Why Class Warfare Will Dominate Obama's Presidency

Too many Americans are falling out of the middle class.


There are always haves and have-nots in America, and the poor always envy the rich. That means there's an ambient level of class warfare, even when times are good.

The hostility intensifies when times are tough, which is obviously the case now. And we should probably get used to it, because Americans have good reason to get more angry, not less.

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The outrage makes sense. Since World War II, living standards have mostly risen, with each generation better off than the one that came before. The rising tide has continually lifted the middle class, and a lot of people felt satisfied as long as they felt they were getting ahead.

The tide has stopped rising—and the causes go far beyond the latest recession. Americans are enduring hardship that's more painful and more prolonged than they ever anticipated. Economists point to statistics showing a "recovery," but for millions, there's no turnaround in sight. The double-digit unemployment rate is the most obvious indicator. People have also watched their household wealth and retirement savings evaporate. Job security is weak, and the old rules of getting ahead—get a decent education, work hard, live modestly—no longer seem to apply. People who thought they were doing all the right things have still ended up unemployed, broke, and scared.

The surprise election of Republican Scott Brown in the Massachusetts Senate race is one sign of Americans' frustration with their own dimming prospects; he ran against the program in tone-deaf Washington, where profligate spending has made life better for a few and done little for the masses. Fury over banker bonuses is another obvious sign. Bankers have been pulling down exorbitant pay for years, without much fanfare. As long as most people felt their own prospects were improving, they didn't care that much if prospects were improving a lot more for those at the top. But now the bankers are soaring while millions of others are sinking—and combustible fumes are building in the growing gap between those getting ahead and those falling behind.

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President Obama and most of the politicians in Washington have underestimated the distress of millions who are falling out of the middle class. The White House has formed a "middle-class task force," led by Vice President Joe Biden, which pays lip service to the problem but also has overtones of beltway absurdity. (Unemployed? Don't worry, we're studying it.) New measures like child-care subsidies and breaks on student-loan payments will be meant to show that Washington feels middle-class pain. Obama is also trying to get on the right side of voter fury through his proposed new rules and taxes on banks and fiery rhetorical attacks on "fat-cat bankers." Maybe it will work, but these predictable Washington measures are starting to feel like an umbrella held out to fend off a tidal wave.

Middle-class discontent predated the recession, although it was masked by the housing bubble, unsustainable borrowing, and overamplified lifestyles that made people feel better off than they really were. Beneath the facade, real incomes have been falling for several years—reversing a 60-year trend of consistent improvements in living standards. American workers are being outhustled by foreigners willing to work harder and develop stronger skills for less money. Many disenfranchised Americans would move to more favorable economic climates if they could. But they can't unload homes that are worth less than the mortgages on them, which disrupts the "labor mobility" that allows people to follow opportunity and keeps a free-market economy healthy.

It's hard to see how this ends well for Obama. The Congressional Budget Office predicts that the unemployment rate will average 10.2 percent this year and 9.1 percent in 2011, then fall to 6.4 percent in the hazier 2012–2013 time frame. If so, that will probably mark a longer period of double-digit unemployment than the 10 months in 1982 and 1983 that until now represented the worst job market since the Depression. And the United States isn't the dominant industrial power that it was in the 1980s, which means it could take longer to get back to an acceptable unemployment rate of 5 percent or so.

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It's possible it could take a lot longer. Economist Gary Shilling, for example, predicts that the economy will weaken, not strengthen, in 2010, as all the stimulus spending and other government subsidies wear off, with growth for the year close to zero and a double-dip recession possible. That's a more dire view than most economists hold, yet predicted rebounds in housing, consumer spending, and hiring have been consistently slow to materialize. If Shilling's right, then instead of recovering lost wealth, even more Americans will fall behind over the next few years. More pitchforks will be aimed at the few who escape the noose. Political upsets will become the norm. The have-nots will have even less, but for once they'll be a force that can't be ignored.