Home > Uncategorized > Shrinking in the Middle?

Shrinking in the Middle?

September 13, 2011 Leave a comment Go to comments

Like many other finance and economics topics, the “assault on the middle class” rhetoric usually doesn’t seem like the most reasoned and grounded commentary. I have long thought that there are a lot of opportunities being overlooked, and those who seek them out and do something that they weren’t told to do can get by.

But a line in an interesting interview at edge.org, one of the few places to claim Silicon Valley startups sound indistinguishable from Das Kapital, got me thinking a bit more. Beyond the common arguments about stagnant XYZ for the last 30 years, there are a lot of self-inflicted wounds. Many would-be middle-class people are happy to support politicians who promise unrealistic things. Few are honest enough to admit they’re voting for a zero-sum economic transfer from other people to them.

Examples are everywhere, from blindly voting against any tax to wanting government action to support asset prices in the housing market or the stock market, or keep interest rates down to discourage saving and encourage spending. A lot of it amounts to making the largest expenses in the middle-class life such as housing and retirement-supporting assets more expensive so that people can feel like they’re making progress, while avoiding responsibility for making things actually work.

The politicians foolish enough to promise this quickly reveal their lack of magic powers and get thrown out in favor of someone new who makes similar promises. The only real progress can come when a politician tells us there are no easy solutions, we have to give up what’s not important and earn what we really need. If we should be so lucky, this might even draw enough interest from sane voters who are so often drowned out to make a difference. The Next Convergence is a great elaboration on government actions that can actually support a growing middle class. A useful complement to Michael James’ test for politicians might be a test for voters – why can’t the government just buy everyone enough lottery tickets to be rich?

This might sound pessimistic, but I know I can’t do much to change the majority of the population or what the government does so it’s not worth spending much time worrying about that. As someone pointed out recently, in the last 30-40 years there has been a financial crisis every few years. Whenever we resolve today’s issues there will be others. But in the end there are always opportunities for those who pay attention and think for themselves. I believe I have found and will find more than enough. Then again given that I would be perfectly happy to invest much more than I spend I’m not sure that I’m aiming for “middle class” that much.

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  1. September 13, 2011 at 10:53 pm

    It’s such a tough situation – it cannot be denied that the two worst financial episodes in our history (Great Depression and Great Recession) occurred when the income disparity between the top and the bottom were at their highest…

    But, by the same token, we’re American, and there is nothing more purely American than being responsible for your self and your actions.

    It’s always easy to claim you’re for higher taxes and government intervention when it benefits you more than harms you. That’s why liberals tend to be younger – ask the same kids 25 years down the road if they want to “redistribute” half their nest egg and see how their answers change.

  2. September 14, 2011 at 12:07 am

    A little income disparity is a good way to motivate people and allocate resources, but I don’t know when it would be too much. The Next Convergence actually provides a good insight on this since it takes lessons from emerging markets that have a lot of potential for wide gaps.

    You’re absolutely right about voters. Here in Canada I’m still confused about the election where a lot of young people voted to pay for more social security now that they wouldn’t be likely to get themselves! I thought older people who didn’t save enough would be the best supporters of that idea.

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