Recovery For The Middle Class

My first thought this morning was “it has been forever since I’ve sat down and written and posted a blog.” But forever is a long time and that is not the case. It has been a few weeks, but here I am sitting at the computer writing again. The question then is what do I write about? It is not like there is nothing going on in the world. But, it seems like it is the same old thing. North Korea is nutty; Putin is a thug; Obama is just trying to stay out of the Democrat’s so they don’t lose the midterm elections, and Republicans have no idea what they stand for. So in that respect nothing has changed.

Economically nothing has really changed. I did read that our budget deficit is lower this year due to increased tax revenue. I think the revenue number was over $3 Trillion, and government spending was somewhere around $3.5 Trillion. Our budget shortfall has been reduced by 50%. I can’t say I am too happy about that, because it is still large, and our overall debt level is still increasing. Our economic growth is trudging along, leaving many who were middle class on the side of the road. Everyone is reporting that median income in this country has declined and continues to decline.

Although some economists have gone on record as criticizing Pitney’s work on Capital in the 21st Century, I think we can all agree with him when he states that when the owners of capital have greater financial increases than those who generate the income, we have a growing gap between the haves and the have nots. And as Galston states, “With the exception of the holders of capital, who have done very well in the past five years, almost no one likes what’s happening.”

So what needs to be done? How do we recreate a vibrant middle class? Well, one side of the aisle wants us to see the problems as “administrative policies, the stimulus, huge budge deficits during the recession, the Affordable Care Act, and the termination of Bush tax cuts for upper-income filers.” While the other side of the aisle say the problems involve “weakening of labor unions, the eroding value of the minimum wage, trade treaties that destroy middle class jobs, and an inadequate public-sector response to the biggest crisis since the 1930’s.” Maybe both sides wouldn’t say it quite like this, but I think Galston, in the WJS, has synthesized the issues quite well.

However, I think we need to remember what the definition of insanity is: Doing the same thing over and over, while expecting a different result. So looking back at either Johnson’s “Great Society,” or Reagan era policies is wrong. We are in a new age that requires new solutions. Our global economic situation is very different than how it has been in the past. The United States is no longer the only game in town. Europe and Japan, as well as China and India, are now major players in all industries.

Galston notes some very important facts. When the Soviet Union collapsed, and China opened its borders, “a billion low-wage workers” entered the labor force “coming into direct competition with American workers.” The obvious result would be the lowering of wages for all, which happened. “As new markets expanded and the costs of transportation and information declined, it became increasingly attractive to locate production facilities in those markets rather than in the U.S.” This makes perfect business sense, although the cost gap is diminishing, thus the moving of manufacturing back to the U.S. However, I do think the biggest issue facing the American worker is improving technology, which has allowed for a greater ability to substitute machines for labor. This is a cheaper option for businesses. Things have changed.

This is the reality of the new world. The American worker must be better prepared and willing to work harder if they want to maintain the current standard of living. The importance of innovation cannot be understated. The reality of Creative Destruction has reemerged. If we want to stay in the lead, we need to get hungry again. If we don’t, then we will have to learn how to live on government handouts. Glaston makes a great ending comment to his article, “Government can mitigate these trends but cannot halt them…In the longer run, wealthy Democracies will have to invest more in basic research that boosts innovation and education that raises skills while tearing down barriers to business formation and entrepreneurial minded immigrants.” I agree with this. The only thing that will bring back a strong middle class is innovation and the entrepreneurial spirit that made this country great.

And that is my thought for the day!

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