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May 1, 2012

Is the Middle Class Shrinking?

“I shall not fear to say that the doctrine of self-interest rightly understood seems to me of all the philosophic theories the most appropriate to the needs of men in our time, and that I see in it the most powerful guarantee against themselves that remains to them. The minds of the moralists of our day ought to turn, therefore, principally toward it. Even should they judge it imperfect, they would still have to adopt it as necessary.” –Alexis de Tocqueville

President Obama has said we shouldn’t “settle for a country where a shrinking number of people do really well while a growing number of Americans barely get by.” This is the crux of his class warfare theme. The rich keep getting richer at the expense of the other 99% of the population. This is wrong on several counts.

First, it assumes the economy is a zero-sum game – if someone wins, others must lose. But the economy is not a closed system. If that were the true, the United States economy would be the same size as it was in 1776. Progressives will shrug that off and say, “of course the economy has grown, and that’s natural. What matters is how we divvy up the growth. The rich take the lion’s share and sprinkle crumbs for everyone else.” But growth is not natural. If it were, then it would be equal the world over – and also equal throughout history. Progressives don’t want to think about the cause of growth, and they especially don’t want to look at facts as they relate to private versus public sector induced growth. Even a cursory exam shows unequivocally that the greater the ratio of private enterprise to public spending the faster the economic growth. Capitalism causes growth. Period. Ask the Middle Ages, the USSR, or Cuba.

President Reagan inherited the worse economy since the Great Depression. Stagflation, gas lines, double digit mortgage rates, and sky high taxes hurt the rich and poor alike. In short order, he reversed all of the progressive policies and the nation’s financial wellbeing was restored.

If a progressive admits that an economy needs capitalism to grow, the next argument is that capitalism unfairly distributes the growth. From the time Reagan reinstituted sound economic policies in the 1980’s, the country experienced robust growth until the 2007 financial crisis. Between 1980 and 2007, the United States economy created more than fifty million jobs. In constant dollars, per capita income increased in every income category. But certainly that can’t be true; after all, we all know the middle-class shrunk dramatically. Georgetown University’s Center on Education and the Workforce has reported that there are indeed less families earning between $35,000 and $105,000, but their analysis also shows that the number of families making less than $35,000 has remained relatively constant. During these three decades, American families grew richer and moved above the government’s arbitrary definition of middle-class. The percentage of households making more than $105,000 in inflation-adjusted dollars went from 11% to 24.1%

But progressives will argue that the rich expanded their wealth faster than the poor and middle class. This is arithmetic. If a person starts with a huge base of capital, you have to be a dunderhead not to earn a decent return and grow the size of your estate. Those with assets grow their wealth faster than those who are still working to build their nest egg. Envious people feel this is wrong, but what they refuse to understand is that rich and soon-to-be rich entrepreneurs drive private sector growth. Take that engine away and everyone suffers. But in the progressives’ perverse world, the nation’s economy under Roosevelt, Carter, and Obama is preferable to that of Eisenhower, Reagan, Bush, or John F. Kennedy.

President Obama was right. We are now “a country where a shrinking number of people do really well while a growing number of Americans barely get by.” The middle-class has been decimated … by his policies. Shame on him.

In the last eighty years we have followed misguided progressive economic policies three times, with the same devastating results every time. What is that saying about doing the same thing over and over again and expecting a different result? To add insult to injury, progressives have the audacity to claim they’re the smart ones.

When fairness is measured solely by the equal distribution of wealth, you get lots of equally underprivileged people. This may be a progressive’s utopia, but to most American it’s a nightmare.

James D. Best is the author of the Steve Dancy Tales and Tempest at Dawn, a novel about the 1787 Constitutional Convention. Look for his new book, Principled Action, Lessons from the Origins of the American Republic.

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1Wall Street Journal, January 26, 2012, Lessons From the Great Expansion Yes ‘the middle class has shrunk’ – because it’s getting richer. By Henry R. Nau

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