Raise your hand if you have the richest middle class in the world. Not so fast, United States!
David Leonhardt and Kevin Quealy, writing for the New York Times, report that the U.S. no longer has the wealthiest middle class in the world. But, rest easy dear reader, the wealthiest Americans are still the richest rich people in the world. So we have that going for us.
So, what happened? Did our middle class stop being as productive, in relative terms, than our wealthiest citizens? Or did the upper class gain more leverage over the years with which to appropriate the wealth produced for themselves?
The report begins:
The American middle class, long the most affluent in the world, has lost that distinction.
While the wealthiest Americans are outpacing many of their global peers, a New York Times analysis shows that across the lower- and middle-income tiers, citizens of other advanced countries have received considerably larger raises over the last three decades.
After-tax middle-class incomes in Canada — substantially behind in 2000 — now appear to be higher than in the United States. The poor in much of Europe earn more than poor Americans.
The economic growth in the U.S. continues to be as strong as in many other countries; our middle class just isn’t benefiting terribly much. The poor have it worse. The usual response from those who don’t regard increasing income and wealth gaps as a problem is some variant of our middle class – and especially our poor – of being lazy and stupid. The economy is a morality play and the only way you fail or succeed is if you deserve to. Market don’t lie.
The report attributes the loss of ground by our middle class to three factors: 1) Our educational attainment – literacy, numeracy, and technical skill – is less than other countries; 2) Our top execs and management take a bigger piece of the productivity pie for themselves, minimum wage is lower, and unions are weaker; and 3) our government isn’t nearly as aggressive in redistributing income to raise the take home pay of lower and middle income households.
But socialism kills productivity, right? Not necessarily:
Even with a large welfare state in Sweden, per capita G.D.P. there has grown more quickly than in the United States over almost any extended recent period — a decade, 20 years, 30 years. Sharp increases in the number of college graduates in Sweden, allowing for the growth of high-skill jobs, has played an important role.
And of course, the poor in the U.S. have been doing worse for longer. But, we don’t care about them because they deserve what they get — on account of their laziness, lack of mental acuity, and poor life choices. But, those in the 95th percentile are doing much better than their counterparts in Canada, Britain, and the Netherlands. Which is as it should be on account of their pluck and ingenuity.
Major portions of this country are rapidly slipping into third world status.
Given our staggering crush of regulation, our massive barriers to entry, our perversion of the market by using force of law to create and protect markets for campaign contributors, the suffocating size and scope of our government, the prohibitive cost of interacting with our government, the horrifying slide of the American intellect caused by the Education Lobby, a government so large and pervasive that it discourages independence and autonomy, it’s unlikely we’ll innovate our way out of the problem or entrepreneur our way back to the top.
The rich, born with enough money to clear regulatory costs and hurdles, will still enter the market, and having attended good schools that are free the the nettles that torment public schools, they’ll be sufficiently educated to make prudent decisions. Thus, the income gap will continue to widen profoundly, and the list of players will continue to shrink.
Don’t European countries tend to have larger governments with more restrictive regulation? If they’re out-performing the US, then you clearly can’t blame the size of the U.S. government. If anything, it’s an argument for a larger and more-involved government. It has certainly worked for Sweden.
“Don’t European countries tend to have larger governments with more restrictive regulation?”
Interesting question. Take a look. As a percentage of GDP? As a share of their national debt per capita? How much of their government is spent fighting prostitution, gambling, drugs? What’s their prison population, per capita? What’s their per capita ratio of government workers to private sector employees? What’s their ratio of government salary to private-sector salary? What’s their litigation climate?
Yes, we all can blame the government for killing the American economy.
The cost of federal regulatory compliance in the United States equivalent to the world’s 10th largest economy.
http://news.investors.com/042914-698787-regulatory-economy-booms-under-president-obama.htm
And this massive government is shutting down the economy:
http://www.breitbart.com/system/wire/ap_539fd37ff23f4f9383512e31c8dd8f16
Our crushing regulation has caused a massive slowdown formation of new businesses.
When it’s so much trouble to start a business, people won’t. The people already in control of business live without fear from competition, and your prices go up.
http://www.washingtonpost.com/blogs/wonkblog/wp/2014/05/05/u-s-businesses-are-being-destroyed-faster-than-theyre-being-created/?hpid=z5
Edit: insert a conjunction after “Lobby.”
solutions?
Look around the world, find what’s working, and imitate those policies. It probably involves a more tempered form of capitalism or a more aggressive form of socialism.
At the end of the day, I don’t think it’s rocket science – it’s just unpleasant for many. I think what’s happening is that Americans as a whole are being as productive as or more productive than they’ve been in the past. There is a profit from that productivity. Rarely is that productivity an individual effort – rather, it’s groups of people producing value. When a group produces value, there will always be a question about how the profit gets distributed among the group. These successful European countries seem to have spread the profit around more evenly. In fact, I’d say that the U.S. used to spread the profit around more evenly.
You don’t want to spread the wealth perfectly evenly — that reduces the incentive to work hard. Why bother – work hard or don’t work at all, the reward is the same. But, I think, there are diminishing returns as the incentive gets larger. You’ll work a lot harder for $10,000 than you will for $1. That’s a lot of return on effort for $9,999. But how much harder are you really going to work for $200 million than you would for $300 million – even though that’s $100 million extra, I think you get more bang for your buck with the $9,9999 incentive than the $100 million incentive.
“Look around the world, find what’s working, and imitate those policies. It probably involves a more tempered form of capitalism or a more aggressive form of socialism.”
What occurs in successful countries involves far less crony capitalism. America has drifted pretty far towards a command economy that resembles a banana republic in many significant ways. Successful countries also fairly successfully limit corporate campaign influence.
I guess I’m glad for Freedom’s reply. I wondered how his group would construe that reality. Man, if that doesn’t have the same cadence and militancy as the hardened socialist ideologues! Especially if and when things go their way, as we go over the cliff to oblivion, their world view will persist
To much of the world, America looks like an overbearing nanny state:
Here’s an article from Camille Paglia that’s making the rounds:
http://time.com/72546/drinking-age-alcohol-repeal/
America is looking like the oligarchy of the Gilded Age, where your nanny is the top 1%. You may think you are in control, but control is an illusion. The Koch brothers aren’t about to allow any of your socialist nightmares even come onto your property, let alone your front door, despite your ideological ravings..
By the way, “Freedom”, in response to your question, “What’s their prison population, per capita?”, the answer to that is either one or none, depending on who you are talking to, and whether he or she is in jail. I’m pretty sure that the number of people in jail per 100,000 is about the same as Iran. In any case, we are in the top 5, but our attorneys can give you better data on that. And for the capital punishment ratio? We are either number one or two. The numbers for most of that stuff are not pretty. If you sing the National Anthem real loud, maybe you won’t be able to hear those numbers.
The article and linked data are very interesting, but I think it’s important to look at what the data show, specifically.
What the data show is not – as many commenters are assuming – that the top 1% are making all of the money and everyone else is screwed. What they show is that the top 50% are making all of the money and the bottom 50% is screwed. I.e., at the 50% level, the US is tied with Canada. At the 60% and above level, the US has the most money. At the 40% and 30% level, Canadians earn the most money; and at the 10% and 20% level, the Dutch do.
So it’s not the case that just the founders of, say, Google are doing well; the founders of Google and all of Google’s employees are all doing well, comparatively. Google doesn’t have any $10/hour employees.
And it’s not just people working at large companies like Google who are doing well; US college graduates generally are also doing well (the median income for college grads is well above the median income for all). But associate degree holders are barely hanging on, and people with some college or less are losing a lot of ground.
So the real question is, I think, what can we do to help the people who are just high school grads or below. Part of the answer may be to raise the minimum wage, and another part is, of course, to try and make it easier for them to attend college.
But part of the answer may be that there is no good answer because the number of good paying factory jobs that we used to have are gone and are not coming back.
Peter, your last point is huge, because there seem to be a lot of people who think that the old days are going to return if we just have the right national leadership. The old days are gone, but with our population and the needs, what good paying jobs will take their place that the mfg sector used to employ? The service sector is not known for a living wage unless those services are pretty sophisticated. People just out of high school had the skills to work in the steel mills, but even when people have associates degrees, what is there for them? One day, the poor and unemployed will stop blaming themselves for being poor.
Making college easier to attend is not the answer. All it does is lower the value of a college degree.
When you can’t get a job slinging cell phones at a mall kiosk without a college degree that is a signal that there are too many college graduates out there.
Instead, focus on proper allocation of post secondary training. I have a friend from HS that chose to not go to college in spite of being accepted and instead did a 2 year degree in automotive repair and then did a 6 month internship with BMW. at the ripe old age of 20 he was making $65,000/year fixing BMWs. You can make good money in many fields like this and not go to traditional 4 year college.
Between that and true reform of the manufacturing sector and corporate governance to emulate Germany will go a long way to fixing the plight of the under 50% group pointed out by Peter.
Furthermore, For some colleges, making it easier for people to attend college is simply making college easier, so you end with semi-literate folks with degrees, which dilutes the meaning of any degree. I suspect that Paddy’s friend could have graduated from a college if he chose, but he made the decision to do something else. The skilled trades need smart, competent and dedicated people, too. But just pasting a college degree on an incompetent person doesn’t make him more employable. It just puts lipstick on a pig.