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What Killed the Middle Class?
IainB:
Gary North's newsletter (refer https://www.garynorth.com) had a link to this post on the Of Two Minds blog: What Killed the Middle Class?
I think that blog is usually focused on US affairs, which I am kinda ignorant of, and I didn't know that the middle class had been or were being killed off, but after reading the article posted I consider myself better-educated.
I had wondered why IT salaries had tended to tank since the '80s in the Western economies, and there, amongst the charts was a probable explanation of what had happened:
* from 1947 to 1979, the earned income for labour had tended to be linked to and closely trailed the growth in productivity, but from 1980 onwards, the link seems to have been dramatically broken.
Not only that, but also earned income measured as a percentage share of GDP (a standard economic measure) seems to have been on a steadily declining trend since at least the 1960s (approx. 50%) becoming approx. 43% today, with earned income hitting a short-term peak (approx. 47%) around 2000 - during the Internet boom.
I hadn't realised or known any of this, having been busy doing other things.
The indication seems to be that as productivity and GDP continue to grow, the demand for labour continues to reduce, hence it's price is falling, thus it seems that labour is becoming progressively redundant (surplus to requirements or no longer needed).
There is too much labour available, competing for work where there is a diminishing demand for labour. International corporations will seek arbitrage over labour-rates to access the lowest per capita labour costs of the labour pool - these typically can be had by means of outsourcing production to countries offering traditionally good production facilities with the most attractively low labour rates (e.g., outsourcing, offshoring).
So it's presumably only going to get worse. It's like a race to the bottom for labour rates.
This is ironic, because, to be able to consume goods and services, people must have the wherewithal (personal disposable income) to pay for them - they need to have the propensity to consume. However, with declining real incomes (QED), fewer potential consumers will be able to afford such consumption.
So who is receiving the income/profit from the sale of the GDP? Well, it seems it must be corporations, and their shareholders and corporate executives - typically high net-worth members of society. That is, people not tied to earned income from their own direct production.
But are there enough of the 1% to consume all that is produced? No, and they probably don't need/want most of it. So what is likely to be happening is that increasingly corporations will focus on the production of luxury goods and services aimed at the growing market targeting the demands of those high net worth individuals - stuff that they want. Boats, planes, cars, houses, toys, etc.
There was an interesting post at Brookings Institution: Make elites compete: Why the 1% earn so much and what to do about it | Brookings Institution
That post points out that the top 1 percent of U.S. residents now earn 21 percent of total national income, up from 10 percent in 1979.
The article discusses the myths that have grown up around wealth and education, and that the key thing about the top 1% is that they don't so much earn their income as get themselves into cartels, closed syndicates, trade associations in restraint of trade, etc. - so that they don't have to compete for getting a large proportion of high-value unearned income.
Interestingly, the author advocates fixing this by opening up the 1% to more free-market enterprise and competition of the classic capitalist religio-political ideology - and he may be right, I don't know. However, I presume that it would have to be done by legislative force, as they could be expected to strenuously resist such a change - and their number may even include those (lawmakers) who would be required to legislate that change.
However, as someone who knows that economic history shows that that ideology has categorically largely been responsible for enabling millions to drag themselves out of poverty, I can't help but think that the current situation is out of control and is reversing the situation, effectively having slowly driven those masses back towards poverty (QED) at the growing enrichment of the 1%, since the '60s. This possibility had never occurred to me before.
If the system is broken now (and that would arguably seem to be the case), then we have been presumably unable to stop this rot since at least the '60s, thus, advocating more of the selfsame capitalist religio-political ideology as a solution doesn't really seem entirely rational to me - I mean, it surely seems to be a non sequitur ("it does not follow") at least.
Now I have no idea what the solution might be - assuming that there is one - and I'm not posting this as a polemic for any given economic religio-political ideology, but merely as something probably worth thinking about and discussing.
I for one don't have any desire to see humanity driven backwards economically into the Middle Ages where serfdom was the norm and the unelected 1%, or something, ruled over people as despotic barons doing the State/King's bidding - much as they seem to have done as economic historians have described in, for example, the Philippines today.
40hz:
Wow IainB! There's an awful lot to unpack and think about in that post of yours before I could hope to offer anything intelligent or considered in response.
One inherent danger in losing the middle class in the United States is that it has always been a safety valve for domestic unrest. I'm not sure who said it, but they pointed out that Americans have traditionally been willing to accept a fairly large amount of unfairness in their economic system and government institutions as long as it was felt that their own relative position in the pecking order was not permanently fixed.
Now that it's become increasingly difficult for many Americans to escape from poverty through no fault of their own or from lack of trying, the way things are being done is now coming under increasing fire. And the 'haves' appear to be gearing up to deal with that threat. (Nobody seriously believed that the militarization of US police forces - and the increasingly broad and effectively unregulated surveillance state that's emerging along with it - is being created solely to deal with international terrorist threats do you? Does anybody remember how abruptly and totally the economically motivated "occupy" actions across the nation were cleared out during an obviously well-coordinated sweep in several US cities besides New York? According to official statements, the fact it all happened on the same day - and with minimal news coverage - was "purely coincidental.")
But anyway - Thx! I needed a little intellectual stimulation today. :Thmbsup:
IainB:
@40hz:
...There's an awful lot to unpack and think about in that post of yours before I could hope to offer anything intelligent or considered in response. ...
__________________________
-40hz (March 30, 2016, 06:04 PM)
--- End quote ---
Sorry, I didn't mean to do a "core dump" on it, it's just that my mind can't abide some kinds of puzzles without seemingly being compelled to try and solve them, and reading what I did helped to make bits of a jigsaw fall into place, in my mind - things that "didn't make sense" before now had a workable theory to describe under what conditions they could make sense.
That was what led to my making the post in this thread, anyway, as I thought that others might find the theory and ideas generated interesting and worth exploring.
panzer:
http://www.zerohedge.com/news/2016-03-24/what-killed-middle-class
http://www.zerohedge.com/news/2015-12-09/america-crosses-tipping-point-middle-class-now-minority
IainB:
^^ Yes. That's what it is.
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