Economic Policies that Create the Middle Class in the United Stated

EconomicPoliciesthat CreatetheMiddleClassin theUnited Stated

Abstract

Currently,theU.S. middleclassmakesup about 53 % of thetotalpopulation.Thegrowthof themiddle-classpopulationin theU.S. beganin the1820s whenpeoplestartedproducinggoodsin thedesignatedindustrialareasandsellingthem in retailshops.Theownersof manufactureswerethewealthyclass,factorysupervisorswerethemiddleclass,whilethetechnicalmembersof staffwerethepoorclass.TheG.I. Billcreatedthebasisof policiesthat enhancededucationalattainmentof millions of Americans, which increasedtheir wagesandemploymentbenefits.Keynesian-based economicpolicies(suchasthe taxcutandsubsidies)expandedthemiddleclassbetween theSecond World War andthetwenty-firstcentury.Recenteconomicpolicieshavefocusedon increasedefficiencyof theretirementsystem,rescuingthetroubledhomeowners after the2008 crisis,andincreasingtheminimumwage.

Keywords:Middle class,economicpolicies,macroeconomic policies,the taxcut,subsidiaries, homeownership.

EconomicPoliciesthat CreatetheMiddleClassin theUnited Stated

Themiddleclasscomprisesthelargestproportionof theU.S. populationandis one of theclassesthat makesignificantcontributionstowards thegrowthof thenationaleconomy.Currently, there is nostandarddefinitionof themiddletermmiddleclass.Thisis becausetheuseof thelevel of annualincomeas thebasisofthe definitionkeepson changingbecauseof differentfactors,suchas inflation.Accordingto Kraft-Linder (2014), the2013 census-definedthemiddle-classfamilyas one that madebetween $ 40,000 and$ 80,000 annually.On average, each middle class householdearns$ 52,100, which indicatesthatthemajorityof theU.S. familiesare within themiddleclass.Thefactsthatthemiddleclassis thelargestsingleclassoftheU.S. populationanddeterminesthedirectionof theU.S. economymakesitan importantclassthat needsdetailedresearch.

Historyofthe middleclassin theU.S

ThenewlyformedUnited States hada wealthyclassof landowners whiletherestof thepopulationwasclose.Themiddleclassstartedgrowingin the1820s whenpeoplestartedmanufacturinggoods(suchas textile) in designatedindustrialareasandsellingthem in establishedretailshops(Roth, 2011). Thegrowthof factoriescreatedtheneedforemploymentof supervisorsto overseethetechnicaloperatorsandthejuniormembersof staff.Thiscreateda platformfordistinctionof thepoor(jobless andmanuallaborers),themiddleclass(supervisors),andrich(ownersof themanufactories. During thetwentieth century,theincreasein thestrengthof laborunionsincreasedthesizeof themiddle-classpopulationfollowingtheincreasein minimumwages(Roth, 2011). Thegrowthof themiddle-classpopulationis mainlyaffectedby politicalandeconomicoccurrences.Forexample,theGreat Depressionsentmillions of Americans backto pervert,whiletheSecond World War expandedthemiddleclassfollowingtheincreasein industrialmanufacturingforthewar(Roth, 2011). Inspiteoftheeconomicaswell as&nbsppoliticalchallenges,themiddle-classpopulationhas grownto its currentproportionof about53 % of theentirepopulation(Rohde, 2014).

Policiesthat createthemiddle-class

Macroeconomicpolicies

Duringearlyof the21stcentury,legislatorsandpolicymakersusedmacroeconomic policiesto expandthemiddle-classpopulation.TheG.I. Billis of thelegislationsthat helpedthemajorityof theU.S. residents(includingimmigrantsandtheU.S. borncitizens)to transitionfrom thepoorto themiddleclass.Accordingto Mettler (2012) theintroductionof theG.I. Billgaveabout 50 % of theveteransan opportunityto increasetheir academicattainment,whereapproximately2.2 million peopleattainedcollege,aswellas thegraduateacademiclevels and5.6 million peoplewerepreparedforvocationsin differentfield,includingelectrical wiringandautomechanics.Under theG.I. Bill,theveteranswereallowedto returnto schoolfree of anycharges.Mostimportantly, theG.I. Billincreasedthenumberof employmentopportunitiesthat earnedmoreincomeandattractedmoreemploymentbenefits.Itis alsoreportedthataboutfour out of five Americans whoworkedforthemilitaryduringtheWorldWar IItookadvantageof thebillto increasetheir educationallevels (Mettler, 2012).Thiswasassociatedwith a rapidincreasein thenumberof Americans in themiddleclass.

SubsidyprogramshavealsoprovidedthepoorAmericans with an opportunityto jointhemiddleclass.Initialsubsidyprogramstargeted theveteransin the1940s andearly50s (Roth, 2011). Thefederalgovernmentmadea policythat allowedtheveteransto acquirehousesat subsidized mortgages.Thisprogramresultedin theconstructionof thousands of suburbanhousesthat werelinkedto theInterstate Highway System. Under thisprogram,thegovernmentluredtheWhite familiesto moveout of thepublichousesby subsidizingtheir relocation to singlefamilyhomesthat werenewlyconstructed.Apartfrom helpingthemiddleclassbecomethehomeowners, thefederalgovernmenteased thecredittermsforthemiddleclass,which allowedthem to accumulatewealthandupgradetheir standardsof living(Roth, 2011). Thenewhousingprogramscoupledwith relaxedcredittermscreateda strongmiddleclassin theUnited States.

Taxcutsthat targets thepoorandthemiddleclassis a Keynesian approachthat waswidelyusedby President Reagan to boostthenationaleconomy,strengthentheexistingmiddleclasspopulation,andpullmorepoorAmericans to jointhemiddleclass.TheKeynesian macroeconomics on taxcutsholdthata reductionin taxrateresultsin morefundsin thehandsof households(Emery, 2010). Thesefundsincreasethebuyingcapacityof households,which in turnboostsdomesticoutputto addressthenewdemand.In theend,thenationaleconomygrowsandmorejobsarecreated,andthisexpandsthemiddle-classpopulationas evidentin theReagan’s era(King, 2014). Thispolicyworkedwellbecausethemiddle-classpeopleare morelikelyto spendtheir extradollaron domesticproductsas opposedto therichwhoare likelyto spendtheir extracashon importedgoods.

Recenteconomicpoliciesthat havesupportedthemiddle-class

Increaseinthe minimumwage

Theideaof increasingthenumberof poorAmericans whoare reachingthemiddleclassannuallyby increasingtheminimumwageswasre-introduced by Obama’s administration.Thiswasas a resultof theobservationthattheemployees’productivityandthenationalwealthhaveincreasedwithin thelastfour decades, butthenetvalueof U.S. minimumwagehas beendeclining.Studiesestimatethattheminimumwageshould havereachedat least$ 10.50 per hourifitwereallowedto growat thesameratewith inflation(Madland &amp Walter, 2013). Raisingtheminimumwagewill havethree implicationsfortheU.S. middleclass.First,thewagewill boosttheincomesof thepoorAmericans whoare stillstrugglingto reachthemiddleclass,thusexpandingthecurrentmiddle-classpopulation.Secondly,a highminimumwagewill causeemployersto increasewagesthrough thespillovereffect,evenfortheAmericans whoare alreadyin themiddleclass(Madland &amp Walter, 2013). Third,theraisingtheminimumwagewill increasethebuyingcapacityof thepoorandthemiddleclass,which will in turnstimulatethenationaleconomy,increaseemploymentopportunities,andthenumberof peoplereachingthemiddleclass.

Providingprincipalforgivenessforhomeowners

Thehousingbubblethat occurredpriorto the2008 financialcrisiswasexpectedto increasethenumberof Americans whowould jointhemiddleclassthrough thehomeownership program.However,theoccurrenceof thecrisisreturnedmanyof theAmericans to povertybecausethecrisisleftthemajorityof thosewhohadtakenmortgagesunder water.Yearsafter the2008 financialcrisis,there is stilla largernumberof Americans homeowners whoare stillstrugglingwith loans.Accordingto Madland &amp Walter (2013) one out of five homeowners owesmoreon their mortgagesthan theworthof their loans.Thisis a significantthreatto themiddle-classpopulationwhoseequityaccountsforbetween 40 % and50 % of their totalwealth(Madland &amp Walter, 2013). After observingthis,Obama’s leadershipinitiateda programthat will resultin principleforgivenessforthetroubledhomeowners. Thisimpliesthattheprogramwill reducetheoutstandingbalanceof theprincipalfund.Theneteffectof thisprogramis to reducechancesof themiddle-classAmericans slidingbackto thepoorclass.

Makingretirementsavingseasyandcheaper

Thesocialsecurityfundservesas an essentialincomebaseline forthemajorityof theAmericans wherethemiddle-classAmericans depend ontheir accumulatedsavingsto maintaintheir livingstandardshighafter retirement.However,studieshaveidentifiedthattheU.S. privateretirementsystemhas manyflawsthat havedeniedtheAmericans an opportunityto saveenoughfundsfortheir retirement.Accordingto Madland &amp Walter (2013) about59 % of theU.S. citizensare likelyto outlivetheir retirementsavings,which impliesthattheywill slidebackto thepoorclassfrom themiddleclassin their oldage.Toaddressthisawaiting risk,theU.S. governmenthas comeupwith a policythat will enhancethequalityof theretirementprograms.Thepolicyresultedin theestablishmentof thehybridretirementplanwhich combinedthefeaturesof the401 (k) andtheThrift Savings Plan (Madland &amp Walter, 2013). Thesepolicychangesresultedin a moreflexible,efficient,andflexibleretirementplan.

Conclusion

Themiddleclasscomprisesthelargestproportionof theU.S. population,which hasthecapacitytodeterminethedirectionof thenationaleconomy.Thegrowthof themiddleclasscan beattributedto effectiveeconomicpoliciesandgovernmentcontrolsthat havegivenmanyAmericans an opportunityto graduatefrom povertyto themiddleclass.Initialpoliciesfocusedon taxreductionstrategiesthat targeted thepoorandthemiddleclass.In addition,subsidiesallowedmanyAmericans to ownhomes,which benefitedmanycitizens,especiallythosewhomanagedto usehomeownership to createwealth.Althoughtaxcutsandsubsidiesare stilleffective,recenteconomicpolicieshavefocusedon diverseissues(suchas an improvedretirementsystem,minimumwage,andforgivenessof principleforthetroubleshomeowners) with theobjectiveof protectingpeoplein thecurrentmiddleclassfrom slidingbackto thepoorclass.

References

Emery,E. (2010). Loughlinsays Reagan’s 1981 tax cuts led to exponential economic growth.St. Petersburg, FL: Political Fact.

King,R. (2014). Newclassical macroeconomics.Indianapolis, IN: Liberty Fund Incorporation.

Kraft-Linder,A. (2014). Are you middle class anymore? DailyFinance.Retrieved March 19, 2015, fromhttp://www.dailyfinance.com/2014/04/10/are-you-really-middle-class-anymore/

Madland,D. &amp Walter, K. (2013). Topsix policies to help the middle class that won’t taxpayers a penny.Washington, DC: Center for American Progress.

Mettler,S. (2012). Howthe G.I. bill built the middle class and enhanced democracy.Oxford: Oxford University Press.

Rohde,D. (2014). Theswelling middle.London: Reuters.

Roth,M. (2011). The historical roots of the middle class. WashingtonPost.Retrieved March 19, 2015, fromhttp://www.post-gazette.com/local/region/2011/11/20/The-historic-roots-of-the-middle-class/stories/201111200308