Cafe Hayek: The vanishing middle class

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February 05, 2008

The vanishing middle class

Russell Roberts

Here is a very nice video from Reason.TV of Drew Carey talking about how the middle class actually is alive and well. Although I like the economics, I also like the clips from Dobbs et al relentlessly trying to scare people.

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Comments

I like reason.tv too, but this video pits one set of anecdotes against another. That someone describes himself as a gardener or works in law enforcement tells me little about his "middle class" status. If "middle class" means "everyone who's not a Fortune 500 CEO", it's one hell of a large class. In reality, this usage is not common, and comparisons with 1900 wear thin after a while.

I spent last night posting Ron Paul signs at polling places in low rent districts. The actual middle class is vast. Do these people have cell phones and cars my father would have envied when I was a kid? Sure they do, but I didn't see many speed boats. This video made no effort to paint a picture of middle income people, individuals with incomes in the low 30s.

I'm happy that cell phones are now commonly affordable and that affordable mp3 players are much more useful today than affordable record players were a few decades ago, but these facts do not contradict an assertion of wage stagnation, and they don't contradict an assertion of rising productivity and rising output without corresponding rises in the median income of individuals, and they don't account for 7500 people lining up for 400 jobs at Wal-Mart.

Posted by: Martin Brock | Feb 5, 2008 4:11:46 PM

The video was anecdote-heavy, but it still had a central point: "Wage stagnation" is not necessarily relevant. All that matters is what you can get for your time. Changes in dollar compensation are much less important than changes in cost of goods in labor-hour terms. If you get tired of comparisons to 1900, try comparisons to 1990 -- they are also impressive (eg cell phones' upfront and subscription costs).

On the Wal-mart front, I'm not sure we know enough about those 7,500 people to say that it's a bad thing. The number of people applying does not have any bearing on the more important factor: the desperation of their search. If there are 20 applicants for every opening in DeKalb County, yes, that's a likely to indicate a problem. (How many applicants is the 'right number' to show up for 400 jobs?)

Also, on the difference between Drew Carey's speedboat anecdote and yours: it isn't necessarily meaningful. The ratio of driveway-stored boats to marina-stored boats is different everywhere and it depends on a lot of factors. Coastal geography, weather, and tides here in the northeast are not conducive to ramp-launching boats the way those happy Californians were doing it. It may also be that you're in an area that doesn't have any good places to go speedboating. Not many yachtsmen even among the rich in Nebraska, for example.

Posted by: Eric | Feb 5, 2008 5:41:46 PM

Drew should drop by Cleveland, to see if Cleveland still rocks.

Some inner ring suburbs of Cleveland may become ghost towns when the foreclosure rate makes the cities unliveable (of course it is the workers fault).

And when the recession hits full stride somebody in California will do a booming business in the repo of boats and motorcycles, it always happens.

Let's see what all of those happy middle class Americans do at the polls.

Posted by: save_the_rustbelt | Feb 5, 2008 5:41:54 PM

This video is complete bunk. I'm middle class, making a little less than $60K/yr, and the middle class squeeze is real. Last year, I could barely afford the four weeks of vacation I took, two of which were cross country, my new car, another week of time share, new wardrobe and house renovations. I mean how am I expected to afford all that and a 60 in. flat screen TV, with 1000W surround sound, and PS3? Someone should do something!

Posted by: Ken | Feb 5, 2008 6:30:43 PM

Also, on the difference between Drew Carey's speedboat anecdote and yours: it isn't necessarily meaningful.

Necessity is a very rare bird. If you want to assume that wage stagnation in recent decades isn't meaningful, you can do that, but Carey's video doesn't substantiate this point. I'll stick with the Census Bureau.

Posted by: Martin Brock | Feb 5, 2008 6:51:53 PM

Let's see what all of those happy middle class Americans do at the polls.

I think that's a foregone conclusion. A recession can only make matters worse for Republicans. They need to catch Hillary in bed with a female goat, pronto. Barack in bed with a white woman probably isn't enough.

I'm gonna have a drink ...

Posted by: Martin Brock | Feb 5, 2008 6:56:35 PM

No, I haven't had one already.

Posted by: Martin Brock | Feb 5, 2008 6:59:25 PM

One more blockquote.

Posted by: Martin Brock | Feb 5, 2008 7:02:35 PM

Ken,

we feel your pain :)

However, there is a sense in which the middle-class is indeed being squeezed: by the government. The problem is that most people in the middle-class are on a fixed income and whenever taxes rise (which they always do, see latest AMT problems) they're the one with fewer options. I'm sure this is not what the pundits mean.

Posted by: Unit | Feb 5, 2008 9:17:28 PM

Martin,

I haven't seen anyone claiming that the inflation-adjusted median wage is changing much, so stagnation is a given. Neverthless the standard of living of wage-earners appears to be improving (a position which has better support than this video; some of that support is referenced by this blog and in the Easterbrook econtalk).

"Standard of living" is difficult to measure, but one good way is in the value of a labor-hour. If you get more/better stuff for the same amount of labor, you're better off -- regardless of the dollar value of your wage. That appears to be the dominant trend.

But it would be good to see the support for the argument that there is a stagnating wage problem: specifically, that a stagnating inflation-adjusted median wage has resulted in a declining or unchanging standard of living for the people who earn it.

Posted by: Eric | Feb 5, 2008 9:20:40 PM

The problem with elitists is that they don't live in the trenches. So, they know not what they speak of. Anyone who says the middle class is alive and well is completely clueless. And, is overlooking the data. This argument of a declining middle class has never had merit. Until now. For the first time in recorded history, wages for the bottom 80% are stagnant to declining. Of course, you aren't in that category are you?

Posted by: MalcomX | Feb 5, 2008 9:41:30 PM

MalcolmX --

In the bottom 80%? No. But I accept the premise that the median wage is stagnant. (What is not clear is whether the bottom group is consistently comprised of the same people each year -- for example I was in it before 2006 but not after -- but I'm going to leave that doubt aside for now.) Again, I accept as a given that the inflation-adjusted median wage has not changed appreciably in years.

What I was asking Martin, and now you, for is evidence that stagnant wages are hurting the standard of living of median wage earners, or that their standard of living is stagnating along with the median wage. My hunch is that while the middle classes' wages were stagnant their standard of living improved greatly leading up to this year despite that stagnation. Again, this is at the median income -- 50% of the population earns more, 50% earns less. That should represent the middle of the middle class.

As I said, it would be great to see the data supporting the other side of this point, so if you have it, by all means link to it.

Posted by: Eric | Feb 5, 2008 10:46:38 PM

But it would be good to see the support for the argument that there is a stagnating wage problem: specifically, that a stagnating inflation-adjusted median wage has resulted in a declining or unchanging standard of living for the people who earn it.

The negative savings rate is a problem, but I don't accept the premise that no change in real median income over 30 years, while real GDP doubles, is hunky dory, even if the median income buys better toys. Payroll taxes and other taxes are higher over this period.

Posted by: Martin Brock | Feb 6, 2008 12:17:40 AM

Eric, If you have some meaningful definition of "median living standard" other than the real, median income measured by the Census Bureau, you can describe it. I can't possibly show you anything about a term as vague as "living standard". I agree that the price of record player 30 years ago buys a qualitatively superior mp3 player today, but I don't know how much extra "living standard" this improvement is supposed to buy.

Posted by: Martin Brock | Feb 6, 2008 12:23:19 AM

Some facts...

There will always be people who are dissatisfied with their lives.
There will always be politicians who promise to help the people who are dissatisfied with their lives.
These politicians will seldom actually help anyone but themselves, because only seldom is the political environment the true source of the dissatisfaction.

Posted by: Randy | Feb 6, 2008 6:25:35 AM

I haven't seen anyone claiming that the inflation-adjusted median wage is changing much, so stagnation is a given. Neverthless the standard of living of wage-earners appears to be improving.

But if the standard of living of median wage-earners is improving then the method of calculating inflation-adjustment for wages is failing to factor in those elements that are responsible for the improvement in living standards.

It's contradictory to say that median wages are stagnant but the median wage earner is better off. If the median wage buys more and better stuff now, and the median earner lives better now, then wages are NOT stagnant -- the measurement method is faulty.

Posted by: Slocum | Feb 6, 2008 8:19:03 AM

If the median wage buys more and better stuff now, and the median earner lives better now, then wages are NOT stagnant -- the measurement method is faulty.

http://www.econlib.org/library/Columns/y2008/Jasaygdp.html

"If GDP will not grow as one would wish, use an alternative that will. Referring to the teaching of the communist sociologist Edgar Morin, Mr. Sarkozy reminded public opinion that gross national product was not the same thing as well-being, and that it took many other variables than material production to make a civilisation and a high quality of life. On the league tables of these other variables, France ranked much higher than on the GDP table."

What you're doing here is exactly what Sarkozy does in France. Simply replace "GDP" with "median income".

Posted by: Martin Brock | Feb 6, 2008 8:58:57 AM

Martin,

Slocum made the point I was leading to -- that changes of what we call "real" wages do not measure well-being. (Particularly true of median wages, which are earned by different people each year.)

The video uses another standard, the cost of goods in labor-hour terms, to show that quantitatively people are better off than before (I just wish they gave more data, including more recent comparisons).

The idea being that if you can buy the same stuff with fewer hours at the office, you're better off because you have more leisure and all the same stuff as before. That seems like a clear "standard of living" increase.

Posted by: Eric | Feb 6, 2008 9:21:10 AM

I'm not sure what kind of garbage Mr. Sarkozy plans to include in his "new GDP" measure, but the goods-per-labor-hour is a very simple measure that removes some measurement problems but keeps the well-being aspect.

What is this fixation on fiat currency measures?

Posted by: Eric | Feb 6, 2008 9:27:23 AM

(Also, it would be a failure of logic to conclude that our exchange of a bad measure for a better one is the same as France's exchange of an unfavorable measure for a favorable one on the grounds that the better measure is also favorable.)

Posted by: Eric | Feb 6, 2008 9:30:31 AM

Eric,

I like the idea of the cost of goods in labor-hour terms, but even better would be the cost of goods per productive labor hour. That is, not just how much time we spend at the office, but how much time we spend actually working. The factory workers of the 50s and 60s didn't spend a lot of time surfing the web, if you know what I mean.

Posted by: Randy | Feb 6, 2008 9:50:03 AM

Slocum made the point I was leading to -- that changes of what we call "real" wages do not measure well-being. (Particularly true of median wages, which are earned by different people each year.)

Right. Just like Sarkozy in France. You employ a Leninist propoganda tactic here, not any sort of economic science.

Median income tell us what a person in the middle of the income distribution receives and is above what half the population receives. Different people receive this income each year, but half the population receives this income or less every year.

The video uses another standard, the cost of goods in labor-hour terms, to show that quantitatively people are better off than before (I just wish they gave more data, including more recent comparisons).

No, it doesn't. The video alludes vaguely to this measure, but it quantifies nothing. You won't find any measurement of median "labor-hours" in the video. What's the median number of hours worked for wages each week? You can't answer this question from the video, because the answer's not in the video.

The idea being that if you can buy the same stuff with fewer hours at the office, you're better off because you have more leisure and all the same stuff as before. That seems like a clear "standard of living" increase.

It might be a "standard of living" increase if it were occurring, but you provide no evidence whatever that it's occurring. Most people don't work in offices anyway. The very fact that you frame the issue this way indicates that you aren't discussing individuals receiving $30,000 annually. You're describing your own anecdotal experience.

Posted by: Martin Brock | Feb 6, 2008 10:12:16 AM

I'm not sure what kind of garbage Mr. Sarkozy plans to include in his "new GDP" measure, but the goods-per-labor-hour is a very simple measure that removes some measurement problems but keeps the well-being aspect.
What is this fixation on fiat currency measures?

Real, median income is not a fiat currency measure. It does adjust income for purchasing power. You and Sarkozy have at least two problems, 1) you're vague and don't quantify anything and 2) your analysis is post-hoc, i.e. you respond to a stagnating measure by looking around for some other measure that might not be stagnating.

Economists settled on real, median income as a measure decades ago. It's not rising, so economists apologizing for the status quo today need another measure.

Posted by: Martin Brock | Feb 6, 2008 10:21:59 AM

Whew MalcomX!

That's a pretty broad sweep of time, care to revise your statement just a tad so as to avoid hyperbole? You took in a lot of people in a lot of places through a vast sweep of time and I doubt seriously you have the data to back it up.

"For the first time in recorded history, wages for the bottom 80% are stagnant to declining. Of course, you aren't in that category are you?
Posted by: MalcomX | Feb 5, 2008 9:41:30 PM"

I was born (1941) in the trenches, when my dad was discharged after WWII we spent several years looking up to see how dirt poor people lived so well, I have lived in the trenches, I have spent my time as lower middle class, but it wasn't until in the heart of the Carter recession that I began my climb up to really solid middle class.

I won't say Houston is a template for everywhere else in the USA, but here in Houston there has been a steady economic boom since the late 80s. Some will say no because they were in industries that suffered the dot.com bust, but most I know have found other jobs long ago. What is relevant to Houston is this. I drove around the Beltway perimeter last thrusday going to a job on the North side. I completed on full 180degress of travel on that beltway, and virtually from beginning to end there is new construction of businesses, manufacturing, tall office buildings, huge warehouse complexes, business parks, brother it just goes on and on, and it is obvious that this is not being done on low skill labor or low technical labor.

Perhaps the people who are struggling uncomfortably where they are need to learn what I did as a child; and, that is when I sat down and found myself uncomfortable I got my ass up and moved.
or
In the old country tail: The old farmer was sitting on his front porch in a rocking chair and down the porch from him was his coon dog just howling with regularity. Finally the man's wife came out asked the old man if the dog was sensing something like a stranger coming. The old man said, "Naw woman, he's just sitting on a nail and too damn lazy to move, so he just howls about it."

In essence MalcomX most people are the cause of their situation and only they can change it. The truth is we all have exactly what we want in life, if this were not true we'd be working on changing it.

Posted by: vidyohs | Feb 6, 2008 10:41:40 AM

Gulp!
"I completed on full 180degress of travel on that beltway"
this should read:
I completed a full 180 degrees of travel on that beltway"

Posted by: vidyohs | Feb 6, 2008 10:47:27 AM

Martin,

Apologizing for the status quo? That's an interesting perspective.

Posted by: Randy | Feb 6, 2008 10:51:27 AM

The theory here apparently is that the middle class is so stupid they are rushing to the polls in massive numbers because of the medias influence on them.

The theory is right but for the wrong reasons. Mass media saturates the average American with the message they need more and more and more. Indeed they spend more and more on things they don't need and bigger houses. Advertising WORKS that's why a Superbowl add cost a million buck a minute. But to keep up (which the number of foreclosure suggests they aren't) they work MORE family hours and have less time off. They commute further distances to live in affordable housing. They have more and better things but they have more debt and less savings and decreasing benefits and stagnant wages. The system completely rigged by men of money with access to cheap American dollars direct from the Fed to spur more buying and more debt and greater taxation to pay the debt.

But the bottom line is the midde class HAS figured out they are being ripped off and they're going to the polls NOT because of an impression they get from the media but from the real life they are living. And guys like Drew Carey trying to tell them to shut-up and be thankful will be stampeded by the democratic process as it swings back in favor of the people and away from the economic royalist.

Posted by: muirgeo | Feb 6, 2008 10:57:28 AM

Muirgeo,

Not sure I follow. Are you saying that masses of people are going to vote for democrats in the hopes that they will be forced to want less things? I guess I can see how that might seem rational to a democrat...

Posted by: Randy | Feb 6, 2008 11:12:07 AM

The negative savings rate is NOT the problem. It is a symptom. A symptom of negative wage growth and people trying to maintain a standard of living they used to have.

Posted by: MalcomX | Feb 6, 2008 11:40:47 AM

Apologizing for the status quo? That's an interesting perspective.

If you consider the meaning of the words, it's a literal description.

I definitely reject the straight-line theory of economic development in nominally "Capitalist" economies. Things sometimes get worse. Things got worse in the seventies, and state policies in the preceding decade played a role.

I reject the theory that neo-conservatism (or whatever we're calling Bushnik policies these days) is anything like classical liberalism.

I reject the idea that global "free trade" agreements actually liberalize trade in the classical sense. These agreements globalize particular forcible proprieties and expand the territory over which particular corporatist tinkerers may operate.

The WTO creates international patent monopolies while corporatists expand the scope of patents to easily replicated software algorithms and incredibly broad "business processes". U.S. courts overwhelmed by patent disputes essentially hand authority over these disputes directly to the U.S. patent office. One party, Communist states with nominally "liberal" economies have huge current account surpluses with the U.S. and increasingly dominate patent applications. Solicitations for military and other state research contracts increasingly emphasize the value of these global monopolies. U.S. corporatists increasingly sell business processes to proprietors in one party states.

I can provide specific evidence for all of these assertions. We can argue about the import of these developments, but the developments are undeniable, and they're probably the tip of an iceberg, but I don't read a word about it in this forum.

Posted by: Martin Brock | Feb 6, 2008 11:42:06 AM

I'm just thinking that one very large element of the "status quo" is the desire of the political class to maintain its revenue stream. It forces children into schools in order to increase productivity and establish the habit of regimentation, establishes programs to funnel a large percentage of national earnings into the hands of their favorites... you get the idea. It just seems me that those who claim to want to change the status quo are actually its defenders, and vice versa.

Posted by: Randy | Feb 6, 2008 12:01:28 PM

They commute further distances to live in affordable housing. They have more and better things but they have more debt and less savings and decreasing benefits and stagnant wages. The system completely rigged by men of money with access to cheap American dollars direct from the Fed to spur more buying and more debt and greater taxation to pay the debt.

Or it could be bad local tax policy that forced people and businesses out of urban centers (e.g. Baltimore's property tax rate is double the surrounding counties), which caused sprawl. Or the recent raising of regressive local taxes, which increase the cost of living for the middle class. And this was not to pay debt, for to pay for useless increased governmental spending at the state level. Now, at the federal level we have to pay for military - about $600 billion worth. Muirgeo, I see runaway government as a key problem, and not the CEO of Coca Cola.

Posted by: Mcwop | Feb 6, 2008 12:06:22 PM

Martin --

I reject all of those things too. (Except maybe the problems of doing business with undemocratic regimes and selling business processes; I'm not sure about those.) I just want people to look at a wider range of measures before making statements like, "life is getting worse for middle class Americans." Nevertheless, the developments you describe are indeed undeniable.

The point I was making in reference to your first post was that CPI doesn't tell the whole story about changes in purchasing power, therefore "real" wages don't tell the whole story. (I just tried to post a bunch of links to other data, but for some reason it didn't work. Just search Cafe Hayek for "CPI" and you'll see some actual research and a good number of anecdotes in the linked posts. Maybe that post will show up later.)

By all means, let's change the status quo. But we need to be careful going around 'fixing' this and that on the basis of weak data.

Posted by: Eric | Feb 6, 2008 12:18:29 PM

Are you saying that masses of people are going to vote for democrats ...

Yes.

... in the hopes that they will be forced to want less things?

No. They want things more.

I guess I can see how that might seem rational to a democrat...

The Democratic and Republican parties are two peas in a pod. The difference between a two party state and a one party state is one party, and this distinction ultimately is meaningless. We cycle between waves of futile expectation, expecting one party to unwind the forcible proprieties of the other, while the network of these proprieties only becomes ever more complex and tangled. Most people wander around looking for a tightly woven patch in this tapestry, and when we find ourselves at a joint in the network where lots of cash flows at the moment, we purchase as many rents as we can or we just consume and hope for the best.

We reached a point for while where inflation mostly affected the price of these rents, so we have very low interest rates on long term Treasuries for example. We're now approaching a turning point in the baby boomers' demand for rents. They'll now gradually accumulate less and sell more. We might hope for a new generation of buyers to take up the slack, but median income growth stopped soon after the baby boom ended. [Of course, it wasn't really the end of a boom. It was the start of a bust.] If the stagnation creeps to ever higher income percentiles, something seems unsustainable.

Sure, mp3 players are much nicer than 45s on a turntable, but I don't expect the mass of people to give up their mp3 players to buy a few shares, and they can't effectively buy 45s or turntables at any price anymore. Will people rising in the corporatist hierarchy buy these shares? I don't know. If we are selling rights to produce for U.S. consumption to Chinese and other proprietors, I just don't believe that the corporatist administration can remain long in the U.S.

A couple of decades ago, when this demographic trend was driving rent prices up, I heard lots of talk about it. I remember it well. Now that we're approaching the end of the buying phase of this trend, the silence is deafening. Or maybe I've just stopped listening. I don't know. I've hardly seen television in years.

Posted by: Martin Brock | Feb 6, 2008 12:39:39 PM

Martin:

People like you have been predicting the Socialist Democrats sweep to power due to Reagan's "thrashing of the middle class" for 20 years now. It hasn't happened yet. Billy boy signed NAFTA and welfare reform. Billary will not do any better or worse. Face it, neither your hero Ron Paul or space alien Kucinich are going to be President.

Posted by: FreedomLover | Feb 6, 2008 12:45:41 PM

Martin:

Tell me how to raise the median income in this country.

Posted by: FreedomLover | Feb 6, 2008 12:49:29 PM

I'm just thinking that one very large element of the "status quo" is the desire of the political class to maintain its revenue stream.

I'd say that's just about all of it, but the "political class" certainly is not limited to employees of the federal and state governments, elected and otherwise. It's not like there was no state in the feudal period.

It forces children into schools in order to increase productivity and establish the habit of regimentation, establishes programs to funnel a large percentage of national earnings into the hands of their favorites... you get the idea. It just seems me that those who claim to want to change the status quo are actually its defenders, and vice versa.

If you're talking about the bickering voices that the two major parties direct at each other, I completely agree. Tragically, if the Libertarian party became a significant force, it would soon succumb to the same, stagnant, inbred dialectic. I hate to be fatalistic, but that's how I see it.

Posted by: Martin Brock | Feb 6, 2008 12:51:00 PM

Tell me how to raise the median income in this country.

I've suggested a progressive consumption tax repeatedly. It's not a panacea in isolation, but if adopted, it would slash income tax revenue, from the wealthy specifically, and hopefully slash state spending with it. If so, it would free resources currently bound up in the Federal planning apparatus. It would also change the consumption profile and leave market forces to explore a wider variety of more common goods rather than a variety of less common goods. This change would affect employment as well. Median income has risen under this type of arrangement in the past as a matter of fact.

I've suggested a system of parental support and private investment to replace Social Security. I'd go further and forbid Treasury securities in the accounts.

I've suggested privatizing education by creating a negotiable propriety in a portion of people's educational value. So basically, your parents pick educators for you when you're young, and you owe these educators a percentage of your income for a period thereafter. If you don't produce, these educators have an incentive to sell their entitlement to other educators who might profit by educating you otherwise.

If we've essentially sold exclusive rights to produce for U.S. consumption, we just need to default on these obligations. We sold you the right, but we were lying, and we aren't buying the right back from you now, unless you just want us to print some money for you. Sorry about that. Hope you'll go on trading with us anyway.

I don't say a word about any Federal spending or expanded central authority or statutory wages. I don't say a word about limiting competition, quite the contrary. I don't say a word about border fences and other restraints of trade.

Posted by: Martin Brock | Feb 6, 2008 1:12:23 PM

And slash the empire. Withdraw U.S. forces from Iraq, sell 90% of the Vatican sized embassy there to local interests, cease construction on the permanent military bases and sell these assets as well. Sell 'em cheap at a nominal loss. Do the same with similar resources globally. Free the resources bound up in these organizations to explore a greater variety of goods for more common consumption.

Posted by: Martin Brock | Feb 6, 2008 1:19:10 PM

Martin:

How does a "progressive consumption tax" raise median income? You say you want to eliminate FICA, but what does that have to do with the other tax if you say we have to cut spending anyways? Why not just eliminate FICA, SocSec and cut other spending? Why add in another unfair tax? Any tax that is not flat is inherently unfair and un-American.

Posted by: FreedomLover | Feb 6, 2008 1:19:47 PM

What empire? A few military bases does not an empire make. What tribute are we collecting? Who are the regional governors of the American Provinces? I thought this was an empire. You lost me there. Also what is this thing about "greater variety of goods"? When I look at the retail space online and brick-mortar I see a virtually infinite variety of goods, so what are you blathering about?

Posted by: FreedomLover | Feb 6, 2008 1:21:42 PM

"...but the "political class" certainly is not limited to employees of the federal and state governments..."

The way I think of it, it comes down to owners (rent collectors) and tenants (rent payers). The political class is the owners.

"...bickering voices that the two major parties direct at each other..."

There's really only one party. They are only arguing amongst themselves over how to split up the rents they've collected. Neither is the least bit interested in collecting less rent. Its what they do, not what they say, that counts. Libertarians will never be in charge, because you can't be in charge without collecting rents, and the more you collect the more power you have. Libertarians can only point out what should be obvious - that too much power in the hands of the political class is a threat to liberty.

Posted by: Randy | Feb 6, 2008 1:33:47 PM

apologies if someone already brought this up (didn't have time to carefully read every post)

"stagnating" wages don't include benefits and incentive compensation. Strange, because those two components are growing as a percentage of total comp. And, of course, people in all classes change over time. One year they may be classified as above average, another below and another average income. Thus, it seems meaningless to talk about "the middle class" as if they are some unchanging lump of humanity.

The best thing about the United States is that people are more free here to change the circumstances of their life than in any other country I've very lived.

As for the military empire....the amount we spend on military pales in comparison to the amount we're spending on entitlement programs. This notion that we can somehow pull back within our borders and ignore the rest of the world is fantasy, but making people pay for their lunch seems much more do-able to me.

Posted by: Methinks | Feb 6, 2008 1:43:36 PM

I find that liberals are usually running on fumes when they rant about the "American empire". I have to put up with that all the time.

Posted by: FreedomLover | Feb 6, 2008 1:59:38 PM

FreedomLover --

While the variety of goods may seem infinite to you, it is only because you don't have the imagination to picture an even wider array. The cost of paying for the war(s) crowds out investment in more peaceful endeavors.

Many other things the government does crowd out other investment, too. Entitlement programs are the worst offenders -- but they're part of a separate debate.

On the other hand, many functions of our military apparatus make it very useful, like protecting shipping from pirates in the Strait of Malacca and protecting poor foreigners from genocide. So as with everything it appears to be a bit of a mixed bag, and I will leave the rest of the theorizing to people who know something about artillery. But I don't like wars, particularly ones that would have been so easy to avoid (in this case we could have avoided it by not invading Iraq).

By the way, congrats to Randy and Martin for agreeing so vehemently about the lack of differences between the two major political parties. I disagree too -- I think that there aren't any important differences between the two major parties! ;)

Posted by: Eric | Feb 6, 2008 2:25:20 PM

How does a "progressive consumption tax" raise median income?

You must have missed that part. See above.

Why not just eliminate FICA, SocSec and cut other spending?

I do propose to eliminate most of the payroll tax, the 10.7% that funds Old Age and Survivors Insurance, and to eliminate this portion of the Social Security program as described above and here:

http://www.knology.net/~marbrock/psupp.htm

Why add in another unfair tax?

The progressive consumption tax is not another tax. It's a reform of the income tax. Basically, it keeps the progressive income tax, simplifies it by taxing all income alike (including capital gains, dividends, rents, etc.), adds higher marginal rates at higher incomes and creates an individual investment account (like an IRA) with unlimited contributions to shelter income from the tax. You may earn a billion dollars in a year and pay no tax if you reinvest all of it. This consumption tax replaces the income tax. The higher marginal rates don't collect more revenue. They collect less, because that's what they're supposed to do.

Any tax that is not flat is inherently unfair and un-American.

Yea, oh god of "fairness", speakth that we may know thy will.

Here's how fair I want to be. I want Bill Gates to pay less tax than you do. He pays no payroll tax now, because he earns no wages. If he consumes relatively little going forward, he'd also pay less consumption tax than you, and I think that's completely fair.

Posted by: Martin Brock | Feb 6, 2008 3:05:33 PM

Here's another eminently fair proposal. If you own a house in the U.K. and you're well able to support yourself, you may move equity here and immigrate with a fast track to citizenship. Let's encourage all of the wealthy retirees on Earth to move here and buy our houses.

Posted by: Martin Brock | Feb 6, 2008 3:18:33 PM

Eric:

You look at our current military expenditure as somehow not necessary. I think the high cost is dictated as much by American interest in keeping the world safe for commerce as much as American public opinion dictates that we don't use excessive force. If we carpet-bombed Iraq it'd be a lot cheaper dollar-wise, but the American people would have not stood for it morally. Basically $200-$300 billion is the "lets not be cruel" expenditures.

Posted by: FreedomLover | Feb 6, 2008 3:19:52 PM

What empire? A few military bases does not an empire make.

You obviously haven't counted lately.

What tribute are we collecting?

You need to ask the people around the bases.

Who are the regional governors of the American Provinces?

They're diplomats and generals.

I thought this was an empire.

You thought correctly.

You lost me there.

You seem lost, but I didn't lose you.

Also what is this thing about "greater variety of goods"?

That's "a greater variety of common goods", goods available to a large number of people. "Greater" is the opposite of "lesser". I'm sure how else to explain that to you.

When I look at the retail space online and brick-mortar I see a virtually infinite variety of goods, so what are you blathering about?

You'd have seen that a century ago too. Just look at an old Sears catalog. This fast is irrelevant. If you believe the variety of goods doesn't change and grow, we must live on different planets.

Posted by: Martin Brock | Feb 6, 2008 3:28:39 PM

Martin,

"...free resources currently bound up in the Federal planning apparatus."

Works for me. Keeping the money in the private economy most likely would increase median income. But I still don't see any need to restrict how people spend the increase. With more money available, they will spend it, and the investment money will follow the wants, simultaneously making investment itself more attractive to those who prefer to invest.

Posted by: Randy | Feb 6, 2008 3:29:59 PM