

Pew Study: The Economy is lagging because the middle class is broke - PaulHoule
http://finance.yahoo.com/blogs/daily-ticker/middle-class-broke-pew-study-reveals-real-problem-155018682.html

======
Shivetya
I am not broke. I am unfortunately of the realization that the idiots in
Washington aren't bothered to fix it. I love how this article completely
ignores the real problem, instead it blames "corporations" who are also stuck
because of government.

Look, I have relatives with their own businesses. What is the primary reason
for job loss, government. How about new rules like vehicles of a certain
weight are suddenly subject to a host of new regulations which result in
having to sell said vehicles at a loss or pay many times the fees just to keep
it. How about inspectors showing up at a friends hair care business checking
every single brush for a hair, which is a two hundred dollar fine. How about
not knowing what your tax rate will be next year because people in Washington
won't make the tax rates permanent.

How do they exist people or business to operate in an environment run
completely on the whim of a bunch of politicians. it is politicians who are
the one percent. Yeah the rich have lots of money and money buys influence but
its the politicians who decide what it costs to do business. They just have
been damn good at recasting it as a rich versus poor thing and too many people
fall for it.

sorry for the rant, but having family also in politics makes me realize where
the real scum are.

~~~
douglasisshiny
Businesses (via surveys) have always complained about regulations, taxes, etc.
While some regulations may be burdensome or unrealistic (and lets keep in mind
that the federal government isn't responsible for all of them), the fact is a
lot of them are sensible.

The one thing that has changed dramatically in surveys from businesses: a lack
of demand. when private consumption is down, historically it has been observed
that public consumption should pick up to end the cycle.

Even under Regen, states and municipalities received a lot of aid, and the
public sector helped to pull up the economy. That's one aspect of a robust
economic rebound, which includes an increase in public debt (which, adjusted
for inflation, is negative -- i.e., a 10-year Treasury Bill for $1,000 will be
worth less in 10 years -- people are paying us to hold onto their money
because U.S. is so secure).

The point here is that one party is gone off so far to the right that Congress
isn't able to effectively deal with this issue. We have Republicans warning of
the dire consequences of sequestration (large cuts) and blaming Democrats for
wanting to slightly increase revenue, when all along all the GOP wanted was
large cuts...

I could ramble for awhile longer, but I think it's more nuanced than
Washington can't fix anything. One party has been taken over by extreme
ideologues.

~~~
anonymoushn
What sort of level of public consumption would be appropriate? Currently the
deficit is 10% of GDP. Do you believe it should be 20%?

Edit: (Increase in outstanding public debt)/(GDP) was actually only 8.1% in
2011. Lots of people prefer to define the deficit as "the budget deficit," but
this is beyond silly.

~~~
douglasisshiny
I think it's below 10%, to be fair. Anyway, I don't have a number. I'm not an
economist. Modern governments need to run deficits during recessions /
depressions, and surpluses during good times. Or at least that's what history
has shown, including recent history (Ireland, for example).

The modern GOP, however, believe that we have a debt crisis (we don't; the
U.S. has held a much higher debt-to-GDP ratio, WWII, over 100%; Japan
currently has a much, much higher ratio, like close to 200%). Long term, yes,
we have to deal with the debt. Medicare and Medicaid are going to grow a great
deal over the coming decades (both programs serve the elderly and disabled to
a great extent, a growing population). The Affordable Care Act takes some
measures to control the growth of the programs. So does Ryan's plan, although
his plan essentially avoids any real work and offloads the cost on citizens,
drastically changing Medicare. A good overview here:
[http://www.tnr.com/blog/plank/106298/guide-to-medicare-
debat...](http://www.tnr.com/blog/plank/106298/guide-to-medicare-debate-
romney-ryan-obama-voucher-premium-support)

Interestingly enough, while they (the GOP) say we have a debt crisis, they
refuse to increase revenue by any means. In fact, they want to lower taxes
(one of the largest drivers of debt because of Bush tax cuts v1 and v2),
largely for the wealthy (although both Romney and Ryan and the GOP as a whole
claim they'll make cuts revenue neutral by ending _unspecified_ loopholes,
which, according to the Tax Policy Center (can find link, but it has been in
the news) would result in ending loopholes for middle class brackets (i.e.
mortgage deduction, etc.).

In short, I don't know a specific answer, but providing aid to states and
municipalities would go a long way in picking up growth.

~~~
josephlord
There isn't a government debt crisis but there is a personal and household
debt crisis. That is why there is a lack of demand. Government cuts on top
will make matters even worse.

If something radical isn't going to be done (such as printing money to pay off
household debts - see <http://www.debtdeflation.com/blogs/manifesto/> ) then
at least some classical government stimulus borrowing is needed to (partially)
compensate for the household sector's debt reduction and soften the landing.

~~~
anonymoushn
Please announce the jubilee ahead of time so I can stop being fiscally
responsible.

~~~
josephlord
Actually the proposal made is that everyone is given an amount of money but
that if you have debts you must pay them down with the money. If you don't
have debts you can spend it. So there is no need to stop being fiscally
responsible, you will get benefit too if it were to happen (I'm not aware of
any politicians even thinking along these lines so I'm not expecting it to
happen anyway this quantitative easing for the people looks more sensible to
me than the current sort of QE).

It would cause some inflation but that would be largely compensated for by the
cash handout.

The main entities that would suffer would be the banks as their balance sheets
would shrink as people paid back their debts. The current quantitative easing
process of printing money and giving it to the banks isn't really stimulating
the economy just keeping asset prices up.

Read some of Steve Keen's stuff, his mathematical model of the economy seems
highly plausible to me and he is one of the very few to have modeled and
predicted the economic crisis well before it occurred.

------
WiseWeasel
And yet the overriding goal when planning a start-up, at least for web start-
ups, is to eliminate paid human labor at any cost, in the name of scalability.
Federal minimum wage is largely irrelevant when talking about the middle
class, since it's so distant from an income that might include you in it. I
don't see how our community is equipped to address such an issue in any
meaningful way.

Perhaps ubiquitous availability of sophisticated robots might allow people to
have their needs met with fewer relative resources at their disposal, though
it will also exacerbate the problem as productive jobs become more scarce.
People can now be entertained more cheaply than ever, with free access to
content made by their peers. People can virtually travel the world without
leaving their homes. Can we at least ease the pain of not being in the top 1%?

~~~
bencpeters
This strikes me as somewhat misguided. As a modern, wealthy society, we
shouldn't have to content ourselves by just easing the pain of not being in
the 1%. Furthermore, while it's certainly true that the tech revolution has
brought about some changes that get rid of human labor, there's a lot more
going on to this growth of inequality than that. If it was just about unique
skills or education, you'd expect to see the top ~20% dramatically pulling
away from the bottom 80% of the distribution, not the 99/1% that you see in
reality (we can quibble about the numbers there a bit, but the point is that
the inequality we're seeing isn't just a skills/education/technology
revolution structural thing).

I don't pretend to have a great answer for "how our community is equipped to
address such an issue in any meaningful way," except perhaps to suggest that
we try to find more tech solutions to "bigger" problems (energy, grid
infrastructure, etc.) instead of inventing more social widgets. That, and
trying to hold politicians more accountable to interests besides those of the
super wealthy.

~~~
tankenmate
I think you are completely missing the point the top 20% _are_ dramatically
pulling away; in the last ten years _all_ the gains in income have gone to the
top 20%!

~~~
bencpeters
No, look at the data more closely. The top 20% numbers are skewed by the fact
that the top 1% is included. The real story is the top ~1% pulling away from
everyone else, NOT huge gains in the top 20% as a whole (another way to say
that is that someone in, say, the 81st percentile of the income distribution
has not seen large income gains)

edited to add link to CBO inequality report:
<http://www.cbo.gov/publication/42729> (shows that 1979-2007 top 1% income
grew by 275%, the next 19% grew by 65%, next 60% grew by 40%).

As I said before, there is certainly a structural component that means that
education and skills can command even more of a premium than they always have,
but that's not the majority of the story behind this inequality growth.

------
AznHisoka
"workers made enough money to be able to buy Ford's cars, and this made Ford
more successful."

So, I assume today's middle class have to afford MORE than a 50 inch TV, a
Macbook, an iPhone, an overpriced house, a wedding ring, and a iPad?

~~~
heretohelp
That's a nice straw man, but that's not the median for the US.

Not even for bay area white collars is that reasonably the median, given how
expensive houses are here. Most rent unless they're past 30-40 or won the
startup lottery.

~~~
twoodfin
Huh? The median sufficiently-aged U.S. resident absolutely owns a home (home
ownership rates are 65%+), and it's indisputable that the median home size has
been growing at a good clip:

<http://www.census.gov/const/C25Ann/sftotalmedavgsqft.pdf>

~~~
dllthomas
Parent was speaking of the Bay Area in the last sentence. Housing is much
cheaper elsewhere.

------
parsnips
Surely the wealth problem of the middle class has nothing to with the purchase
of overpriced homes on large margin...

~~~
douglasisshiny
Well, all homes, whether they were overpriced or beyond a person's means, have
gone down in value. As a home is an average's person's largest means of
equity, their assets have decreased as a result of the housing bubble
crashing.

------
woodchuck64
The argument that "wages aren't growing therefore workers are being taken
advantage of" does not reconcile with this chart:
<http://research.stlouisfed.org/fred2/series/COMPRNFB>

Benefits are also a large part of compensation.

~~~
lmkg
Benefits don't translate as directly to consumer spending. If my company pays
more for my health insurance, that doesn't affect my ability to pay off my
mortgage or purchase electronics. If I get more vacation days, that means I do
less work, but the money I get remains constant. Certainly, there are some
benefits that do translate to economy-stimulating actions (such as subsidized
purchases or memberships), but I'm under the (possibly misguided) impression
that a large portion of the increase in benefits is just health insurance
costing more.

~~~
ctdonath
Paying more for health insurance _does_ affect your ability to pay off your
mortgage and purchase electronics - when you get slammed with an enormous
unexpected medical bill, and _don't_ have to route mortgage & electronics
money into the staying alive fund. Trust me.

~~~
anonymoushn
This argument doesn't really apply if the cost of the service increases by
5-10% annually but the service stays the same, as has been the case for health
insurance in the United States.

~~~
PaulHoule
actually the service gets WORSE

------
tomjen3
Reading the comments here it is painfully clear just how much Hacker news has
changed (and definately not for the better).

Once PG wrote an essay on exactly this topic
(<http://paulgraham.com/wealth.html>) in which he argues convincingly that
wealth inequality isn't really relevant because while we can expect that
technology will act as a lever to make the absolute differences bigger than
they are now, at the same time everybodies relative wealth will get closer and
closer together.

And that is true. I know a guy who has a higher networth than I is likely to
ever earn. He has a Masaretti, a plane, a nice house, etc.

But while the absolute differences between the two of us are great, the
relative differences between us are small, compared to what they would have
been historically -- after all we eat mostly the same food and while he can
fly first class that is not going to get him to the destination much faster
than me in coach.

200 years ago, he would have been the owner of a corporation, making a ton of
money and living in a that would look like the set of Downton Abbey. I would
have been living in some shack somewhere with no running water and and
outhouse that was likely to be frozen in the winter.

So yeah, I don't give much of a crap about income difference and I don't buy
that the middle class is bankcroupt due to the very rich (1% isn't very rich,
btw). I believe the middle class wealth has grown slightly less than it used
to because it hasn't produced as much as it used to.

Remember wealth is not a static quantity, it can be created and it can be
destroyed. It is created only when people produce and as far as I can see, the
middle class has not produced very much at all.

Of course the wars in Iraq and Afghanistan have a great deal to do with the
destruction of wealth too, as have the bloated government system.

~~~
vannevar
The flaw in this argument lies in this sentence: _...after all we eat mostly
the same food and while he can fly first class that is not going to get him to
the destination much faster than me in coach._

What makes you think that someone who is unemployed or making minimum wage,
can afford to fly coach? Contrary to your implication, there are in fact
people in the US living in shacks without running water, and their number is
growing.

Wealth _is_ created and destroyed, but it is a fact that the upper incomes
have been growing faster than overall economic growth for many years now,
while the middle and lower income levels have stagnated or regressed. We can
argue why that is so, but it's clear that the top 1% are consuming a greater
and greater share of an economic pie that is not keeping pace with their
accumulation of wealth.

~~~
tomjen3
And those people are not in the middle class, and are therefore not relevant
for an article about the middle class.

~~~
vannevar
The point of the comment was that relative differences are decreasing, and the
comment used anecdotal evidence to support the contention. I pointed out that
the anecdotal observation was flawed. The definition of middle class itself is
relative, and the current trend is downward toward poverty rather than upward
toward business class.

------
jblz
I don't buy the contention that's being bandied about that "the middle class
has shrunk in size." If you look at the Pew report, the relative size of the
middle class is only established as a function of responses to a survey
question asking people to self-identify into economic class.

Comparing the results of this sort of survey over time isn't scientifically
supportive of that claim because there is not a universally accepted academic
model for class -- even the experts disagree.

------
feverishaaron
I found it interesting that the hosts of that show were suggesting that the
system would be self-correcting. I think that may have been the case before a
global economy, but now if your home nation can't consume, a corporation can
either relocate operations or refocus on growth markets.

The final, and most extreme self correcting option they offered – revolution,
would probably come too late and have little effect on corporate and financial
executives who have by then fled the country.

~~~
bencpeters
Another important argument against self-correction is the extent to which
institutions of government (and by extension regulation) have been captured by
the lobbies and proxies for the wealthy. Add to that the fact that one of the
only voices for the middle/working class that actually had some political
clout - unions - have been on the decline for a generation, and it really
starts to look like a rigged system where all politicians profess to support
working class values but really are beholden to the rich. Although I certainly
wouldn't say that both parties are equally bad in this realm, it definitely is
a systemic problem, and one that makes a correction less and less likely as it
becomes more entrenched.

------
programminggeek
I'm not sure how this is news. America was living above its means with a
negative savings rate and then we had a massive recession when people ran out
of money to borrow. Now a few years later people are working to get back to
zero. When you're saddled with a pile of debt and not a lot of buyers, it
takes a while to get everyone back to a sensible place.

Now, if companies paid higher wages, it might accelerate the recovery
certainly, but at the same time, people would likely just raise their standard
of living, not necessarily pay off debt.

What our society needs to fix the long term economy is for the average citizen
to be in a strong enough financial position to pay their bills and have enough
left over to save some money and spend a bit extra on entertainment,
vacations, toys, etc.

It's not about everyone being rich, if we are in a consumer based economy, we
need people to be able to afford to buy things without causing financial ruin.
It's not about bigger houses, more cars, etc. It's simply about being able to
afford to buy things without going in to debt to do so.

~~~
gph1
What's surprising is that mainstream/orthodox economists have not really
veered from the neoclassical position that private debt levels are essentially
irrelevant from a macro perspective, on the basis that someone's debt is
another person's asset and therefore any accumulation of debt is offset by an
equal accumulation of savings supplying that debt.

But it's entirely obvious that the household debt overhang from the financial
crisis is entirely what is holding demand/consumption back. We have had a
historic buildup in HHold leverage for the last 30 years as consumers used
debt as a substitute for stagnant wages, and after the housing crisis all this
debt is no longer underpinned by adequate collateral.

Head in the sand.

~~~
dwd
Very true. The Keen-Minsky model is the only notable attempt to look at
effects of private debt in an economy. <http://www.debtdeflation.com/blogs/>

------
muzz
But I thought trickle-down economics worked...

~~~
w1ntermute
The only reason Ronnie Reagan was able to sell the American people on his
trickle down snake oil was because the middle class sees itself as
temporarily-not-rich. So they believed his bullshit not because it would
benefit them in (what they saw as) the short term, but because they believed
they would soon be rich.

There are advantages to the fact that the American middle class sees itself as
temporarily embarrassed millionaires, namely that it encourages the sort of
risk taking that has put American companies at the top of the global economic
charts. However, for every Gates and Zuckerberg, there are hundreds and
thousands of people who actually end up struggling to make ends meet. Unable
to accept their failure, they continue to believe in low taxes for the
wealthy, thinking they'll be in that group as well one day soon.

~~~
mindcrime
And that's not necessarily a bad thing. If individuals are willing to accept
tradeoffs where they have a certain probability of winding up less well off,
versus a certain probability of becoming very wealthy, who is to tell them
which choice they _should_ make? I mean, if a given person is quite fine with
a boom or bust scenario, and says "I'll either be rich and successful or die a
broke, poor, bitter, broken down old man," then so be it.

Income equality would be nice in many ways, but if the inequality is a
reflection of the underlying values of the culture, maybe we should quit
trying to fight the culture.

~~~
w1ntermute
> If individuals are willing to accept tradeoffs where they have a certain
> probability of winding up less well off, versus a certain probability of
> becoming very wealthy, who is to tell them which choice they should make?

The problem is that most individuals have grossly incorrect beliefs when it
comes to the probability of them becoming successful.

------
njharman
Employees of corporations should be co-owners by default.

~~~
bsphil
I think you'd be surprised at how many people don't want to shoulder that
risk.

~~~
alxp
Working full time for a single company is a huge risk.

~~~
ctdonath
Being able to walk away from that company no strings attached mitigates that
risk. Being financially liable should the company go under is why co-owners
share in the profits beyond salary/hourly wages.

ETA: moral/ethical "liability" included.

~~~
noahc
At least in America, being financially liable if a company goes under isn't an
issue if the company was setup in reasonable way. 99% of companies are.

------
goggles99
"Over the past 30 years, a larger and larger portion of America's income
growth has gone to those in the top 10% of incomes, and especially those in
the top 1%. This is a major change from the prior 60 years, in which the top
10% and the bottom 90% shared in the income gains."

one word can largely sum up why... China

