Cafe Hayek: If America's Middle-Class is Disappearing, It's Only Because Ordinary Americans are Getting Richer and Richer

« Naomi vs. Milton | Main | Competition, everywhere» Russell Roberts

January 09, 2008

If America's Middle-Class is Disappearing, It's Only Because Ordinary Americans are Getting Richer and Richer

Don Boudreaux

I sent the following letter two days ago to the Wall Street Journal:

So Lou Dobbs might run for President ("CNN's Lou Dobbs for President? He Says No, Sort of," January 7). May the ghost of Adam Smith help us!

You report one of Mr. Dobbs's trademark roars: "The middle class in this country, the majority in the country, has been ignored. Our elites in Washington, D.C., both political and corporate, are hell bent on ignoring the majority." Perhaps this claim is true, but if so the inference Mr. Dobbs draws - that the American middle-class is in trouble - is emphatically mistaken. I quote my colleague Walter Williams: "Controlling for inflation, in 1967, 8 percent of households had an annual income of $75,000 and up; in 2003, more than 26 percent did. In 1967, 17 percent of households had a $50,000 to $75,000 income; in 2003, it was 18 percent. In 1967, 22 percent of households were in the $35,000 to $50,000 income group; by 2003, it had fallen to 15 percent. During the same period, the $15,000 to $35,000 category fell from 31 percent to 25 percent, and the under $15,000 category fell from 21 percent to 16 percent. The only reasonable conclusion from this evidence is that if the middle class is disappearing, it's doing so by swelling the ranks of the upper classes."

Sincerely,
Donald J. Boudreaux

Posted by Don Boudreaux in Myths and Fallacies, The Hollow Middle | Permalink

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/t/trackback/23120/24976198

Listed below are links to weblogs that reference If America's Middle-Class is Disappearing, It's Only Because Ordinary Americans are Getting Richer and Richer:

Comments

Households is fine. Repeat controlling for individual salaries and report the results. Then instead of "controlling for inflation" control for shadow inflation. Not a disaster but nowhere near as rosy as using households and CPI might make things appear.

Posted by: Rob Dawg | Jan 9, 2008 6:30:45 PM

At least they're being honest when they say they're going to "restore the middle class."

It's sort of like The Twilight Zone episode "To Serve Man."

Posted by: Jason | Jan 9, 2008 6:55:28 PM

Rob, the most individual income earners are students or others who will see income go up drastically over time.

Posted by: Will | Jan 9, 2008 8:11:50 PM

Now you really got me confused. Just yesterday you were speaking about that governments were so terrible that you would be ashamed of your son if he decided to be a politician… and today you write this what seems to be an extraordinary defense of your governments?

Cheers

Posted by: Per Kurowski | Jan 9, 2008 9:15:47 PM

It's a shame Williams can't apply the same reasoning to his jingoistic stance on illegal immigration, an area where he and Dobbs are inexplicably pretty much on the same page.

Posted by: shecky | Jan 9, 2008 10:01:12 PM

Per does a great Muirgeo impression.

Posted by: Geech | Jan 9, 2008 10:42:32 PM

Per,

Do you think that the government has been the cause of our incredible prosperity? I don't think that Don is arguing that at all.

Posted by: Eric | Jan 10, 2008 12:50:10 AM

I'm also confused because one post down I saw Milton Friedman tell us how dangerous social welfare programs are. Well the Great Society programs kicked in just before the data trends you mention above. So wow I guess they worked pretty good. How can that be?

Posted by: muirgeo | Jan 10, 2008 2:23:36 AM

I'm confused about how welfare programs make an economy richer. They're transfer payments from the more productive to the less productive. I can at least understand welfare from the compassion and "to do good" angle, but to say welfare helps push people into the upper income brackets seems dubious. That certainly wasn't the intent.

A lot of things "kicked in" during and just before the data trends. It's far too easy to pick out the things you like and attribute everything positive to them. The fallacy is post hoc ergo propter hoc.

Posted by: Jason | Jan 10, 2008 3:11:39 AM

murigeo, if what you say is true, then when Bill Clinton ended one of those Great Society programs (welfare), incomes among the formerly state-supported should have fallen drastically, wouldn't you think?

A minute's research (which I guess is too much time for a busy, talented professional like yourself) shows that just the opposite happened.

Posted by: John S. | Jan 10, 2008 7:21:26 AM

I agree with muirgeo's point, one that Libertarians seem to ignore. Why are people still getting richer and richer? Why are still many people able to start a business from stratch and end up with a million dollar business? The fact that many people are still getting rich does make me wonder are Libertarians stuck in a middle class rut? Are they middle class workers and business owners who for some reason can't make the transition to highly-paid employees and wealthy business owners? "I'd make it to the wealthy class except guvmint's in the way". Yet there are plenty who make it even with guvmint so what wasn't their problem? Or why aren't multitudes of millionaires and billionaires Libertarians? Why can't they see that they'd be billionaire and trillionaires if it weren't for the guvmint?

Posted by: Gil | Jan 10, 2008 8:18:22 AM

Gil,

What does my wanting or not wanting to be a millionaire have do with recognizing that the political class consists primarily of thugs, confidence artists, and propagandists?

Question; Why do you all care so much about what libertarians think? Could it be that we've seen what lies behind the mask?

Posted by: Randy | Jan 10, 2008 8:39:16 AM

"Well the Great Society programs kicked in just before the data trends you mention above. So wow I guess they worked pretty good."

Let me translate that into latin...
Post hoc ergo propter hoc.

Posted by: Jay | Jan 10, 2008 8:45:28 AM

Must be like muirgeo and enjoy some intellectual S&M.

P.S. For those who like Latin
- Vescere bracis meis !

Posted by: Gil | Jan 10, 2008 9:04:45 AM

Per, Do you think that the government has been the cause of our incredible prosperity? I don't think that Don is arguing that at all.

Posted by: Eric | Jan 10, 2008 12:50:10 AM

That is not what I meant. But if the government had really been so bad that you would be ashamed of your own son if he goes into politics then that sounds to me like any government that bad would have stood in the way of an “incredible prosperity”. Don’t you? But then again I might just be reasoning!

Posted by: Per Kurowski | Jan 10, 2008 9:43:38 AM

Of course now it takes two incomes to replicate which used to to require 1 income, but that is trifling.

$75000 is headed for upper class? [chuckle]

Don, are you and Dr. Williams borrowing from George Will columns, or is Will borrowing from you?

Posted by: save_the_rustbelt | Jan 10, 2008 10:22:37 AM

I think employee take-home pay really only shows part of the picture. Rather I think that also examining total employee compensation would shed some light on the trends of the middle class since other compensation tends to be almost entirely bore by the employee even if paid by the employer.

Also, why is it that it's always people who have propelled themselves past the middle class (Dobbs, Robert Reich, etc.) that are the ones who always appoint themselves experts on how bad the middle class has it?

Posted by: David Peterson | Jan 10, 2008 11:17:06 AM

rustbelt: "Of course now it takes two incomes to replicate which used to to require 1 income, but that is trifling. "

Do you have any statistics to support this assertion?

Certainly the continued movement of housewives into the workforce made overall wages lower than they were previously. Why is that true? Housecleaning, food preparation, and child-raising - low-skilled tasks - were unpaid and thus unreported when performed by housewives. Today more workers than ever before are being paid for those tasks, and their wages are included in household income statistics.

rustbelt: "$75000 is headed for upper class? [chuckle]"

According to the Current Population Survey, $75,000 puts a household in the top 30% of all households. That may not be your definition of "upper class", but it probably meets most definitions of "upper middle class".

Posted by: John Dewey | Jan 10, 2008 11:17:26 AM

Even if we accept William's inflation adjustment without question, the figures in this article are irrelevant to any disappearance of a middle class. "Disappearing middle class" describes a change in the shape of a wealth or income distribution, not the declining wealth of anyone. It's entirely possible for a middle class to disappear while everyone gets richer. I don't know whether a middle class is disappearing or not, but I know that this article has little to do with it. It's a non-sequitur, a diversion from the issue it purports to address.

I've seen quite a few statistics indicating that wealth and income distributions are becoming more skewed. Is it happening or not? I'm interested in the answer to this question, not political spin. Simple models of a "capital market", like the random walk model (geometric Brownian motion), generate a lognormal wealth distribution (a generalization of Pareto's distribution) that fits the observed distribution well, and this model also generates increasing wealth concentration. The model is simple, but market efficiency and other factors lend some credibility to it.

A Phd in economics knows about the random walk model and its implications for wealth concentration already. Right? Convince me that it doesn't matter. Increasing wealth concentration is definitively a centralization of authority over productive means, and increasingly centralized authority over productive means is a problem for an Austrian. Right? Convince me that it isn't happening.

Never mind the explosion in Treasury notes and the growing state-industrial complex. Never mind the patent (statutory monopoly) explosion, globalization and scope creep. Never mind all the state employees approaching retirement with statutory entitlement to consume. Never mind the baby boomers claiming Social Security benefits. I'm not even discussing these developments here. Increasing wealth concentration requires none of them. These developments are real and current, so why aren't we discussing them?

I'm not a doomster predicting a great depression or calling for state socialism or anything similar. I'm not an economist, and I want some intelligent discussion of these issues with people who know more than I do.

Posted by: Martin Brock | Jan 10, 2008 11:37:21 AM

http://www.nytimes.com/2007/12/15/business/15rich.html

The rich are getting richer much faster? True or false? Williams' article doesn't address this question at all. Median earnings are relatively flat? True or false? If the trend toward everyone getting richer suddenly subsides and even reverses, who keeps their gains, the rich who've gotten richer faster or the median income earner who has gotten only a little richer? Historical precedent? See the late 1970s, when real median income fell 30%.

That was something less than a decade after the incredible excesses of the Kennedy-Johnson era. Kennedy's tax policies were like Reagan's and then Bush II's in reality (as Reagan frequently noted). Johnson's spending and imperial policies were a lot like Bush II's (only slightly less incredible). The oil price spike is also there, though for different reasons, and we weren't as far along the Hubbert curve for global oil production at that point. We weren't in the same demographic situation either. Baby boomers were entering the U.S. work force then. Now they're leaving it, while far more Indian and Chinese workers effectively enter it.

True or false? Tell me I'm worrying about nothing. Really. I want to debunk me thoroughly. Thats why I'm here.

Posted by: Martin Brock | Jan 10, 2008 12:07:15 PM

Martin,

Re; "I've seen quite a few statistics indicating that wealth and income distributions are becoming more skewed."

Sorry, I'm not one of those who knows more than you, but I'll pitch in my two cents anyway.

The only skewing of the income distribution that concerns me is the amount of wealth being transferred to the political class, because I don't think they are earning it. To those who think taxing the wealthy is the answer to all the nation's problems I say, "I agree", and the greatest concentration of wealth is in the hands of the US Government. We just need to figure out a way to tax the government.

Posted by: Randy | Jan 10, 2008 12:09:44 PM

I agree with you, Randy, but no bright line separates the "political classes" from the "private sector". A wealthy individual in the "private sector" can make loads of money from contracts with the state and hold reams of Treasury notes. Ross Perot fits this description for example. [EDS began largely as a contractor to the Social Security administration.]

The trouble is: these entitlement already exist. Statutory authorities (including many in the nominally "private" sector) continually channel entitlement to consumption in their direction. They've been doing it for decades, and they've been doing it hand over fist for the last decade. Bushniks are probably the worst offenders in my lifetime. Some of the nominally "private sector" entitlements are the most perilous, because the title holders have every reason to limit market competition for them.

What do we do? I favor a progressive consumption tax for one thing. That's a reform of the progressive income tax essentially entitling all tax payers to an IRA with no contribution limits, along with higher marginal tax rates. This reform limits the authority of very wealthy individuals to channel output toward their personal consumption, and it also cuts direct revenue to the state. Higher marginal rates lower state revenue (a la Laffer) without removing any entitlement of the wealthy to invest. This system of entitlement decentralizes authority and also lowers risk aversion, since wealthy individuals effectively accumulate a store of capital that they can never direct toward personal consumption.

The question is: why aren't we discussing reforms of this kind? Some people do. Sam Nunn and Pete Domenici (hardly left wing radicals) proposed this sort of tax reform in the eighties, and some think tanks continue discussing it, but it gets nowhere compared to reforms like flat taxes and the incredibly ironic "fair tax".

Posted by: Martin Brock | Jan 10, 2008 12:45:47 PM

Martin,

I don't sort out the wealthy pigs at the trough from the less wealthy ones. They're all the same to me. It is for precisely this reason that a breakdown into political class and non-political class is far more useful than the normal breakdown by wealth distribution.

I like the idea of an unlimited IRA - and roll the HSA, educational savings plans, etc., into it as well.

Posted by: Randy | Jan 10, 2008 12:53:30 PM

Y'all are throwing around claims of non-sequiter fallacy here. Let's look at it--

Boudreaux's proposition, the inference Mr. Dobbs draws - that the American middle-class is in trouble - is emphatically mistaken, is supported by Williams's data.

Quibbles over Williams's data, like between Dawg and Dewey, are relevant, but do not seem to invalidate the premise of rising *middle class* wealth. Boudreaux's argument remains sound.

Statements about the cause of the changes represented in Williams's data (or about Williams's character) are irrelevant. Brock's rambling about income distribution is similarly off the point. Dobbs bleats that some group is suffering. Boudreaux, via Williams, shows that the suffering group is both diminished in proportion and enjoying higher real income (suffering less). Dobbs's claim that the *middle class* is in (financial) trouble is fallacious.

If one wants Dobbs to be right, show some genuine *middle class* suffering. If one wants to argue the cause of income increases, the importance of income distribution, or the outcome of Great Society programs, those ideas are relevant in other thread(s).

Posted by: foxmarks | Jan 10, 2008 1:05:26 PM

Just for the hell of it, way down at the bottom of the roll here, can someone tell me why writers here always kick around the term 'libertarian?'

I'm not making a joke (this time). Libertarian is poorly defined, and isn't even one of the categories here. Hayek, who the blog is named after, defined himself as a classical liberal on more than a few occasions. Some, in these commentaries, have equated libertarian with anarchist and liberal with classical liberal. What purpose does this type of stupidity serve?

Blog commentaries are part theater, part criticism, and part lunatic rant-- but come on folks. Can we keep to the trail here?

The original post, reviewing the problem with commentators/politicians in the US claiming to help preserve the middle class, was a good and ironic point.

Some time next week can we try a single blog post with a simple rule: All responses have to refrain from labeling previous commentators. (Yes, for one post, can we actually discuss the post's topic.) I just want to know if we can do that, and carry on a discussion that consists of interaction on a topic-- the same topic we start with.

Just an experiment, please.

Posted by: The other Eric | Jan 10, 2008 2:27:32 PM

The non-sequitur involves "disappearing middle class", not a "troubled middle class". The only trouble of a disappearing middle class is that it ceases to exist. A middle class ceases to exist if a relatively empty region of the wealth distribution exists between a region of lower wealth and a region of greater wealth, i.e. the distribution is bimodal. Williams' data don't contradict this hypothesis.

Saying that "rambling" about wealth distribution, when discussing a "middle class", is incredible nonsense. What else does "middle class" describe if not the middle of a wealth distribution? A "shrinking middle class" doesn't imply that anyone is becoming poorer, but it could be an alarming development regardless. The issue is increasingly centralized authority over productive means.

Wanting Dobbs to be right is beside the point. Is a "middle class" disappearing or not? That's the question posed by the post, and the post doesn't address the question. It only says that people generally are becoming richer. This fact is irrelevant. Per capita GDP rises as productivity rises. This fact is not the least bit controversial. If per capita GDP doubles while median income rises only 10%, the increased output is not flowing to the middle. this fact is worth considering, even if foxmarks and others want to obfuscate it.

Posted by: Martin Brock | Jan 10, 2008 3:42:47 PM

Martin Brock: "If per capita GDP doubles while median income rises only 10%, the increased output is not flowing to the middle."

Why should it flow to the middle? Consider Wal-Mart's investment of billions to automate its retail stores and its warehouses, which increased dramatically the overall productivity of its workforce. Who should realize the return on that investment? IMO, it should be the investors who, through their representatives on the Board, authorized their retained earnings to be risked on such automation.

Actually, some of the increased productivity did flow to its workforce. WalMart directly or indirectly employed computer engineers to automate many tasks, reducing unskilled labor. Each computer specialist receives a much larger share of the pie than did any one of the unskilled workers who was no longer needed.

Posted by: John Dewey | Jan 10, 2008 4:33:47 PM

John Dewey,

Wal-Mart is not an individual and is completely irrelevant in this context. Its investment of billions to automate retail stores and warehouses represents the labors of countless thousands of people designing, building, installing and operating automated equipment. These people earn incomes. Some earn incomes near the median. Some earn incomes below the median, and some earn incomes above. Wal-Mart shareholders also earn incomes. A complex system of entitlement determines who earns what income.

I haven't said word about any middle class suffering or Great Society programs. I'm not your straw man. Since we're discussing "the middle class" here, income distribution is obviously topical. If you don't want to discuss income distribution, you can find another thread.

Your anecdote about automation replacing labor is meaningless without some quantification. Recent decades are hardly unique in this regard. Increasing productivity characterizes the entire 20th century, and you provide no evidence that computer specialists (including me by the way) account significantly for the skewing of the income distribution. I earn well above the median income but not that far above it. My individual income exceeds all of the household incomes that Williams discusses. Automation is a factor, but I expect automation ultimately to raise the productivity of labor generally. My work is a means to this end, not the end itself.

More to the point, according to the article I linked, the increase in incomes of the top one percent of Americans from 2003 to 2005 exceeded the total income of the poorest 20 percent of Americans. Do you have some evidence that increasing productivity contributed by computer specialists accounts for this increase? I don't suppose it's happening this way. I suppose that corporate officers and others entitle themselves to monetary earnings through stock options and otherwise, for example. I suppose that corporate officers have tremendous influence over the composition of governing boards as well as the engineering and reporting of corporate earnings. I know that shareholder advocates routinely object to this influence. I suppose that the more wealth becomes concentrated in the hands of relatively few title holders, the less markets operate effectively. Now, you can dispute these suppositions, but you haven't.

The value of outstanding U.S. Treasury notes rivals the value of all of the S&P 500 companies combined, and the value of the S&P 500 is roughly 80% of the value of all publicly traded companies in the U.S. These facts are a few years old, but I suppose they haven't changed much. Furthermore, some of the largest of the S&P 500 companies do much if not most of their business directly with governments. These companies are practically state agencies. You talk about Wal-Mart, but Wal-Mart is not the economy. I happily shop at Wal-Mart all the time, but if you think that Wal-Mart typifies "capital" in our economy, you're out of touch with reality. Much "capital" is only entitlement to tax revenue in disguise. Treasury notes are only the most obvious and indisputable example. Other capital is also inextricably linked with titular authority. Ignoring this fact doesn't change it. It's simply about marginal product, not remotely, unless we're discussing the marginal value of a forcible propriety. Guns have tremendous marginal value, you know.

Posted by: Martin Brock | Jan 10, 2008 5:39:39 PM

"It's not simply about marginal product," I intended to write.

Posted by: Martin Brock | Jan 10, 2008 5:44:07 PM

Martin Brock: " Wal-Mart is not an individual and is completely irrelevant in this context. Its investment of billions to automate retail stores and warehouses represents the labors of countless thousands of people designing, building, installing and operating automated equipment."

I disagree. WalMart's investment represents the risk-taking of a million or more shareholders. Many of those shareholders are individuals. Other shareholders are mutual funds, each representing the interests of thousands of individuals. That Walmart's earnings gains are flowing more to its risk-taking shareholders than to its workforce makes perfect sense to me.

Back to your argument that per capita GDP is not flowing to the middle class, I still do not understand that it automatically should.

As Professor Greg Mankiw explained here:

- labor is not the only factor of production - capital is the other major input;

- average productivity - or per capita GDP -should not be compared with median wages but with average wages.

Moving on, I must confess you've completely lost me with your last paragraph.

Posted by: John Dewey | Jan 10, 2008 6:38:11 PM

I totally disagree with the statement "more people are getting rich". In the 70's my dad was a painter in the union, he made 22 dollars an hour as a journeyman painter. He could buy 2 houses on his salary and feed a large family with mom staying home. Now, Journey painters make about 25-30per hour, they can buy half a house if mom stays home.

Look at the ads in the paper "12- 20 dollars per hour paid". How much of a home can that buy?

Inflation went up , and I suspect more then they claim.

A riddle:

YOu just found out that your crazy uncle left you 30,000 in cash when he died in the 70's. The note said "To my dear nephew, you were my favorite so go and buy yourself a home with this money and live debt free".

You didnt get the note and money till today. In the 70's you could have bought a home for 30K or 1000 ounces of gold (being about 30 dollars per ounce).

If you bought a home in the 70's it would be worth about 500,000 according to location.

If your uncle left you 1000 ounces of gold instead of paper money and ink, you would have about 800,000 to buy your home.

Now you are stuck with 30,000. Maybe you could get a run down trailer.

Posted by: dave d | Jan 10, 2008 6:44:59 PM

Martin brock: "some of the largest of the S&P 500 companies do much if not most of their business directly with governments."

Martin, here's the 20 corporations at the top of the Fortune 500. Which ones do most of their business directly with governments?

1. Wal-Mart Stores
2. Exxon Mobil
3. General Motors
4. Chevron
5. ConocoPhillips
6. General Electric
7. Ford Motor
8. Citigroup
9. Bank of America
10. American Intl. Group
11. J.P. Morgan Chase & Co.
12. Berkshire Hathaway
13. Verizon Communications
14. Hewlett-Packard
15. Intl. Business Machines
16. Valero Energy
17. Home Depot
18. McKesson
19. Cardinal Health
20. Morgan Stanley

GE makes jet engines for military aircraft, but many more jet engines for commercial aircraft around the world. GM sells some vehicles to governments, but that's just a small fraction of its $200 billion revenue.

Posted by: John Dewey | Jan 10, 2008 7:02:17 PM

Lou Dobbs is one of the Devil's protectionist minions.

He's profiteering from those who are ignorant of economics and fearful of change. I for one can't wait until the people who assemble my iPod, my 65-inch hi-def TV and my cell phone assemble my car. Down with Dobb's and the protectionists!!! They're denying me my cool and cheap stuff!!!

Posted by: Mark | Jan 10, 2008 7:58:03 PM

dave p,

20 != 500

General Dynamics does most if its business with the Federal government for example. Northrop Grumman is another example. Lockheed Martin is another. Honeywell and GE and many other S&P 500 companies do substantial business directly with the Federal government. I don't know how many receive the majority of their revenue this way, but I know that some do.

My point is not that nothing we can meaningfully call a "private sector" exists. I accept Wal-Mart in this category fairly explicitly above. My point is that "capital" describes Treasury notes, which are pure entitlement to tax revenue, as well as shares of General Dynamics, which are practically entitlement to tax revenue, not to mention strategic bits of many other companies. Treasury notes are pure entitlement to tax revenue, labeled "capital", and the value of Treasury notes rivals the value of the S&P 500 companies. That was true several years ago. Maybe the notes exceed the value of the companies now, and even the S&P 500 companies aren't "pure private capital". That's my point.

I've worked for SAIC (CIA's spelled backward) myself, which recently went public, sort of. It's not an S&P 500 company at this point, but it's #285 on the Fortune 500 list. Days after 9/11, we were pitching anti-terrorism services at our web site. I remember it well. I actually worked for a subsidiary called Telcordia Technologies while it was wholly owned by SAIC. Telcordia was part of AT&T before the divestiture. Later, SAIC bought it, took a billion dollars out the employee pension fund and then resold it for a profit to an investment bank. The resale was financed by the credit of Telcordia itself, so Telcordia borrowed the price of its own acquisition from the bank that acquired it. This cash goes into the account of SAIC. I don't know where the cash came from, but some of it probably came indirectly from the Federal Reserve.

Now, you can say what you like about the propriety of all this. I'm sure it was legal. Taxes are legal too. Treasury notes are legal. The war in Iraq is legal. Dick Cheney authored preferential tax breaks for the oil industry and then earned hundreds of millions of dollars in a few years telling Halliburton how to take maximum advantage of the preferences. [That's Cheney's story, not mine. Asked to explain what he did for Halliburton as CEO to earn the fortune, that's how he responded.] That was legal too. It's all legal. It's all just, proper and noble too, because the people entitled to define "legal", "just", "proper" and "noble" say it is. And why wouldn't they? They'll call it "Capitalism" too, if that's what you want.

Posted by: Martin Brock | Jan 10, 2008 9:37:11 PM

John Dewey: "I disagree. WalMart's investment represents the risk-taking of a million or more shareholders. Many of those shareholders are individuals. Other shareholders are mutual funds, each representing the interests of thousands of individuals. That Walmart's earnings gains are flowing more to its risk-taking shareholders than to its workforce makes perfect sense to me."

You disagree with what? I never denied any of this. Wal-Mart's earnings don't flow more to its risk-taking shareholders. They flow more to its risk-taking workforce. Choosing one employer over another is not riskless. Most of the revenue of most companies pays wages. I'm sure Wal-Mart is no exception, ignoring a retailer's inventory costs. Wal-Mart's dividend is probably a small fraction of its labor costs. Like I said, I shop at Wal-Mart all the time. I think Wal-Mart is fine. I haven't bashed Wal-Mart in any way. Wal-Mart apologetics are completely irrelevant here.

"Back to your argument that per capita GDP is not flowing to the middle class, I still do not understand that it automatically should."

I nowhere assert that it automatically should. I asserted that, as a matter of fact, if per capita GDP doubles while median income rises only 10%, then the growing output is not flowing toward the middle of the income distribution. We're discussing the shrinking middle class here, not any putative "morality" of a shrinking middle class. I couldn't care less what you choose to call "moral". Your shoulds are your business. Are the shape of income and wealth distributions changing or not? If so, what can we expect to follow? Political moralizing doesn't address these questions.

Posted by: Martin Brock | Jan 10, 2008 9:56:51 PM

Both of the last two posts are addressed to John Dewey, not dave p.

Posted by: Martin Brock | Jan 10, 2008 9:58:37 PM

"Wal-Mart's earnings don't flow more to its risk-taking shareholders. They flow more to its risk-taking workforce. Choosing one employer over another is not riskless. Most of the revenue of most companies pays wages."

Earnings are not revenue, Mr. Brock.

You seemed to be complaining that an increase in GDP per capita should be flowing to workers. My counter is that it should be flowing to the risk-taking owners of corporations in the form of earnings. That's why I said earnings flow to the risk-taking shareholders.

Posted by: John Dewey | Jan 11, 2008 5:34:14 AM

Martin Brock: "My point is not that nothing we can meaningfully call a "private sector" exists."

How can you make such a claim? Because a few defense contractors - a small fraction of either the S&P 500 or the Fortune 500 -receive most of their revenue from the U.S. government?

The government sector accounts for very little of the revenues of the 20 largest corporations - the ones I listed.

I will agree that a few industries - health care, defense, education, and highway construction - depend on government revenues for their existence. But that doesn't mean a private sector doesn't exist in energy, transportation, motor vehicles, retailing, food processing, general construction, hospitality, insurance, and most other industries.

Posted by: John Dewey | Jan 11, 2008 5:49:02 AM

Martin Brock: "We're discussing the shrinking middle class here ... Are the shape of income and wealth distributions changing or not?"

Why do you feel that a change in wealth distributions means the middle class is shrinking? I assume you mean the numbers of residents in the middle class. If the middle third - or the middle quartiles - of the population have a higher standard of living than they did 30 years ago, then they are still in the middle class, aren't they? The fact that the pie has grown - and that those middle quartiles received a smaller portion of that increase than the top quartile - doesn't mean the middle class is shrinking.

By shrinking middle class, do you mean that the portion of wealth flowing to the middle two quartiles has declined? Not the absolute wealth but the portion of wealth? If so, then I have to ask, so what?

Most corporate CEO's earn very high salaries for a short portion of their overall career. Then they retire and a different person earns that very high salary. The same is true for NFL running backs.

Many small business owners struggle for years before their businesses generate high profits. Some of those small business owners sell their business and receive - for one year only - an income among the highest in the nation.

My point - which I think others have made - is that a single year's snapshot of income distributions is not very useful.

Posted by: John Dewey | Jan 11, 2008 6:12:29 AM

1. Lou Dobbs has obviously never worked in a factory or he wouldn't be in such a hurry to put people back to work in factories.
2. People who think Lou Dobbs has the answer to their problems don't deserve to be in the middle class.

Posted by: Randy | Jan 11, 2008 6:19:48 AM

“People who think Lou Dobbs has the answer to their problems don't deserve to be in the middle class.”
Posted by: Randy | Jan 11, 2008 6:19:48 AM

Well according to the initial post I guess you mean they deserve to remain in the middle class. No?

Posted by: Per Kurowski | Jan 11, 2008 9:04:52 AM

John Dewey: "Earnings are not revenue, Mr. Brock."

I never claim that earnings are revenue, Mr. Dewey. I claim that most of the refenue of most companies pays wages, and I claim that wages paid typically exceed earnings.

No, I never anywhere complain so. Again, I state, as a matter of fact, that if per capita GDP doubls while real media income rises only 10%, the growing output is not flowing toward the middle of the income distribution. That's just a factual statement. I'm not moralizing about it. You are.

Martin Brock: "My point is not that nothing we can meaningfully call a "private sector" exists."

John Dewey: "How can you make such a claim? Because a few defense contractors - a small fraction of either the S&P 500 or the Fortune 500 -receive most of their revenue from the U.S. government?"

What claim? Try carefully reading what I write. There's a double negative. My claim is that a meaningful "private sector" (organized by markets) exists but that Treasury notes and state-industrial companies aren't really part of it, although they are nominally "capital". Even in the more genuinely market sector, a complex system of forcible propriety, including tax preferences and regulations and corporate managers with brothers-in-law in the state, contributes to economic organization as well. We certainly don't have any ideally free market economy in the U.S., not remotely. Selectively ignoring reality doesn't change it.

John Dewey: "The government sector accounts for very little of the revenues of the 20 largest corporations - the ones I listed."

My original post doesn't assert that most or even many S&P 500 companies, much less the the largest 20, receive most of their revenue from the state or belong to the "government sector." I say no such thing, so you're bickering with yourself here, while you simply ignore my points. Par for the course.

John Dewey: "I will agree that a few industries - health care, defense, education, and highway construction - depend on government revenues for their existence. But that doesn't mean a private sector doesn't exist in energy, transportation, motor vehicles, retailing, food processing, general construction, hospitality, insurance, and most other industries."

I nowhere ever assert that a meaningful "private sector" doesn't exist, but even outside of the sectors doing business directly with the state, within firms responding most to market forces, forcible propriety and other regulation affects organization mightily. Precisely where the regulatory restraints of trade end and marginal utility begins is an extremely open question.

Posted by: Martin Brock | Jan 11, 2008 9:11:08 AM

Martin Brock, Jan 10: "Furthermore, some of the largest of the S&P 500 companies do much if not most of their business directly with governments. These companies are practically state agencies."

Martin Brock, Jan 11: "My original post doesn't assert that most or even many S&P 500 companies, much less the the largest 20, receive most of their revenue from the state or belong to the "government sector."

Forgive me for misunderstanding your meaning. It's still not clear to me what you meant yesterday afternoon.

Posted by: John Dewey | Jan 11, 2008 9:43:35 AM

Martin Brock: "Try carefully reading what I write. There's a double negative."

Sorry, I did miss your double negative. It's very easy to misinterpret the meaning of a writer who uses such a double negative. Personally, I'd rather not have to work so hard to undersrtand one's posts.

Posted by: John Dewey | Jan 11, 2008 9:46:11 AM

Martin Brock: "but even outside of the sectors doing business directly with the state, within firms responding most to market forces, forcible propriety and other regulation affects organization mightily. "

Well, we can agree hear. This statement is quite different than asserting that some of the largest S&P 500 corporations are "practically state agencies".

Posted by: John Dewey | Jan 11, 2008 9:48:20 AM

Martin Brock: "We're discussing the shrinking middle class here ... Are the shape of income and wealth distributions changing or not?"

John Dewey: "Why do you feel that a change in wealth distributions means the middle class is shrinking? I assume you mean the numbers of residents in the middle class."

Why do you ask this question rather than address my question? I nowhere ever claim that the middle class is shrinking. I don't have the figures, but again (and again and again), if per capita GDP doubles while the median income rises only 10%, the growing output is not flowing toward the middle class. The output flows elsewhere, even while everyone gets richer. If so, the income in the middle falls relative to the income higher or lower in the distribution. It's entirely possible for the middle to become more like the lower end of the distribution while the upper end gains income in this process. We could reasonably call this development a "shrinking middle class", and Williams' figures on growing income don't address this question. That's my point. I'm not moralizing about it. That would be you. I want to know what's happening and what it portends.

John Dewey: "If the middle third - or the middle quartiles - of the population have a higher standard of living than they did 30 years ago, then they are still in the middle class, aren't they? The fact that the pie has grown - and that those middle quartiles received a smaller portion of that increase than the top quartile - doesn't mean the middle class is shrinking."

No, if the middle third has the same living standard as the bottom third now, while the living standard was very different 30 years ago, it's absurd to say that the middle third is still a "middle class". It's not a distinct class, defined by living standard, at all. It's the same class. A larger "lower class" then has replaced lower and middle classes. A lower class could also become larger than a middle class, so the distribution doesn't only flatten from the middle downward. It becomes bimodal. I don't know whether it's happening or not, but Williams' figures don't address the question at all. That's my point, and you don't address the point. You just go on moralizing about it. I don't care what you think should happen. It's beside the point.

John Dewey: "By shrinking middle class, do you mean that the portion of wealth flowing to the middle two quartiles has declined? Not the absolute wealth but the portion of wealth? If so, then I have to ask, so what?"

A shrinking proportion of income flowing toward the middle quintile could constitute a "shrinking middle class" if the portion flowing toward quintiles above and below simultaneously increases. Incomes in the middle need not fall for this to happen. What matters is the number of people in the middle relative to the number of people above and below the middle. The middle of the distribution could be completely empty for that matter. I'm not saying that it is, but Williams income figures don't address this question.

John Dewey: "Most corporate CEO's earn very high salaries for a short portion of their overall career. Then they retire and a different person earns that very high salary. The same is true for NFL running backs."

So what? This fact is not the least bit relevant to the point. I'm not moralizing about CEO salaries here. That would be you. It is a fact that CEO salaries have skyrocketed in recent decades, rising much, much faster than other wages. CEOs are not shareholders. They're officers of state-chartered corporations.

John Dewey: "Many small business owners struggle for years before their businesses generate high profits. Some of those small business owners sell their business and receive - for one year only - an income among the highest in the nation."

My sister is a small business owner who has struggle for years to generate profits, and she has been stabbed in the back by corporatist state policy more than once. For example, the Federal government essentially paid dairy farmers in her area to sell their livestock or slaughter it for beef. She's a veterinarian who very deliberately built a large animal practice in the middle of dairy country, deep in the country, at great expense, using her credit, before it happened. But the Federal dairy price support program doesn't pay her a dime.

What's your point?

John Dewey: "My point - which I think others have made - is that a single year's snapshot of income distributions is not very useful."

If that's your point, it's utterly irrelevant to my point.

Posted by: Martin Brock | Jan 11, 2008 9:54:48 AM

Above, "state-chartered corporation" doesn't mean that states found the corporations, only that states decree the laws governing incorporation and grant the titles.

Posted by: Martin Brock | Jan 11, 2008 9:59:47 AM

Martin Brock, Jan 10: "Furthermore, some of the largest of the S&P 500 companies do much if not most of their business directly with governments. These companies are practically state agencies."

What are you supposed to be proving here? "Some of the largest" does not imply the top 20, out of 500. I don't know where General Dynamic falls in the market cap ranking, but I know it's a huge company, the largest defense contractor on Earth, serving the largest military on Earth, as large as every other military on Earth combined.

John Dewey: "Forgive me for misunderstanding your meaning. It's still not clear to me what you meant yesterday afternoon."

Then I'll repeat myself, and you can tell me what you don't understand.

1) Treasury notes are pure entitlement to Federal tax revenue, labeled "capital".

2) The total value of all Treasury notes rivals the total value of all of the S&P 500 companies, and the S&P 500 companies constitute roughly 80% of all publicly traded companies in the U.S. I haven't done these numbers lately, but this was true only a few years ago, and I'm sure the situation hasn't changed significantly.

3) Even this comparison of "state capital" to "private capital" understates "state capital", because some of the S&P 500 companies are practically agencies of the Federal government and others do substantial business directly with the Federal government.

John Dewey: "Sorry, I did miss your double negative. It's very easy to misinterpret the meaning of a writer who uses such a double negative. Personally, I'd rather not have to work so hard to undersrtand one's posts."

I guess that's why you spend so much time bickering with your own straw men.

John Dewey: "Well, we can agree hear. This statement is quite different than asserting that some of the largest S&P 500 corporations are 'practically state agencies'."

We probably agree on many points. Some of the largest S&P 500 companies are practically state agencies. "Some" != "all". "Largest" != "top 20 out of 500".

Posted by: Martin Brock | Jan 11, 2008 12:59:51 PM

Lockheed Martin is 78. General Dynamics is 82.

http://www.indexarb.com/indexComponentWtsSP500.html

Posted by: Martin Brock | Jan 11, 2008 1:11:23 PM

Ok. Everybody shut up and listen. Now.

I’m tired of this mealy-mouthed, muirgeo-theorized “Gee, we can’t really tell what is going on with the middle class, and gosh-it-seems-like-CEOs-are-being-total-assholes-and-there’s-a-lot-of-financial- shenanigans-going-on" bullshit, and things suck because of corporate greed, and corporations are big and bad and greedy and capitalism basically sucks.

Wrong.

1) Tax data provides outstanding proof that the middle class is doing exactly what Don said above, you idiots - people (basically all income groups) are getting richer across the board.

2) Yes, corporate greed is real. So is government greed. We have laws against corporate greed. What laws do we have against government greed?

Hypothetical, your honor. There aren't any. Which begs the question:

3) Where do you prefer your (potential) malfeasance? Accountable corporations, or nearly unaccountable government bureaucracy?

Lou Dobbs can kiss my sizable ass, as can all of you redistributionists. You have zero leg to stand on (or as they say at Harvard, on which to stand).

Posted by: Mesa Econoguy | Jan 11, 2008 8:09:15 PM

The comments to this entry are closed.