It’s amazing how emotion impacts memory; even if the emotion is not yours.  It was 1947 and the emotional excitement was my father’s.  The war was over and we were living in public housing, the project.  My father excitedly brought me outside to see his prized purchase, a new car.  It was the beginning of our journey into middle class, one that was repeated by countless veterans.  All were starting out equally.  Retrospectively, their arrival into middle class would prove to be a sojourn.

    These men, starting out with nothing, were eligible for the G.I. Bill of Rights.  It was their chance, a ticket to achieve middle class.  America, then as now, valued equal opportunity.  But much as we might value it, we are not all equal.  Some of us work harder, are smarter, luckier or recognize opportunity better than others.  And that is the conundrum we are now faced with over half a century later.  One made worse by our change from a manufacturing economy to a knowledge-based, service-based economy.  It started years ago with the outsourcing of manufacturing to Japan and now to China.  And why did this happen?  The then large middle class needed goods made, and sold cheaper, to maintain their life style.  Ironically, this resulted in an unintended consequence, the loss of many high paying manufacturing jobs.  

    The genesis of this was created in the early 1970s.  After over 20 years of union-fueled advances the situation became one of too much money chasing too few goods.  Inflation became rampant.  It changed the dynamic of “Father Knows Best” and forced millions of previously stay-at-home wives into the workforce.  Credit cards were introduced and used to further a family’s increasingly more difficult status.  The last lever of middle class maintenance was pulled in the late 1990s and early 2000s, the use of home equity financing.  Houses were a presumed rising, never ending, source of rising credit.  That assumption is now gone.

    At our investment meeting in January 2010 we were struck by the long-term relative price strength of high end retailers such as Tiffany’s, Starbucks, Polo Ralph Lauren and the weakness of middle-class stores such as Sears Roebuck and Wal-Mart.  As time went by, it increasingly became an obvious reality.  In the United States we are now dependent on the “rich" and not the middle class.   

    The aspiring middle class is now a global phenomenon.  Increasingly in China, India and Brazil there is a “want-to-be” middle class looking, as my father did, to buy their first car.  But here in the United States it has played out, been decided; the consequence of an advanced economy.  It is why Wal-Mart has had eight consecutive quarters of declining same-store sales.  That is reality.
 

FRANCIS PATRICK BOLAND

7-13-2011