If the Economy and Middle Class are OK, What's Wrong?

Understandably, people hesitate to take seriously the warnings of bearish observers, when the economy appears to be in good shape. What need is there to complain, given the relative ease of finding employment in many environs? That might help explain why a Reason interview with Russ Roberts was simply titled "Economist Russ Roberts Isn't Worried About The Middle Class."

Of course, reality is more nuanced - as is Russ Roberts, who carefully considers the issues presented in his podcasts. Still, who would deny the correlation between today's dynamic economy and the strength of the middle class? Hence for participants in a recent Gallup poll, non economic issues took precedence over those with more obvious economic implications. 25 percent of respondents were specifically concerned about government and poor leadership, while only 11 percent believed economic issues in general to be a higher priority.

Since the economy is strong, and the middle class appears to have little worry in this regard, why are policy makers paying such lip service to its economic problems? (Particularly if the public's real concern is policy makers?) Scott Sumner explains:

Politicians often complain that middle-class Americans are lagging behind because the system is rigged against them. They are right. But the politicians don't tell the entire story. Only a modest part of the rigging is done by big corporations like Facebook, Google, Goldman Sachs and JP Morgan. The biggest problem is various interest groups comprised of middle class people, who rip off the general public.

If we had free markets in health care, dentistry, optometry, fire protection, home building, car retailing, and many other industries, then we could shed enormous numbers of workers from useless activities. These workers could then produce useful output elsewhere, dramatically boosting real GDP and living standards. 

That's a lot of market restrictions! Sumner ruefully adds:

If a politician promised to crack down on doctors, dentists, teachers, firemen, and older homeowners (like me), they'd certainly get my vote. Unfortunately, that's pretty much the only vote they would get. 

He also acknowledges the extent of improved living standards since the seventies, in spite of all that has stood in the way of such gains. Indeed, for higher income levels, ongoing maintenance in existing physical infrastructure will continue to contribute to public health for the foreseeable future. One observes this especially in areas undergoing gentrification, where extensive municipal and related building costs are still feasible to uphold. On the other hand, lower income levels and communities left behind, may suffer more health setbacks in the decades ahead, if physical infrastructure does not benefit from extensive innovation in the years to come. Hopefully, production reform in these areas will eventually bring municipal costs into a more affordable range for millions of citizens and thousands of communities as well.

As things currently stand, aggregate costs for physical infrastructure and vital time based services are accumulating faster than aggregate government revenues. Alas, buried in these costs are the same public/private crony connections which enrich the lives of some middle class individuals, while making it increasingly difficult for other citizens to fully participate in a modern economy.

For me it is somewhat surprising that more people don't see long term economic burdens in a context similar to governmental issues. After all, it won't be long, before the lack of governmental resources in relation to existing obligations, begins to negatively impact pensions and overall governmental ability to tend to a full range of financial obligations. Once this occurs, taking to the streets in protest, may not be as useful a response as one might imagine.

How to think about our inevitable budgetary shortfalls? In many respects they no longer belong to some distant and unimaginable future. Yet there is still ample hope to turn things around if - instead of casting about for blame - citizens become familiar with the underlying economic structural realities which have brought us to this impasse. It would be better for all concerned, if citizens could explore more decentralized and less costly ways to accomplish important tasks at local levels. A structural approach to growing societal burdens, would mean less severe budgetary ramifications, once the days of reckoning become more obvious. Fortunately, we can build new options for sustainable organizational capacity, in both services generation and physical infrastructure. Why not take a no blame approach this time, in doing what needs to be done.