Part 1 of "The Myth of Middle-Class Security" Series

The Blueprint: A Promise That Skipped Millions

The American middle class has long been framed as the reward for hard work and financial responsibility — a reliable path to stability and upward mobility. This idea became widely accepted during the post-World War II period, when economic conditions supported widespread growth. However, historical data shows that access to this promise was limited, and the conditions that supported it were temporary.

This post outlines how the American middle class was built, who it benefited, and why the structure behind it excluded many — with consequences that continue today.

The Economic Conditions That Created the Middle Class

Between 1947 and the early 1970s, U.S. productivity doubled, and wages increased alongside it. A combination of government policy, economic dominance, and labor power contributed to middle-class expansion:

• The GI Bill provided returning veterans with access to college education, low-interest home loans, and unemployment insurance.

• Union membership peaked in 1954 at 34.8%, helping secure better wages and benefits (Congressional Research Service, 2023).

• FHA-backed mortgages supported suburban development and expanded access to homeownership for some Americans.

These factors helped establish what became known as the postwar middle class. However, access to these benefits was not evenly distributed.

Disparities in Access

While the GI Bill and FHA programs were written as race-neutral, their administration frequently reflected local biases:

• In New York and New Jersey, fewer than 100 of 67,000 GI-backed home loans were issued to Black veterans (Katznelson, When Affirmative Action Was White, 2005).

• Federal Housing Administration policies labeled predominantly Black neighborhoods as “high risk,” restricting mortgage access through redlining.

• By 1980, 74% of white Americans owned homes, compared to 44% of Black Americans — a 30-point gap (U.S. Census Bureau, 1991).

Other groups also faced structural exclusion:

• Women were often denied credit or required to have male co-signers until anti-discrimination reforms in the 1970s (National Women’s Law Center, 2021).

• Immigrants, rural workers, and non-union laborers were less likely to benefit from wage growth or federal assistance.

• Many families relied on multi-generational housing or high-interest credit to make ends meet.

Structural Limits of the “Middle-Class Formula”

The conditions that enabled middle-class expansion were time-bound and structurally specific. Key elements included:

• Strong labor unions with collective bargaining power

• Federally subsidized homeownership programs

• Affordable or subsidized higher education

• A globally dominant manufacturing sector

Even within this system, many were excluded based on race, gender, geography, or employment sector. FHA guidelines actively discouraged investment in racially integrated or predominantly Black neighborhoods (HUD, 2023). VA loan programs were locally administered and often withheld from Black applicants in practice (VA.gov, 2020).

The Long-Term Impact of Exclusion

Though the Fair Housing Act of 1968 formally banned housing discrimination, decades of redlining and disinvestment had already shaped residential patterns and credit access. Informal discrimination continued beyond the law’s passage.

As of 2023, the Black homeownership rate remains nearly 30 percentage points below that of white households (U.S. Census Bureau, 2023). Because home equity is the largest source of intergenerational wealth in the U.S., this gap contributes to persistent wealth disparities.

The Global and Political Context Behind the Boom

The U.S. middle class expanded during a rare moment of global and domestic alignment:

• The U.S. emerged from World War II with intact infrastructure.

• It dominated manufacturing and exports.

• It faced little international competition until the 1970s.

These advantages were temporary. As other nations rebuilt and global competition increased, U.S. economic dominance began to decline (Council of Economic Advisers, Economic Report of the President, 2016).

Structural Shifts Beginning in the 1980s

Several changes in the late 20th century altered the foundation of middle-class security in the United States. Beginning in the 1980s, federal policy shifted toward deregulation, tax restructuring, and a reduced role for organized labor.

1. Tax Reform Favoring Higher Earners

A series of tax reforms during the Reagan administration reduced the progressivity of the U.S. tax system. These changes were passed with bipartisan support and fundamentally reshaped federal revenue policy.

• The Economic Recovery Tax Act (ERTA) of 1981, signed by President Ronald Reagan and authored by Congressman Jack Kemp (R-NY) and Senator William Roth (R-DE), reduced the top marginal income tax rate from 70% to 50%. It also introduced broad cuts to personal income tax rates and indexed tax brackets to inflation to prevent “bracket creep.”

• The Tax Reform Act of 1986, co-sponsored by Senator Bob Packwood (R-OR) and Representative Dan Rostenkowski (D-IL), lowered the top rate further to 28% and eliminated numerous deductions and tax shelters. The law was intended to simplify the tax code and broaden the base.

While these reforms lowered rates across the board, the largest benefits went to higher-income earners, who saw a significantly reduced tax burden on top-tier income. According to the Brookings Institution (2023), these changes contributed to growing income inequality by shifting a greater share of after-tax gains to the wealthiest households.

2. The 1981 PATCO Strike and Decline of Union Power

In August 1981, more than 13,000 members of the Professional Air Traffic Controllers Organization (PATCO) went on strike, seeking higher pay, a reduced workweek, and improved working conditions. Though PATCO had endorsed Reagan during the 1980 election, the strike was declared illegal under the Taft-Hartley Act, which prohibits strikes by federal employees.

• President Reagan ordered the strikers back to work within 48 hours.

• When over 11,000 controllers refused, they were terminated and permanently banned from federal service. This ban was lifted in 1993 by President Bill Clinton.

• The Federal Aviation Administration (FAA) kept operations running by using supervisors, military personnel, and non-striking staff.

This event had long-term consequences for organized labor. The mass firing signaled a federal retreat from labor protection and is widely seen as a turning point in the decline of union influence. It discouraged collective action in both public and private sectors and contributed to a decades-long decrease in union membership. In 1983, about 20.1% of workers belonged to a union. By 2023, that figure had dropped to 10.0% (BLS, 2023).

The loss of union bargaining power limited workers’ ability to negotiate for higher wages and benefits, weakening one of the key pillars that had previously supported middle-class growth.

Why This History Still Matters

The postwar middle-class model was built on a combination of economic conditions, policy decisions, and global advantage. It did generate prosperity — but for a specific subset of the population, and for a limited time. Understanding its structural limitations helps clarify why similar outcomes are harder to achieve today.

Economic security in the present requires different tools and strategies — especially in light of unequal historical access and shifting global dynamics.