Thursday, May 8, 2014

The destruction of the middle class lifestyle

The inimitable Charles Hugh Smith has a very penetrating essay on how government and big business are basically conspiring to destroy the underpinnings of the middle class lifestyle in order to perpetuate their own economic interests.  He makes a compelling case.  Here's an excerpt.

Why have the costs of a middle class lifestyle soared while income has stagnated?Though it is tempting to finger one ideologically convenient cause or another, there are four structural causes to this long-term trend:

1. Baumol's Cost Disease
2. Systemic headwinds to the current version of capitalism
3. Dominance of global corporate capital
4. Financialization

The key take-away here is that the first two causes are structural and cannot be changed by passing a law or funding another state bureaucracy. Though many believe they can tax global corporate capital to eliminate wealth inequality, capital is mobile and will move to where it can expand. The dominance of money in politics also means that the political machinery is for sale to the highest bidder, which just so happens to be global capital.

Since financialization rewards both capital and the central state that depends on tax revenue, reversing financialization politically is a non-starter.

No wonder the middle class is evaporating. These trends are far more powerful than the proposed solutions.

Let's start with Baumol's cost disease, named after economist William J. Baumol ...

. . .

Note how manufactured goods such as TVs, clothing and autos fell in price while education and healthcare soared. Baumol foresaw the crunch that his theory predicted: as healthcare and education took a larger share of the national income/GDP, taxes would have to rise substantially to pay for those services.

. . .

... the extraordinary rise in healthcare and higher education costs arise not just from the low productivity of these sectors, but from their cartel power to obscure the true costs of their bloat and push prices higher.

Baumol also failed to appreciate how the state (government) is the willing partner in this exploitation of low productivity. The state enforces the monopoly pricing power of these cartels. As a result, potential gains in productivity from technology are suppressed to protect the cartels from any real competition. (The same can be said of the military-industrial complex and other state-protected cartels.)

That's how we end up with college degrees and medical procedures that cost more than a house.

There's more at the link.  It's well worth taking the time to read it in full - and, if you consider yourself middle class, to plan accordingly.  Note, too, that the policies that have led to this catastrophe have come from both the left and the right of politics.  The Democratic and Republican parties are equally to blame, and share the guilt.



Rev. Paul said...

"medical procedures that cost more than a house."

My little 3-day stay in hospital last year, along with the insertion of two coronary artery stents (a 30-minute procedure) cost $81K. Not as much as a house, but enough for three decent new cars.

Unsustainable, indeed.

TM said...

I've long suspected another reason for this (income stagnation) has been the "market signal" altering effects that walmart (and other big box stores, but I'll use them for a stand in) and globalization have had on us. Look at it this way, if the costs of all the things you want and need tend to keep going down over time (walmart, lower prices for everything) then you can continue to maintain a particular standard of living on the same, or modestly increased (or decreased) wages.

Human beings, being creatures of habit and comfort are therefore not driven to seek higher paying jobs at higher risk to themselves by anything other than their own greed and innate desires for "more stuff". Necessity ("I need more money or I can't eat") is a much stronger driver than desire ("I need more money or I can't drive a cadilac"). It's made even worse by the fact that Walmart essentially brought down the prices of even previously cadilac priced goods. If you wait just a few years, something that was once the toy of the rich will be available for <$100 at some big box store. With "higher standards of living" within reach just by waiting a year (and all without having to save much money), people aren't going to be pushing for higher wages as much as they used to.