The Middle Class – The True Job Creators

1. 
   Steven Litvintchouk permalink

   The Left can’t keep invoking the theories of John Maynard Keynes as their proposed solution for our current economic problems–and yet simultaneously hold to this totally untested idea that boosting the middle class is the solution.

   Because Keynes’ theories focused on boosting *aggregate* demand–as a temporary aid to *business* that was facing poor prospects.

   The historical evidence is that a growing and vibrant private sector created a strong middle class, not the reverse. A famous example being Henry Ford’s offering much higher wages than any of his competitors, figuring that the more affluent his workers were, the more likely they could buy more Ford products.
   • 
     Michael permalink

     Who said anything about Keynes?

     Hanauer claims that a healthy middle class creates a vibrant private sector. You say it’s the reverse. Hanauer explains that no business will hire more people until they see increased demand. This is pretty intuitive. You seem to be saying that businesses need to hire before they see increased demand for their products and services. Then, this increased employment creates more demand. That seems backwards.

     I, too, admire Henry Ford’s philosophy. There are a handful of companies today that seem to share his belief. Unfortunately, most don’t. They view employees as expenses, which must be minimized. That’s great for corporate profits and executive compensation – but not for the economy as a whole, IMO.

     Since 1980, productivity has gone up around 80%, the number of two-income households has gone up significantly, and the average worker puts in more hours per week. Logically, you would expect most people to be doing much better financially than in 1980, right? The problem is – even with all of those changes – household debt as a percent of income more than doubled. In 1980, the savings rate was 12%. By 2005, after steadily falling for 25 years, the savings rate went negative for the first time since the depression. These are clear signs of a middle class that hasn’t kept up with the economy.

     On the other hand, since 1980, after-tax corporate profits are up a staggering 900% – even taking into account the recession. And as of 2007, real incomes for the top 1% were up 280%, while incomes for the bottom 20% were only up 16%. Thirty years of supply-side economics have proven conclusively – the wealth does not trickle down.

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