According to Rothbardian analysis, the erosion of the middle class which we now face is due to inflation. However, many wages are now compensated for inflation through the CPI (I know this is not an apodictic index, but it is approximate and will take care of most of the regressive transfer of wealth).
Are there any other policies which might be responsible for an eroding middle class?
Also, does anybody know where I can find statistics on how quickly the middle class is eroding?
The CPI is nowhere near adequate to measure the total devastating effects of the inflation tax on economies. It excludes some of the commodities most sensitive to inflation! However, high taxation (and of course the various schemes funded by it), regulation that stultifies competition, IP laws etc. are all potential sources of greater inequality.
What commodities aren’t included in the CPI?
High taxation is progressive; the poor and middle class pay nearly nothing in our tax scheme, so that’s not regressive.
“regulation that stultifies competition” “regulation that stultifies competition, IP laws etc” - these all hurt the economy, but why would they hurt the poor more than the rich?
The obsession with low vs. high income earners is a diversion from the real wealth gap, that is to say people with low vs. high accumulated wealth. It turns out that people with low accumulated wealth have a greater proportion of their wealth invested in cash-denominated assets, most notably government bonds through social security and other forms of cash deposits. This being the least costly form of portfolio, it is the most widespread amongst the lower classes.
The wealthy are usually invested in stocks and real estate, which are generally more costly to invest in (greater risk, more information necessary) and benefit from inflation as compared to cash assets.
Every dollar added to the money supply is an expropriation of money assets, and it happens that the poor suffer more from this expropriation.
The middle class is fine; we’ve had much worse inflation than we have currently. If it appears to be ‘shrinking’ it is because:
I’m not saying I know what the American economy would be like under free banking, but I don’t think its accurate to say the middle class has it any worse than they have before. In my opinion that sort of talk is rubbish spouted out by news anchors who lack incentives to accurately report economic data.
Of course, anyone with a good deal of their money in real assets (real estate, equities, commodities, etc) will do better under inflation than others will.
“The great foe of democracy now and in the near future is plutocracy. Every year that passes brings out this antagonism more distinctly. It is to be the social war of the twentieth century. In that war militarism, expansion and imperialism will all favor plutocracy. In the first place, war and expansion will favor jobbery, both in the dependencies and at home. In the second place, they will take away the attention of the people from what the plutocrats are doing. In the third place, they will cause large expenditures of the people’s money, the return for which will not go into the treasury, but into the hands of a few schemers. In the fourth place, they will call for a large public debt and taxes, and these things especially tend to make men unequal, because any social burdens bear more heavily on the weak than on the strong, and so make the weak weaker and the strong stronger. Therefore expansion and imperialism are a grand onslaught on democracy.”~ William Graham Sumner
Nice prediction!
How familiar exactly are you with economics miksirhc? The total incidence of taxation is not highest on rich or poor but on productive classes within these income bands. The Tax Foundation’s estimates show that the total incidence of taxation is nowhere near being progressive. Income tax is by no means the only tax out there. Regarding the CPI, this lists but a few of the problems involved with it. It measures averages, and badly at that. It can thus fail to pick up on inflation, especially in the case of certain volatile commodities (I had thought it excludes some commodities as well, but apparently not; it just fails to measure movements in their prices well.)
Why would a lack of competition hurt the poor or the middle classes? Higher prices and lower quality of goods and services would strike me as one possible reason… if you check who exactly lobbies for regulation etc. it is those who stand to benefit from such activities (this is particularly evident in the case of anti-trust.) The ‘economy’ is merely the sum total of individuals engaging in economic activity.
Anyway, I think Grant has a point. Although the economy could be in better shape and so on, I think those engaged in doomsaying about the middle class are exaggerating and twisting facts out of proportion.
Yeah, “regulation” is a main culprit. Though the effect can’t be practically measured because it is creeping. Whenever a new rule comes into force, production just grows more slowly over time relative to population than it otherwise would.
Stocks, bonds, fee simple (owned) real estate, and insurance policies are not included in the CPI. The rationale is that these are investments instead of consumer items. In the case of residential real estate, the BLS estimate of what a property would rent for if the owner were renting it is included instead of the fee simple value. Earlier in this decade, residential real estate prices were increasing at a time when rents were decreasing. Consequently, the CPI did not reflect the additional mortgage note expenditures that many consumers were paying.
Also, the core CPI is the CPI most often reported in the media. This number does not include food or energy prices.
Aside by all that was posted above, including regressive taxes that people don’t think of (cigerrette and liquor taxes, and while not a tax, the usually state run monopolies of state lotteries) Inflation has another effect that can help the rich and hurt the poor. When new money comes into creation, it is typically loaned to the rich. That means they can spend the newly created money before the market has had a chance to adjust its prices. By the time that money trickles down to the poor in wages, the market has adjusted. To illustrate this, assume there was only $100 and 10 widgets in the entire economy. Widgets obviously cost $10. Then the fed prints $100 more and loans it to the rich, they can then buy those widgets for $10, but after they’ve bought them, the price rises to $20. And since wages were stagnant during the adjustment period, there was just a wealth transfer from the poor and middle classes to the rich. Don’t get me wrong, I have nothing against the rich. They are the best producers and society is better off because of them. However, this process is very unfair and regressive.