has shown.

That’s no surprise. Stock prices dropped precipitously. Across much of the nation, housing values dropped even farther. Homeowners who had equity watched it shrink; borrowers who had little or none watched their asset-to-debt ratio flip. Some families have lost not 40 percent, but nearly everything.

For those who can afford to hold onto their homes and investments, those numbers are somewhat abstract. Until the time comes to cash out, a gain or a loss is just a figure on paper.

For many others, though, the loss represented a direct transfer of wealth to someone else, and often not someone in the middle class. A foreclosure of an underwater home meant that the borrower had nothing and the lender owned, at least temporarily, a physical asset.

Middle-class Americans lost (and continue to lose) net worth in other ways. Those who were fortunate enough to have savings when their jobs disappeared have spent down those funds. Some who thought they had enough saved to pay for college for their children found they couldn’t keep up with tuition increases. Medical costs have climbed, and one accident or catastrophic illness, not adequately covered by insurance, can wipe out a lifetime of careful saving.

Many of those challenges have always been true – few wage earners and small business owners can manage to save enough for every contingency, no matter how diligently they try.

What has changed, though, is the belief that opportunity lies just around the corner. For many Americans, it no longer does. Large segments of the private sector are not “doing fine.” Recovery is, if not out of reach, at least a distant dream.

Some jobs have gone away permanently. The example most often cited is American manufacturing, shrunken by a complex mix of factors that include domestic regulation and the comparative lack of such constraints overseas, also the unwillingness and inability of Americans to pay more for goods made in America.

Another example – one in which regulation plays a different role – is the loss of Main Street businesses to competition from big-box stores and Internet businesses. Again, shoppers vote with their checkbooks, partly because their account balances are shrinking, but the result is still a change in the balance of assets, from mom-and-pop stores to giant corporations. The starting point for that change wasn’t 2007, but economic downturns accelerate it.

All of that is sad; little of it is reversible, even with substantial legislative changes.

Nonetheless, the decline of the middle class – and corresponding challenges to those who hope some day to join that class – is a public-policy issue in this election year to the extent that policy does affect it.

To a much greater extent, it’s an awareness issue and, unfortunately, the presidential race is between two men who have displayed little understanding for the majority of the country’s working people.

As the Federal Reserve has clearly illustrated, the problem isn’t one of a temporary downturn, a mistaken perception or resentment of the 1 percent. Fundamental changes to the structure of the U.S. economy have placed many Americans at a tremendous disadvantage.

The next president, whoever he is, must have better ideas for solving that problem than either candidate has expressed thus far.

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