Fundamentally, many of the problems that have plagued the economy in the past decade can be traced to weak income growth for middle-class workers.
A related phenomenon is that the size of the middle class has shrunk. This disturbing trend has taken place over several decades. While those at the top of the income distribution have seen strong income growth, many in the middle and at the bottom have struggled. Many economists have argued that, when confronted with easy credit and nontransparent terms, many families borrowed at an unsustainable rate to make up for the weak income growth they experienced in the 2000s. Strengthening and expanding the middle class, and adequately reforming the financial sector, are therefore at the root of the Obama Administration’s strategy to reestablish an economy that is built to last.