The Decline of the Middle Class: Stealth Governance and Income Inequality

By Stanley Stasch

My research over the past three to four years focused on the destruction of the great American middle class. That unfortunate development was caused by the income inequality that first emerged in the late 1970s, and then continued relentlessly for the next 30-35 years. The U.S. Government was the major instigator of that growing income inequality.

Much of what happens in government occurs "behind the scenes" or "in the dark," in such a manner that the citizenry is deprived of accurate information about matters of importance to them. On such occasions, typically a special interests group influences government to do something that favors its welfare, but often at the expense of the welfare of others.

Alternatively, sometimes the special interests group convinces government not to do anything that prevents the special interests group from taking some action that is beneficial to itself but harmful to others. Both types of events receive little publicity that brings them to the public's attention in a manner that causes it to be fully informed. In such situations, the U.S. Government acts as a "stealth government" working against the general welfare of the American people.

From 1970 to 2010 there were at least 16 occasions when the U.S. Government acted in this manner. Any one of those 16 events, by itself, would not have had the power to destroy the great American middle class that existed from the 1940s to the early 1980s. But when working together, they became a force that contributed significantly to the great income inequality that now has become very apparent to everyone. Those 16 events tell the story of how "stealth government" worked against the general welfare of the American people by taking money and wealth from lower and middle-class citizens and transferring it to selected members of the upper class. In approximately chronological order, those 16 "stealth government actions against the American people" are as follows.

During the 1970s:

  • A program of government-guaranteed student loans rewarded bankers at the expense of students.
  • Congress created a new bankruptcy law that favored the wealthy over the middle and lower classes.
  • The Supreme Court made a decision that allowed banks to charge very high interest rates on credit card balances.

During the 1980s:

  • The Reagan presidency allowed corporations to replace pension plans with 401(k) plans, thus greatly reducing the retirement incomes of millions of middle and lower class workers.
  • The government eliminated three important banking regulations, and their absence contributed to increasing income inequality and the housing crisis that culminated in the financial crash of 2007-2008.

During the 1990s:

  • The government allowed the growing use of stock options to dramatically increase CEO compensation.
  • Congress excluded waitresses and waiters when it increased the federal minimum wage, thus relegating them to poverty or near-poverty incomes.
  • The government allowed "forced arbitration" clauses to exist in cable, cell phone, and other consumer contracts, which prevented consumers from participating in class action lawsuits when they felt that companies were unjustly taking small amounts of money each month from them and millions of other consumers.

During the 2000s:

  • The business community helped President George W. Bush pass his tax cuts for the rich.
  • The government bailed out "banks too big to fail" during the financial crisis of 2007-2008, but prevented distressed homeowners from declaring bankruptcy.
  • Congress' new treaty greatly facilitated outsourcing U.S. manufacturing jobs to China and increasing imports from China.
  • Congress allowed employers to steal billions of dollars from employees through legalized wage theft.
  • The new bankruptcy law of 2005 favored the rich over the middle class.
  • Congress and the president allowed U.S. companies to transform themselves into global corporations and move high tech jobs to foreign countries.
  • Congress allowed the business community to block attempts to "cap" excessive CEO compensation.
  • Congress failed in its attempt to reform banks and financial institutions after the financial crisis of 2007-2008.

The great American middle class was created from the late 1940s through the 1970s, when the U.S. economy prospered as no other economy has ever prospered before, or since. Beginning in the late 1970s the U.S. Government started instituting 16 "stealth government actions against the American people." In so doing, it greatly facilitated the transfer of wealth from the lower and middle classes to the top 1 percent or top 0.5 percent of earners, thus contributing greatly to the tremendous income inequality now plaguing the nation. As a consequence, those 16 actions can appropriately be referred to as the U. S. Government's program of "welfare for the rich."

Descriptions of the 16 stealth government actions can be found in my free, online course, "The Creation and Destruction of the Great American Middle Class (1930-2010)."

Until recently, Stanley F. Stasch was the Charles H. Kellstadt Professor of Marketing at the Quinlan School of Business, Loyola University Chicago. Prior to that, from 1963 to 1977 he was a member of the faculty at the Kellogg Graduate School of Management, Northwestern University. is dedicated to saving Capitalism from itself. Visit us at to join the debate. Follow us on Twitter and Facebook.

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