Monday, March 2, 2015

Middle Class Economics Is a Farce ... Politics As Usual Won't Help the Middle Class ... Only Smaller Government and Non-Government Directed Private Sector Investment and Job Creating Initiatives Will Make That Happen

For a very simple reason, everybody in politics claims to want to help the middle class, it seems. That's where the most votes are.

In fact, the 'how' of generating more middle class prosperity and economic security in America is actually very simple --- less debt (individual and government), more economic growth, better educational outcomes and private sector entrepreneurialism combined with less government in the form of lower taxes and fewer regulations, are the simple ingredients required to achieve greater middle class prosperity in America. And that's not what government is bringing to America anytime soon.

How do we best help the middle class? Let's count just a few of the many ways.

(1) We encourage people to work hard to acquire lots of education and little debt. (2) Government officials vote to reduce taxes and adopt a much less expensive and value added form of government, including our public schools, colleges and medical care systems. (3) We also recognize that it's not helpful to continuously implement more government giveaway programs which take more money and opportunity from that very same middle class the government alleges it wants to help. (4) And finally, we means test such things as Social Security and Medicare and have those able to provide for themselves do just that.

In other words, the best way to help the middle class is for government to quit trying to help the middle class. Of course, that won't happen, at least not anytime soon, but until then We the People can at least ponder the virtues of less government intrusion and more individual freedoms.

What Is 'Middle-Class Economics'? tells the story succinctly:

"An awkward truth for politicians looking to help the middle class is that there’s much less the government can do for them than for the poor. . . .

The last year has been the first really good year for the middle class since the crisis. Job growth has risen to a pace of more than three million jobs a year, and gasoline prices are through the floor.

Consumer confidence is at levels not seen since 2007. Wage growth is still not strong but is better than it has been in years, and moves by a few large employers — including Walmart, which announced a $9 wage floor that would rise to $10 next year — may be signs that broad-based wage increases will come soon.

The big challenge for President Obama — and for Republicans seeking their own agenda to woo the middle class — is that middle-income economic fortunes are driven mostly by private employers. The government can raise the minimum wage, but it can’t make employers raise wages for workers already making well above that. It can give out targeted tax cuts, but these can’t have large effects on the average family’s income without getting really expensive. It can impose labor regulations, but it cannot overcome the fact that employers are powerful when many workers chase a small number of jobs.

This is a real contrast to the economic situation of the poor, which the Obama administration has affected greatly through policy. Between 2007 and 2012, the share of Americans who would have been poor based on their income before taxes and transfers rose by five percentage points. But after adjusting for taxes and transfers, poverty rose by just a point. Programs like Medicaid and unemployment insurance were highly effective in stopping the sharp rise in unemployment from turning into a sharp rise in poverty. Most of that policy effect was automatic, but a considerable portion was due to specific policy initiatives of the president, such as extending unemployment insurance benefits.
Having moved past the acute economic crisis, Mr. Obama has laid out three pillars of a plan to uplift the middle class . . . .

The first consists of tax and regulatory provisions aimed at supporting middle-income workers. He would offer tax credits for child care and college tuition, and a tax credit for the second earner in households where both parents work. He’d also require employers to provide paid sick leave, and he’d raise the minimum wage. The second pillar is policies aimed at making workers more productive, so they can command higher pay. This includes proposals to expand access to community college. The third pillar is policies aimed at increasing overall economic growth, like infrastructure spending and trade deals.

But these proposals are mostly small in scope, with limited near-term effects on middle-class economic fortunes. The White House had a telling spat last month with the Tax Policy Center, a center-left joint venture of the Urban Institute and Brookings Institution that produces estimates of the distributional impacts of tax proposals. Len Burman, the center’s co-director, who was a Treasury official in the Clinton administration, ran the numbers and found the president’s plan produced an average tax cut of just $12 for families in the middle quintile — a surprising result for a plan aimed at the middle class, and one that produced inconvenient headlines.

The last part should be the crucial issue for policy makers. In recent months, the labor market has been tightening. . . . what can the government do to keep the labor market tight, so workers have more power . . . and so good news like this keeps coming? . . .
Right now, the best middle-class economic agenda might be to do no harm: Let the positive trends on job growth and gas prices continue, watch them flow through to wages, and hope the Federal Reserve doesn’t get in the way and that Congress and the president can keep policy at an approximate status quo without government shutdowns or other manufactured crises. It’s not a very ambitious agenda, but it’s one that could produce materially higher living standards for Americans over the next two years."

Summing Up

The middle class is by definition and numbers too large to bribe politically with meaningful targeted tax cuts, assuming we want to pay for them instead of printing money and leaving even more government debt for the generations that follow.

And passing legislation granting more entitlements to such large numbers of Americans is also cost prohibitive for the same simple reasons.

Greater economic growth driven by the private sector, individual freedoms and less government bureaucracy and spending is the only real and lasting solution to achieving greater middle class prosperity.

That said, today's politicians aren't likely to vote for anything like that.

That's my take.

Thanks. Bob.

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