Why and how capitalism needs to be reformed
economicprinciples.org
economicprinciples.org
Yes, public education is not great in the United States. But it never was -- the world just got more complex.
Whereas a grade school dropout could find intuitive work that contributed to the economy even just 60 years ago, and could grow their wealth intuitively (you know, saving money in a bank or under a mattress), there are a couple of things that changed all that.
1. Automation. I imagine there is an upper limit on how many people can work in the service industry, which is one of the last holdouts of unskilled labor against automation.
2. Inflation. The CPI weights are garbage. When 2 trillion dollars are injected into stocks and bonds, inflating both of the markets (stonks higher and interest rates lower), the person who has no access to credit and no significant amount of their net worth in stocks is the one who is left behind. Obviously (or maybe not, to inflation denialists), this exacerbates wealth inequality. The richer you are, the higher percentage your net worth will grow from this policy, on average.
This has been going on since the end of Bretton Woods, to a less dramatic degree than the COVID stimulus (more often focused on interest rate manipulation). This is also when the income inequality trend takes off. There are countless other correlated data plots, like some of the ones included by Dalio, and surely, there are multiple factors. However, the causality for inflation is the most direct and measurable.
One more thing: taxes.
In 1913, the first federal income tax had about the same maximum tax bracket that we have in 2020: $500,000. That was closer to $15 million back then. There's your problem. Hardly anyone talks about how broken these tax brackets are, and instead clamor for wealth taxes and closing those elusive loopholes by adding even more complexity to the tax code, because that always works. The top 10 wealthiest Americans are almost all self-made who didn't have to do anything fancy on their taxes to get to where they are -- just pay the highest capital gains rate on billions which happens to be significantly less than the rate on someone making 10,000 times less. If your representative is complaining about tax reform and not mentioning the brackets, they either don't want to fix the problem or are too clueless to deserve your vote.
> I believe that reality works like a machine with cause/effect relationships that produce outcomes, and that when the outcomes fall short of the goals one needs to diagnose why the machine is working inadequately and then reform it
I agree with that completely; the current system has set up a network of incentives which, coupled with the breakneck pace of technology, is causing the wealth gap. And yet, the recommendations don't seem like systemic changes at all, they're more like "I would get a commission together and Do It Better."
Teach people to be smarter isn’t going to be enough, especially when the employers of the lower end of earners specifically want human robots who don’t think for themselves.
Anyway... I don’t see anything new in this article, apart from “we need to think more long-term”, which doesn’t work in the 3-4 year political cycle.
From what I’ve learned going through the economic classics lately, is that a) economists get things wrong, and b) economics isn’t an exactly (if at all) a science. Even the great John Maynard Keynes in The General Theory of Employment, Interest, and Money says that once interest rates fall to zero, we will have full employment... yet here we are.
So like all other economics articles that have high hopes you see here on HN, I would take this article with a heavy grain of salt
Appalachia in the 60’s is a whole lot different than today.
The blue collar middle class life is absolutely accessible. But you have to get up on time and do a job. Skilled trades have a huge labor shortage. Factories struggle to hire while offering good wages. Because you need to reliably show up sober and be willing to work. I have numerous friends that supervise modern factories (these are not repetitive widget jobs - they train you abd you have a growth arc) and they are constantly short labor while offering good pay and benefits. It’s hard to find responsible people that want this work - an elite over production of responsible people via universities I think.
Same with skilled trade - plumbers, etc. a huge shortage today. Prices are insane to contract these people, the market clearly indicating we need to allocate there.
There’s a good middle class life out there if you’re willing to accept it. Capital works.
I think we need a free(er) market in education. The Joel Greenblatt charter schools would soon be available everywhere, if market dynamics were allowed.
We also are undeniably in need of healthcare reform, and on that front, I think we need to just make up our minds and choose between a single payer system or a free market. The Frankenstein we have today is the worst.
And we need to break up monopolies, starting with cable companies / ISPs.
Schools in poor areas are not a profitable enterprise. Companies do not even run schools if they can help it.
Yep... and they never should be. Public utilities should never be profit centres
For non-emergency, non-chronic health conditions, the free market is great. Otherwise it kinda blows. There's no competition for emergency services. You don't choose your hospital or ambulance or helicopter. You can't shop around--not that it would help since they don't tell you prices ahead of time. No competition, no prices, no free market. And if you want to change that, you have to regulate--which also means no free market.
Not everything has a free market solution (e.g. flood insurance).
But there are plenty of other systems in between these two extremes that work quite well. We don't have to go all-in on one or the other.
I will agree, though, that the Frankenstein we have in the US is actually the worst. We pay more tax for healthcare than almost every other country and we get a lot less back for it than they do. And in addition to paying the most tax, we pay huge prices for poor quality insurance. And our prices for care are among the highest in the world.
We could definitely do better.
Monopoly has invaded every area of our lives, and we’re worse off for it. We need the opposite of “free” markets in order to deal with this. Companies need to be broken up, sectors need new regulation, and we need to prevent mergers while subsidizing competition.
And, if so, do we have data on that?
There’s also data (to my other point) on how many more people go to universities now VS then and wouldn’t consider value collar work today.
There’s probably data on how baby more men live at home today than 50 years ago.
Regardless, there’s plenty of opportunity for blue collar when. Why do you think almost nobody that does it votes for leftists anymore? Why Amazon will fail to unionize? Those that do, know there is an abundance of good laying work if you’re willing to be responsible and work hard.
So one working person produces ever bigger share of GDP, but is not getting paid for it.
More importantly, also a shrinking working population. Still not laziness unless your definition of laziness includes people with chronic medical conditions deemed typically unfit for work.
https://www.aei.org/economics/the-us-middle-class-is-disappe...
We are eliminating poverty and making more people rich. People in the middle might feel poorer since there’s more people “above” them today, but they aren’t.
We have grown the pie and created more opportunities for individuals to claim a larger piece of it (regardless of race, gender, or sexuality) all while eliminating abject poverty.
50 years ago you could be middle class with just a high school education, largely fueled by the manufacturing sector. I don’t think those equivalent cohorts in today’s economy moving up to the upper middle class in the methods you describe but rather they are left to fill the lower strata.
Today, you may be able to get a middle class job without a college degree. But the route from there to the upper middle class is much harder. That may be what people are feeling. There's a much harder ceiling above the middle class than there was before.
My point is that feels true only for a much smaller subset of the middle class today (maybe I'm wrong). It would seem that it's only attainable for a group with a specific skill set. To the original point, I'm not sure this convincingly makes the case that 'The middle class is shrinking because more people are moving to the upper middle class'
Yes, I thought I was agreeing with you.
> So are you saying it's easier to move from middle class to upper middle class today than before?
Absolutely not. Quite the opposite, in fact.
>> There's a much harder ceiling above the middle class than there was before.
That is, those in the middle class have a much harder time rising to upper-middle class than they did in the past.
We have been fed narratives for political reasons. But they aren’t true.
This ends up skewing the intuition of the definition of “upper middle class”. Traditionally, the top quintile means you are upper middle class. By this definition it requires about $87k/yr. This is exactly 50% above the papers definition for a single person. I’m not saying their method is wrong, just that it doesn’t fit with how we traditionally talk about economic classes.
There’s also more skill sets that pay really well now too.
Yes, there are bigger gaps between what valuable and not-as-valuable skills pay than before. But the valuable skills generally leverage productivity enhancers.
I’m rich now but I grew up working class. We never had vacations to places like Disney or nights out at restaurants or living in an expensive area. But we had each other and good values such as believing in hard work, self reliance, and taking care of each other. This doesn’t take much money and is available to everyone if they’re willing to do the work.
I agree but the real issue is that the bar has been raised considerably. Previously, particularly with manufacturing you could have a middle class income with virtually no credentials. You didn’t need a degree, a portfolio of work, or connections to get a line position that you could keep for 30-40 years until you receive a pension. Nowadays that only gets you a lower income service job unless you can get a union position (which are dropping in numbers over the last few decades). Private defined benefit pensions are also almost non-existent.
There will always be people who find a way to succeed by developing a specific set of necessarily skills. That doesn’t mean it’s easier for the average.
Drugs are a huge issue unfortunately. But there’s also fewer good candidates. Anyone who went to college and is struggling to find good work (let’s say, someone one who majored in journalism or women’s studies) won’t do this work. But it’s there and offers a simple middle class life if you’re willing to do the work.
I’m not saying it’s perfect out there, but this narrative that the middle class life isn’t available anymore is just not true.
Where I think we diverge is that these positions don't provide the same path to middle class or upper middle class that they used to. I previously worked in manufacturing on the engineering side and saw firsthand when it changed in some places. Previously, people were brought in and made $25-$40/hr. Particularly when overtime is factored in, that gets you well within middle class (and in many cases breaks into upper middle class by the traditional measure). Now those same positions are being filled at $12-$13/hr. At the upper range they're getting $17/hr. Doing the exact same job, standing right in the position where previously they'd be making 2x as much.
Those high wages are still there for the unionized skilled trades but there's not nearly as much opportunity for the average person to walk in and get one of those positions. Besides the fact that union membership in the private sector is waning, those positions are in such high demand you usually have to have some connections to get one.
>this narrative that the middle class life isn’t available anymore is just not true
To be clear, this isn't the perspective I was trying to make. "Isn't available" and "harder than before" shouldn't be conflated. Now maybe my anecdotal experience is skewed because this was in the rust belt. And I'm not saying there aren't paths to the middle class. I'm just saying it isn't nearly as easy and there seems to be more barriers to entry than previously.
Think about it, it’s at the root of how dominant humans behaved since the beginning of time.
It’s literally the 80/20 rule in practice.
20% of humans want to create things (generally). And capitalism is the most efficient way to do it at scale.
Look back in human history to see signs of this in every country, city, town and village.
There is always that “rich” person in your town that owns a lot of land and businesses. Always.
Why do we think we can stop or change this feature or humans?
Yes, it is. Historically, it is an intentional decision society collectively makes at the behest of and for the benefit of thr mercantile class.
> that arises in the presence of (1) property rights, and (2) freedom of association
Property rights are much older than capitalism, freedom of association as a widespread normn is newer and not super consistently found with capitalism. The particular structure of property rights that characterizes capitalism, which is very different from the system of property rights that characterized, say, feudalism, is not the same thing as “property rights” generally, though supporters of capitalism often confuse the two concepts.
Thanks Ray, I didn’t realize it was so simple! Maybe you should just stick to investing and donate your money to worthwhile charities if you want to improve the world.