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If you’re a middle-class American baby boomer or Gen Xer, you might have spent much of the past decade wondering what went wrong. If you’re a boomer, there’s a good chance you’re still working well after you thought you’d retire.

And if you’re part of Generation X, you’re probably less wealthy than your parents were at the same age. Meanwhile, all across the U.S., pension funds are underfunded and will almost certainly have to default on some of their obligations to retirees.

It wasn’t supposed to turn out this way. Back in the 1980s and 1990s, middle-class Americans looked forward to a future of wealth and leisure. If you were a small business owner, or an engineer, or a lawyer at a small firm, you might not have expected to be rolling in it, but you probably didn’t think things would go so badly awry.

Who’s responsible? Who took your prosperity? Donald Trump's trade adviser Peter Navarro might tell you it was China, while his political aide Steve Bannon might tell you it was immigrants. Free-market think-tank types might tell you it was government regulation, while conservative lawmakers might tell you it was single moms on welfare or lazy people on food stamps. But these answers are mostly or completely wrong.

One partially correct answer is that your prosperity was taken by the very people who promised to ensure and enhance it. The decades from 1980 through 2008 were the age of neoliberalism -- the ideology of the free market. Financial deregulation, tax cuts and a lax attitude toward consumer protection and antitrust were supposed to free the entrepreneurial potential of the American middle class. And to some degree it did -- those decades saw plenty of wealth creation, and the U.S. economy performed a bit better than most rich nations in Europe and East Asia.

But along with real productivity, the neoliberal age saw plenty of grift and middle-class wealth extraction. In the book, “Phishing for Phools: The Economics of Manipulation and Deception,” Nobel prize-winning economists George Akerlof and Robert Shiller said that all free-market economies are accompanied by some amount of consumer error, simply because sellers are always exploring every possible method of parting people from their money.

Much of middle-class Americans’ prosperity wasn’t stolen -- it was never there to begin with. Hidden fees and overpriced services took away real wealth, but unrealistic expectations created fantasies of future wealth whose evaporation is probably an even bigger source of disappointment.

Full Article: https://www.bloomberg.com/view/articles/2017-04-07/how-middle-class-america-got-fleeced

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