‘Barbell economy’ and government’s response

Media on the left and the right are largely agreed that, as commentators have described, we now have a 'barbell economy.”

Dating from our recovery from the Great Depression in the 1930s up through the mid-1980s, the great middle class earned the lion's share of income, was a reliable consumer of our goods and services, and provided most of the savings that enabled us to invest in the future.

This is no longer true.

A New York Times article earlier this year reported that 5 percent of income earners consumed almost 40 percent of our goods and services in 2012. Comparable figure for 1992: only 27 percent.

As the Times article noted, businesses in every industry are, in the amoral way that businesses view marketing, responding alertly to the barbell economy. Retailers, car manufacturers, restaurants, hotel chains and service providers, to name a few, are largely non-partisan and non-political when it comes to maximizing profits. They have responded to the higher-end customers, marketing an ever-expanding array of products for the superrich, the rich and the merely affluent.

Meanwhile, some of the businesses that cater to the lower end of the economic spectrum, such as the various 'dollar” stores, are prospering, while others have survived by closely controlling costs. Stores that have catered to the once-vast, but shrinking, middle class (e.g., department stores such as JCPenney, restaurants such as Red Lobster) are struggling.

What factors have brought the shrinkage of the middle class? What could the United States have done differently? What has been the response of the federal government to our barbell economy?

And what can we do in the future?

A partial list of contributing factors might include: the emerging global economy, rapid development of Third World countries, the decline of labor unions, ever-expanding government accompanied by costly regulations and 'greedy” corporations and their avaricious corporate officers.

All those factors are at least debatable.

The trade deficit ($472 billion in 2013) remains a major cause of the barbell economy. The advantages to free trade accrue mainly to the upper 20 percent of citizens. Their jobs are relatively secure, and the flow of inexpensive imports increases their purchasing power.

Within our hemisphere, NAFTA has cost the United States many jobs. In the first nine months of 2013, we imported $88 billion more than we exported from Canada and Mexico. Public Citizens, a liberal government watchdog, estimated the job loss from NAFTA as high as 750,000. A more likely range is between 400,000 and 800,000 jobs lost.

Successive administrations since 1980, whether Democrat or Republican, have done little to reduce the trade deficit. Efforts to reduce income inequality (e.g., the child tax credit; the earned income eredit) have been modestly successful at alleviating poverty at the bottom of the barbell.

One major reason for the decrease in the trade deficit since 2006 (besides the recession) has been our oil and gas production.

Progress toward energy independence provides middle-income jobs and (through lower prices) increases purchasing power.

Another source of middle- class jobs could come from the expenditures on badly needed infrastructure. Here the Democrats have been timid and the Republicans obstructive.

Those of us who are fiscal conservatives still can justify borrowing to finance long-lived capital expenditures.

These are only two of many other steps that government could take to strengthen the middle class. We need to encourage our government to get with it.

' Gary Maydew of Ames is a retired accounting professor at Iowa State University. Comments: glmaydew@hotmail.com