CAUSAL ESSAY 1

Causal Analysis Essay

Michael Wilson

Student ID #000546637

25 June 2016

Western Governors University

English Composition I – C455

CAUSAL ESSAY 2

The middle class of the United States has been a global symbol of prosperity and the

principal economic driver of the world’s number one economy for decades, but if recent trends

continue, there may not be much of a middle class left in the years to come. For the past forty

years there has been an unmistakable decline in real wages when adjusted for inflation even

though productivity and corporate profits have increased. But how do we define the middle

class? Interestingly, there is no specific definition of the “middle class” or “middle income”

households. When asked, many people will identify themselves as middle class even if they

don’t fit the more traditional definitions. Middle class or middle income families can be

identified by income, wealth, consumption, demographics or even aspiration (Luhby & Baker,

2016). The Pew Research Center adopts a more conventional economic standard, which defines

“middle income” households as those with an income that is 67% to 200% (two-thirds to double)

of the overall median household income, after incomes have been adjusted for household size. In

their report from December of 2015 they find that the middle class is shrinking and under

significant pressure in today’s economy (Kochhar & Fry, 2015). This has led to a general decline

in standards of living, consumption and general wellbeing and an increase in economic

inequality within the United States. The systematic dismantling of the middle class in the United

States is a problem because of a decline in union membership, globalization/offshoring, and the

financialization of the economy.

In 2013 the unionized workforce in the United States hit a 97 year low (Collins, 2015).

Since the late 1960’s, union membership in America has been steadily declining to the point

where only 6.7% of the private sector is represented by a union agreement (Union Members

Summary, 2016). It is no secret that corporate and company managers have made a priority out

of limiting the influence of unionized workers for decades, but some of the blame can be laid at
CAUSAL ESSAY 3

the feet of unions themselves. With the sensational media attention given Jimmy Hoffa and other

corrupt union bosses and the scandals that surround them, it is no wonder that many associate

unions with corruption and coercive tactics. What may surprise the non-union worker is that

along with the decline of unions has been a steady decline in income for all working Americans.

In 1968 the middle 60 percent of households earned 53.2 percent of the national income. That

number has fallen to just 45.7 percent today (Fairchild, 2013). Along the way local and federal

government actions helped to limit the ability of workers to unionize and represent themselves in

the workplace (Greenhouse, 2011). It has been noted that the U.S. has the lowest unionization

rates in the world. It leads rich nations in low-wage jobs and it lies in the bottom third of all

countries when it come to work-life balance (Ghilarducci, 2015). The International Monetary

Fund (IMF) has recently published research that concluded that countries with higher rates of

union coverage enjoy lower rates of inequality and lower rates of poverty. Its researchers

reasoned that because globalization and technology affect just about every nation, differences in

unionization rates and labor regulations are more likely to explain differences in inequality

across nations (Jaumotte & Osorio Buitron, 2015). It seems clear that a combination of corporate

anti-union tactics, complicit government legislation and union incompetence and corruption have

helped lead to a decline in overall union membership in the U.S. and the subsequent decimation

of the American middle class.

The concept of globalization really developed politically in the United States under

Ronald Reagan during his administrations’ presidency in the 1980’s. President Reagan

championed globalization all of his adult life. He proposed what he called the “North American

Accord” as his vision for a new trade agreement for North America. It was picked up by his

successor President George W. Bush and was hammered out into what was then referred to as
CAUSAL ESSAY 4

“The Framework”. The project was then passed along to President Bill Clinton who was able to

realize Reagan’s original vision with the passage of NAFTA (North American Free Trade

Agreement) in 1993 (Cannon, 2016). Since the initial passage there have been a number of “free

trade” initiatives that have come and gone under both Republican and Democratic

administrations. China was given permanent most favored nation (now referred to as normal

trade relations - NTR) in 2001 when it was admitted as a permanent member of the World Trade

Organization (WTO). During the late 20th century the United States was generally considered to

be an upwardly mobile society with a strong middle class. Subsequent to the trade initiatives

listed above, the expansion of globalization, offshoring of high wage manufacturing jobs to low

wage countries and low cost imports all had a direct negative effect on US middle class workers.

There is strong evidence that globalization has led to a reallocation of workers away from high

wage manufacturing jobs into other sectors and other occupations with in the domestic economy

resulting in large declines in wages among workers who are forced to switch (Ebenstein,

Harrison, & McMillan, 2015). In order to stay even with population growth from 2002 through

2011, the economy needed about 14 million new jobs. However, at the end of 2011 there were

only 1 million more jobs than in 2002. Of those, only 426,000 were in the private sector and the

majority of those private sector jobs were in the service sector – bartenders and waitresses

(Roberts, 2012). With 15 years of hindsight available to us now, we can clearly see that

globalization and offshoring have done much to help wipe out a once vibrant middle class in the

United States.

We have come to see a fundamental change in modern economics that is commonly

referred to as financialization. This financialization has been responsible for the rapid rise in

inequality, and income disparity that we are witnessing today throughout the developed world
CAUSAL ESSAY 5

(Lazonick, 2012). The term financialization itself is relatively new. It has come about as a means

to reference the emergence of something known as financial capitalism that began to make

strides in developed economies in the early 21st century. Financial capitalism, or financialization,

characterizes a situation where capitalism is affected by a dominance of the financial sector

(financial elites, income, institutions and motivations) relative to the productive sector (Nölke,

2012). John Michael Greer helps us to understand the “productive sector” in relation to the

“financial sector” with his three economies thesis. Borrowing from E. F. Schumacher’s insight

that goods that are provided by nature are primary goods and goods that are produced by human

labor are secondary goods, Greer extends those thoughts to refer to primary and secondary

economies of the productive sector. The primary economy is one that is provided by all of the

complex and synergistic and productive work of nature and the secondary economy that is

provided by all of the complex productive work of humans. In a typical productive economy, the

primary component, nature, actually provides as much as 75% of the productive resources of that

economy. However, this is where Greer injects his third or tertiary economy, the financial

economy which is intrinsically non-productive (Greer, 2011). Professor Michael Hudson expands

on the difference between the productive and financial sectors of the economy by discussing how

finance, insurance and real estate, the FIRE sector, have become a parasitical and destructive

force in contemporary economics (Hudson, 2015). The financial or FIRE sector is now the

largest component of modern political economies around the world and it serves to siphon off a

tremendous amount of capital (money) away from productive investments (factories, equipment,

research, etc.) into the speculative instruments of the FIRE sector such as exotic derivatives, debt

swaps, stock buy-backs, etc. It is this financialization of modern political economies that is
CAUSAL ESSAY 6

creating wealth disparity not seen since the gilded age and has done so much to decimate the

middle class in America.

While it can be argued that there are other factors which influence and can be associated

with the decline of the middle class in the United States, and there is little doubt that this is true,

there can be no denying the tremendous combined impact of a declining membership of

American workers in collective bargaining unions, a proliferation of off-shoring of high paying

jobs from the US due to rampant globalization, and the insidious effects of parasitic

financialization that has sucked capital out of the productive economy and exacerbated the

inequality and wealth disparity that has reached such unprecedented proportions today. It is

because of this that the systematic dismantling of the middle class in the United States is a

problem; all of this is due to a decline in union membership, globalization/offshoring, and the

financialization of the economy in the United States.

CAUSAL ESSAY 7

References

Cannon, C. M. (2016, June 9). NAFTA and the Angry Middle-Class Voter. Retrieved June 24,

2016, from

http://www.realclearpolitics.com/articles/2016/06/09/nafta_and_the_angry_middle-

class_voter_130832.html

Collins, M. (2015, March 19). The Decline Of Unions Is A Middle Class Problem. Retrieved

June 16, 2016, from http://www.forbes.com/sites/mikecollins/2015/03/19/the-decline-of-

unions-is-a-middle-class-problem/

Ebenstein, A., Harrison, A., & McMillan, M. (2015). Why are American Workers getting

Poorer? China, Trade and Offshoring (Working Paper No. 21027). National Bureau of

Economic Research. Retrieved from http://www.nber.org/papers/w21027

Fairchild, C. (2013, September 19). Middle-Class Decline Mirrors The Fall Of Unions In One

Chart. Retrieved June 24, 2016, from http://www.huffingtonpost.com/2013/09/18/union-

membership-middle-class-income_n_3948543.html

Feldman, G. (1994, September). Unions, Solidarity, and Class: The Limits of Liberal Labor Law.

Berkeley Journal of Employment & Labor Law. Retrieved from

http://scholarship.law.berkeley.edu/bjell/vol15/iss2/1

Ghilarducci, T. (2015, October 28). Farewell to America’s Middle Class: Unions Are Basically

Dead. The Atlantic. Retrieved from

http://www.theatlantic.com/business/archive/2015/10/unions-are-basically-dead/412831/

Greenhouse, S. (2011, January 3). States Seek Laws to Curb Power of Unions. The New York

Times. Retrieved from http://www.nytimes.com/2011/01/04/business/04labor.html

CAUSAL ESSAY 8

Greer, J. M. (2011). The Wealth of Nature: Economics as if Survival Mattered. Gabriola Island,

BC, Canada: New Society Publishers.

Hudson, M. (2015). Killing the Host: How Financial Parasites and Debt Bondage Destroy the

Global Economy. CounterPunch.

Jaumotte, F., & Osorio Buitron, C. (2015, March). POWER from the PEOPLE. IMF -

International Monetary Fund. Retrieved from

https://www.imf.org/external/pubs/ft/fandd/2015/03/pdf/jaumotte.pdf

Kochhar, R., & Fry, R. (2015, December 9). The American Middle Class Is Losing Ground.

Retrieved from http://www.pewsocialtrends.org/2015/12/09/the-american-middle-class-

is-losing-ground/

Lazonick, W. (2012). The Financialization of the U.S. Corporation: What Has Been Lost, and

How It Can Be Regained. Seattle University Law Review, 36:857, 857–909.

Luhby, T., & Baker, T. (2016). What is middle class, anyway? Retrieved June 22, 2016, from

http://money.cnn.com/infographic/economy/what-is-middle-class-anyway/index.html

Nölke, A. (2012, June). Financialization. Retrieved from http://www.academic-

foresights.com/Financialization.html

Roberts, P. C. (2012, October 17). America R.I.P.: Death of the Middle Class, Offshoring of

American Jobs. Retrieved June 24, 2016, from http://www.globalresearch.ca/america-r-i-

p-death-of-the-middle-class-offshoring-of-american-jobs/5308637

Union Members Summary. (2016, January 28). Bureau of Labor Statistics - US Department of

Labor. Retrieved from http://www.bls.gov/news.release/union2.nr0.htm