What About The Middle Class?

by: Steven Hansen

Nobel Laureate Paul Krugman opined:

The point is that a party committed to small government and low taxes on the rich is, more or less necessarily, a party committed to hurting, not helping, the poor. Will this ever change? Well, Republicans weren't always like this. In fact, all of our major antipoverty programs - Medicaid, food stamps, the earned-income tax credit - used to have bipartisan support. And maybe someday moderation will return to the G.O.P. For now, however, Republicans are in a deep sense enemies of America's poor. And that will remain true no matter how hard the likes of Paul Ryan and Marco Rubio try to convince us otherwise.

The vast majority of the population is not poor - but middle class. How have the political parties done in making their middle class constituents' lives better. Unfortunately, the only proxy that even comes close to establishing a metric would be median income.

The chart below overlays the incumbent Presidential Party with median income.

Click to enlargeThere are several obvious "buts" relative to the above chart.

  • for starters, the President is not responsible for fiscal policy - Congress is. The President has some executive regulatory ability but most of the policy rests with Congress;
  • it can takes years for fiscal or regulatory policy to positively or negatively effect the economy.

So taking the same median income chart, I have overlaid the party in control of Congress.Click to enlarge

There is little evidence either political party has been good for the middle class. It is not the rich or the poor which drive a consumer economy - but the middle class. It follows that to ramp up the economy, a consumer driven economy must increase the ability of the middle class to spend. One party seems to believe it is their duty to protect the poor (using transfer payments from the government to fuel spending), while the other seems to protect the rich (as the rich have the ability to fuel the economy through investment). Both believe in trickle economics - feeding a weak economy using the government to transfer funds that will trickle up or feeding the rich to trickle down. There is no evidence that trickle anything works except for short periods of time. There is only one way to fuel the economy - and that is to fuel the middle class directly by increasing its ability to produce income, and lowering regulatory hurdles so the middle class can directly embark in capitalism.

  • lower tax burdens;
  • remove regulation for small business;

Having spent much of my life living in countries which have limited social safety nets, it always amazes me to see individuals make a living through small business endeavors. This is capitalism. Small business in the USA has been in a down trend for years. From US Census data:

Number of Small Businesses (employ less than 10 people) per 1000 of Population

The data in the above graph cuts off at 2010, and deals with the number of businesses in existence. From Washington Post, another graph with fresher data points out that the number of business births may be increasing (but no data was provided on business deaths so that a net number of business were known):

Click to enlarge

Professor Krugman maintains that one party is the enemy of the poor. He did not mention who is the advocate for the middle class - maybe because there is no advocate. If the objective was to make the middle class poor - then it is succeeding. From another Washington Post article:

Click to enlarge

My usual weekly economic review is in my instablog.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.