America's new poor: the end of the middle-class dream

he men clustered in the shade of trees, in the 90F heat of a car park in Atlanta, form the lowest layer of America's so-called middle class. They stare, alert like greyhounds, at the vans leaving the hardware store. When one pulls up they rush, 15 or 20 together, to the driver's window to negotiate. The hired man leaps in with his bag of tools: he'll earn $10 an hour, cash, for basic building work.

But even the lowest layer has layers within: the Hispanic men are recent migrants; mainly young. The African Americans are older, gaunt. "They're only hiring Mexicans," one tells me, and gives a hard-faced stare when I ask why.

At Goodwill, a charity-run job centre in Atlanta, you can meet the next layer up: former legal clerks, accounts secretaries, computer technicians – the whole story of black self-advancement is present in this room. But now it's all one story: most have been out of work for months, some for years.

Go to the pristine cul-de-sacs where this supposed middle class lives and you will find, every couple of streets, a lawn as high as a wheatfield, indicating a home that has been repossessed. Even the survivors hang on by a thread. Juan and Kenyoda Pullen have been renting here since their home was repossessed. Sometimes the rent does not get paid. When they lost their jobs – as postman and bank clerk – their combined income dropped from $75,000 to $14,000 a year.

Do you still feel middle class, I ask them. They do, they say, "though we're not really certain what that means any more". America's "middle class" was always a construct of ideology, indeed the expression of a dream. For the black and Mexican casual workers in the car park the dream is the thing they have in common: they are there because they prefer work to welfare. They believe themselves to be entrepreneurs and will battle against the economic headwind to the point of self-abasement to avoid admitting otherwise.

Yet America's middle class is disappearing. A lifestyle sustained for 30 years by rising debt is dissolving as the credit dries up. And the question beyond the crisis is: can it ever come back?

Figures released last month by the US Census Bureau show it will be hard. Middle incomes are lower, in real terms, than in 1999. The median income, stagnate for a decade, fell by 4.2% once the crisis hit. Since December 2007 more than six million Americans have been pushed below the official poverty line.

It is dawning on millions that the term middle class might be a misnomer. But the label "working class" does not fit either: in the US it denotes a lifestyle choice involving trade union activism or support for the grittier baseball teams, not a sociological category.

This sudden collapse in lifestyle will have economic and psychological impacts long after the crisis is over. Since the 1980s US growth has been driven by the spending power of the salaried workforce. In turn the consumer has been the dynamo of global growth.

To get things back to the way they were the US has to find a way to create nine million jobs, plug the gap in disposable incomes and reopen the personal credit system to the millions excluded from it. Judged against that, the Obama fiscal stimulus has failed.

The credit system, having created the crisis, compounds the agony: the "payday loan" stores – shameless and neon amid the closed-down high streets – do brisk business. So do the credit reference agencies: Juan Pullen told me he'd actually been refused a job because the employer had checked his credit score: "They think credit indicates character; bad credit equals bad character," he shrugs. Unable to borrow or earn, a whole generation is being shut out of the American lifestyle.

Meanwhile, some states have begun a race to the bottom: slashing welfare, labour regulations and local taxes to attract investment. High-wage companies close and relocate to low-wage states, and foreign investment flows to the towns where labour costs are lowest. These states are being transformed by the arrival of low-waged Hispanic migrants even as the rightwing politicians who support the economics rail against the demographics.

As a result the so-called Sun Belt, identified by Republican strategist Kevin Phillips in the 1970s as the new political bedrock of conservatism, now feels like the unhappiest place in America. Median incomes in the south are, on average, $8,000 lower than in the northeast; poverty rates are higher than anywhere else in America – and so are the racial and religious tensions.

In the midterm elections politicians have promised to "do something" for the middle class. The kindest thing they could do is tell the truth: Americans have been living a middle-class lifestyle on working-class wages – and bridging the gap with credit. And it's over.

In a free-market society the real middle class is always a minority: if your street has a gate and a security camera at the end of it then you are middle class. A real middle-class kid can afford a college education, not a web-based degree. The real middle-class family does not skip meals or find its automobiles trapped in the repair shop because of unpaid bills.

And even in America, if you are standing in 90F heat, jostling with 30 other guys for a few hours' work, it is the man in the station wagon curling his finger at you that is middle class – not you.