Harvard Economist: Middle Class Is ‘Hollowing Out’

Tuesday, 26 Feb 2013 07:44 AM

By Michael Kling

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The United States is losing the global economic competition battle and the American middle class is fading, says Michael Porter, a professor of economy at Harvard.

The decline of the American middle class is due to increasing regulatory costs, deteriorating infrastructure and declining skills of workers, Porter told CNBC.

“America used to be a uniquely productive, low-cost place to do business,” he said. “We had efficient infrastructure. We had limited regulation. We believed in the market.”

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

The middle class, once America’s bedrock, is “hollowing out,” he noted.

For the first time in half a century, many American workers lack the skills to earn a decent living.

“Being an American doesn’t mean that you’re guaranteed a high wage,” Porter explained. “You have to be productive, and we have to create a very low-cost efficient place to do business and we’ve let all that slip in America.”

The country’s weakening economic strength and inability to compete well in the global arena have lead to its current budget problems, he said, according to CNBC. Tax revenues have fallen due to the faltering economy and declining incomes, and the government has picked up the tab for services like healthcare and retirement.

Porter advocates reforming the corporate tax code to help get the United States back on its economic track. A budget compromise and shale oil drilling would also help greatly.

“Technology has given us this wonderful opportunity to have low energy costs,” Porter told CNBC. “We have to seize that, rather than keep debating and discussing and fighting over it.”

While many pundits believe the American middle class is disappearing, Washington Post opinion writer Ron Haskins argued that that belief is a myth.

Haskins noted that research from economist Richard Burkhauser of Cornell shows middle class income has remained healthy. For instance, between 1979 and 2007, incomes of households between the 60th and 80th percentiles grew by 40 percent, and incomes in the 40th to 60th percentile grew by nearly 40 percent.

The bottom 20 percent lost about a third of its income, but when government benefits, health insurance benefits and falling household size were counted, their incomes grew by 25 percent.

Commentators complaining about the declining middle class and increasing inequality ignore healthcare insurance and government benefits, such as food stamps, the earned income tax credits and Head Start and Pell Grants, Haskins argued.

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

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