The Middle Classes: Is There Cause for Concern?

Why are populist tendencies taking hold, especially since middle class income levels have actually been on the increase for some time? This reality could lead to some unusual outcomes in Washington in the years ahead. Hence I'm trying to wrap my head around middle class worries which are encouraging a revival in support for socialism, and even communism in some instances. How would these kinds of responses do anything for the very real structural issues which now limit economic opportunities at the lower end of the income spectrum? What's needed is a bottom up response for economic reform - one which exists independently of top down posturing and blame.

Of course, while plenty of "not to worry" arguments continue to surface from the right, one occasionally comes across support for the status quo, from the left. In "Democracy and Prosperity: The Reinvention of Capitalism in a Turbulent Century" (Feb 2019) (HT The Enlightened Economist), Torben Iverson and David Soskice argue that global capitalism and advanced democracies remain capable of mutual support. The authors are still confident in the ability of democratic states to

continuously reinvent their economies through massive public investment in research and education, by imposing competitive markets and cooperation in the workplace, and by securing macroeconomic discipline as the preconditions for innovation and the promotion of the advanced sectors of the economy. Critically, this investment has generated vast numbers of well paying jobs for the middle classes and their children, focusing the gains of "aspirational" families, and in turn providing electoral support for parties. Gains at the top have also been shared with the middle (thought not the bottom) through a large welfare state. 

Contrary to the prevailing wisdom on globalization, advanced capitalism is neither footloose nor unconstrained: it thrives under democracy precisely because it cannot subvert it. Populism, inequality, and poverty are indeed great scourges of our time, but these are failures of democracy and must be solved by democracy.

While such observations are encouraging, are they still convincing? The fiscal burdens of many nations have changed in ways which now inhibit meaningful centralized approaches. What's more, the structural nature of secondary markets in relation to primary markets, has led to a reality in which institutional support for knowledge based endeavour reached a tipping point, towards the end of the last century when it reached the height of its trajectory.

Consequently, the preferred means by which middle classes have been structured, has in turn created its own limits. Yet one reason this also creates a barrier for lower income levels which seek to improve their lot, is the fact too much non tradable sector activity has been generated with mostly middle and upper income levels in mind. Other than domestically produced food and commodities, much of the tradable sector activity which benefits lower income levels in advanced economies, derives from international trade - especially emerging economies. Yet even though advanced economy markets experience hard production limits, education is still treated as a panacea, despite the fact production/employment platforms have been limited by design.

Also consider the above quote regarding the fact gains have been shared with the middle but not the bottom. The relative rise of the middle classes, has also translated into a harder fall for lower income levels. In all likelihood, much of today's populism derives from the fact that a hard fall from the middle class is no longer simple to remedy. Indeed, of all the economic differences I've noted in recent decades, this one stands out the most, since I had little cause to worry about "bouncing back" from economic difficulties throughout much of my adulthood.

Too many rungs have indeed been pulled away from the bottom of the ladder, however thus far public policy is going about it the wrong way. Those rungs represent missing production possibilities, particularly at the lower end of the income spectrum. While democracy is an important consideration in all this, centralized democracies aren't equipped to address these issues in a top down manner.

How, then, could democracies play meaningful roles? Direct democracy via the use of time as an economic unit, could create decentralized local markets which generate a full range of services potential for lower income levels. While there's still cause of concern for the middle classes in terms of overextended governmental budgets; allowing lower income levels to generate new wealth, would eventually relieve budgets for which all income levels bear responsibility. Ultimately, bottom up solutions are likely to be a lot more effective, than the tired rhetoric of top down approaches which simply weren't built for the structural changes we've experienced in recent decades.