Saturday, February 25, 2017

Middle Class is a State of (Organized) Mind

What are the real concerns about a "missing" middle class, given increased levels of income divergence? Once, a middle class designation seemed simple enough. Only recall the fortuitous circumstance of mid 20th century employment in the U.S., when factory workers without college degrees could still raise families and purchase homes. The loss of this temporary "norm", continues to cause more consternation than should have actually been the case. After all, our environments for living and working, could have included options which lend dignity to people of a wide range of income levels!

Instead, middle class roles have morphed into "requirements" for two college degrees, along with two incomes to raise a family. Alas: what has occurred, which makes the present day economy so different from sixty years earlier?

It helps to consider factors not associated with income level; but instead, expectations for "one size fits all" production, consumption and mandatory infrastructure requirements. Whereas primary market institutions deal with these realities via internal organization for costs, secondary markets adjust costs according to revenue availability, in a constantly shifting general equilibrium. Unfortunately: over time, changing conditions also make the latter approach more difficult to coordinate for either time based product or asset formation. How to maintain both personal responsibility and economic viability?

Being middle class is not so much about income, as a state of mind. It's how society organizes for activities deemed important and desirable. The monetary costs of doing so, are reflected in the environments which make it happen. Middle class problems are less about any specific income amounts, and more about the increased difficulty of meeting crucial obligations on society's expected sets of terms.

Part of the problem in this regard, is that far more redistribution now takes place via income which is already a result of previous redistribution in varying amounts. 20th century taxes - many of which resulted from primary market wealth and output - were a simple proposition by comparison, hence tended to have more definable fiscal outcomes. Today, when taxation is added to already existing levels, outcomes for new fiscal obligations are already in doubt.

Higher costs for time value in secondary markets as compared to primary markets, also contribute to greater local asset costs. The Baumol effect is a form of mutual "entrapment", which in turn reduces discretionary income for all concerned. Among the many reasons this situation matters: it could play havoc with basic income experiments in today's complex economies. By comparison, basic income for environments which have fewer production/consumption restraints, may hold more potential for positive outcomes.

Indeed, a recent experiment for basic income in extreme poverty circumstance, appears to be going well. There's good reason why discretionary income improves environments which don't have an exceedingly high bar to participate in the workplace and marketplace. Much of the money these villagers received - once they purchased food - was able to pay for amenities capable of contributing to their long term betterment. Whereas basic living costs in today's developed nations, leave little "small wage" room for long term investments and related discretionary spending. Anyone who relies on limited income in a complex economy - basic income or otherwise - needs environments structured to provide dignity for what these individuals are capable of contributing.

Societies inadvertently jeopardize their own middle classes, by continually raising the bar for participation. Once this process reaches a certain point, basic income may also be out of the question, as a suitable long term response. Economic, social and political freedoms can be lost, if and when economic access is restricted for too long.

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