Over the past 45 years, the United States has experienced deepening economic divisions between the rich and poor.

The effects are similar to those in developing nations. Economists such as Jared Bernstein, Paul Krugman and Joseph Stiglitz argue that the major cause of this division is the result of the United States becoming a debtor nation. This is directly linked to capital flight, deindustrialisation, lack of infrastructure investment, and the militarisation of the economy. The cause of the deepening economic crisis can be traced to neoliberal economics and the conservative Reagan revolution.

But here is another assessment that confirms the neoliberal disaster of the economy.

Thomas Piketty’s Capital in the Twenty-First Century, 2014, addresses the precipitous decline of the US economy into Third World status. Piketty argues that the average workers’ wages in the United States have declined considerably from 2007 to 2012 to a level far below poverty wages on an individual basis. In the same period, more than 90% of all new income went to the top 1% while approximately 46 million Americans remain in poverty. The gap between corporate profits and workers’ wages has never been greater. Piketty’s conclusion is that capitalism, if left unchecked, generates a concentration of wealth among a tiny minority and this has manifested itself in America. Piketty further argues that merit or hard work, the standard justification for inequality, has little to do with what has been defined as the “new gilded age". It has more to do with the nature of capitalism itself in which capital precedes labor, and where profit maximisation becomes the rational basis for human interaction and economic relationships. Piketty critiques the very structure and foundation of capitalism itself.

Piketty argues that an “invisibility” to the negative outcomes of capitalism is needed by capitalists for the same system to optimise for elites. But invisibility is not the only weapon in the ideological arsenal of capitalism. The first line of right-wing defence is denial, with some variation on the contention that the state of the economy is the best of all possible economic worlds and that “it works”. There may be inequalities, they argue, but the inequalities are not harmful since capitalism brought consumers innovations in technology such as cell phones, laptops, electric cars, etc. The tactic used by the capitalist class is to cajole the working class and poor into believing that inequality isn’t that bad since almost everyone can afford an iPad. They draw on the ideological conviction that capitalism, left to its own devices, rewards the meritorious and is beneficial not just for capitalists, but for everyone. What the apologists refuse to analyse is how inequality plays out on the “big ticket” items such as living wage employment, housing, healthcare, education, transportation, food, clothing, energy, etc.

To this, Piketty argues that a permanent underclass has become unable to benefit economically from an economy based on capitalist formation. He concludes that the United States has slipped into a dual economy, one for the rich and one of increasing poverty for a growing majority. And this thesis is nothing new. Peter Temin, professor emeritus of Economics at MIT, argues that the ongoing decline of “Middle America” has created, in effect, two countries typical of developing nations in which a minority elite live in opulence while the majority live in poverty. Categorised as semi-peripheral and peripheral countries, these developing nations such as those of Latin America, Asia, and Africa, can be described in terms of structural dependence, subsistence economics vacillating between both relative and absolute poverty. This includes majority populations living at the margins of society experiencing “food insecurity” (hunger, malnutrition and starvation). Temin argues that the United States is quickly approaching, if not already, a standard of living on par with those of Third World countries.

In the United States, the demise of the middle class has fuelled the emergence of a minority power elite (the 1%ers). This can be assessed in terms of a bifurcated wealth distribution consisting of a fraction of a percent of elites controlling economic resources while the majority population keeps slipping into poverty. In arguing this point, Temin, in his book, The Vanishing Middle Class: Prejudice and Power in a Dual Economy, 2018, presents an economic description of the United States which is split into two distinct factions of rich and poor. One faction controls a bounty of resources and power and the other experiencing the “American Dream” slipping away, quickly.

According to Temin, the United States has become a nation of rich and poor, with a diminishing number of people falling out of the middle class to a substandard life on the margins of society. It is shifting toward an economic and political makeup similar to developing nations. Geographers Joel Kotkin in The Coming of Neo-Feudalism:A Warning to the Global Middle Class, 2020, and David Harvey in Marx, Capital and the Madness of Economic Reason, 2017, argue that the imminent disappearance of the middle class has already transformed society into a feudal system of rich elites living off an increasingly alienated workforce stripped of any meaningful power to prevent its own demise. Jim Tankersley, in The Riches of This Land: The Untold Story of America’s Middle Class, 2020, addresses the stagnation of the American middle class, the decline of economic opportunity in wide swaths of the country and how conservative neoliberal economic policy changes in Washington, DC, have exacerbated those trends over the past few decades.

In analysing this trend, Temin applied W. Arthur Lewis’s “dual economy” model, designed to understand the workings of developing countries in which the bulk of the economy was a labour-intensive agricultural sector producing primary products. Temin both replicated and applied this model to the United States to document how inequality has grown in America. In doing so, he identified some unsettling parallels which tended to structure predetermined winners and losers in economic matters. The primary issue in this research focused on the increasing lack of economic benefits distributed to those who contribute to the growth of the economy, specifically in stagnant wages and continued downward pressure on benefits such as paid time-off, healthcare and retirement. This has been compounded, over the last 45 years, by massive cuts in social spending in the areas of human services and infrastructure while massive increases in military spending siphon away scarce funding for vital social programs.

Temin’s research also indicates that the effects of racism and sexism, particularly the institution of slavery and its aftermath, have affected the widening gap between rich and poor. Temin, nevertheless, outlines ways to work toward greater equality so that America will no longer have one economy for the rich and one for the poor, which is the underlying subtext of his research. As a result, he argues since many poorer Americans, most of whom are white, live in conditions resembling those of a developing country, (substandard education, dilapidated housing, homelessness, and few stable employment opportunities), massive public resources must be implemented on behalf of the poor and middle class. Not only as a matter of justice is Temin urging such a policy, but also as an effort to prevent social disintegration and the unforeseen problems this could present to a democracy.

Temin’s message is clear: the new American Third World status has given birth to a latent fascist takeover of the United States. While there is a current reprieve, and no economic revision … the same fascist movement may happen again in 2024. Conservative white politicians still appeal to the racism of poor white voters for their support for policies that harm low-income people, casting recipients of social programs as the “Other” – black, Latino, not like “us". Politicians also use mass incarceration as a tool to keep black and Latino Americans from participating fully in society. Money goes to a vast entrenched prison system rather than to education and other human services. In the dual justice system, the rich pay fines and the poor go to jail. Not all lumpenproletariat become class conscious and join the leftist cause for social and economic justice. As Antonio Gramsci argues in Selections from Prison Notebooks, the rage of the exploited can just as easily transform into a fascist uprising.

Temin describes multiple contributing factors in the nation’s arrival at this place, from exchanging the War on Poverty for the War on Drugs to money in politics and effects of systemic racism, i.e., the 1994 Clinton Crime Bill (1994 Violent Crime Control Act) which targeted “superpredators". He outlines the ways in which racial prejudice continues to lurk below the surface of society, allowing politicians to appeal to the age-old “desire to preserve the inferior status of blacks”, encouraging white low-wage workers to accept their lesser place in society. All of this then combines for a volatile mix of class and race antagonism. The antidote, as prescribed by Temin, is likely a tough sell in today’s political climate. Expanding education, updating infrastructure, forgiving mortgage and student loan debt, and overall working to boost social mobility for all Americans, is bound to be interpreted as “too liberal” by many policymakers. Until the course is changed, Temin warns that the middle class will continue to struggle, and America will remain unsustainably divided. The reality is that the increasing gap between the rich and poor, and the poverty level of existence that has developed over the past 40 years, has turned the United States into, what can be defined economically, as a Third World nation.

The “crime” of capitalism is that it forces the majority population to remain preoccupied with basic concerns of nutrition, housing, health and skill acquisition. It leaves little time for fostering the community and creativity that humans crave. And the injustice of capitalism is that it does so in an era of plenty. There are enough resources to ensure basic material satisfaction for all, but capital mandates that those resources do not benefit the great majority. Further, those same resources have been generated by the hard work of the population that is denied its benefits.

Republished from Counterpunch, 27 May 2025

The views expressed in this article may or may not reflect those of Pearls and Irritations.