Friday, October 12, 2012

The Government Grows at the Expense of the Middle Class

In this thread on socialism/capitalism a socialist shared this chart which basically argues that declining union membership is responsible for the shrinking middle class income (source: ThinkProgress.org)...




In response I created this chart which basically argues that the growing government is responsible for the shrinking middle class income...




As government expenditures as a percentage of GDP (Gross Domestic Product) increases....the middle class share of national income decreases (data source: http://www.usgovernmentspending.com/).  Let's put things in context.

In the 50s and 60s...unions were at the height of their power.  They strong-armed manufacturers into paying wages that were so high that it became economically feasible for manufacturers to move their factories to the other side of the world.  In doing so they gave people in South Korea, Hong Kong, Taiwan and Singapore a new option.  Was it a "good" option?  Given that so many people chose this new option...it's self-evident that it was the "best" of their available options (see my post on Subsistence Agriculture vs Sweatshops).  Factory owners taught their employees new skills and eventually some of their employees took their new skills and opened up their own factories.  This increased the demand for labor...and because the supply of labor was constant...wages began to increase.  As a result...in the early 80s...many manufacturers moved their factories over to China.  Before the 80s they were not able to do so because Mao Zedong had closed China off to foreign investment.  This changed in 1978 when Deng Xiaoping came to power.  He created Special Economic Zones where foreign manufacturers were allowed to open factories.  Eventually these zones expanded and as a direct result millions and millions of Chinese people were lifted out of poverty.

The question is...where's the race to the bottom that so many socialists had been decrying?  It's clearly and indisputably a race to the top...
Rising wages in emerging markets and higher shipping costs are also closing the cost gap between developing markets and the United States. - Scott Malone and Ernest Scheyder, Outsourcing Losing Its Allure As China Costs Soar
That's the global pattern.  It's abundantly clear that unions got the ball rolling.  If it hadn't been for their rent-seeking behavior...it wouldn't have been economically feasible for manufacturers to move their factories to the other side of the world.  Therefore, unions were unintentionally responsible for lifting more than half the world out of poverty.  Of course...they hurt the American middle class in the process.
But have you ever asked yourselves sufficiently how much the erection of every ideal on earth has cost? How much reality has had to be misunderstood and slandered, how many lies have had to be sanctified, how many consciences disturbed, how much "God" sacrificed every time? If a temple is to be erected a temple must be destroyed: that is the law - let anyone who can show me a case in which it is not fulfilled! - Nietzsche
Here we are at a cross-roads situation.  What temple do we want to erect now?  Do we want to continue building government temples on the backs of the middle class like Pharaohs of old built pyramids on the backs of slaves?  Who did the pyramids benefit?  Who does our government benefit?  What temples would  Egyptian slaves have built for themselves if they had had the freedom to do so?  The disparity between the temples that we are forced to build and the temples that we would choose to build is where we need to focus our attention.  Right now there's a disparity between the government temple currently being built by 538 congresspeople and the government temple that taxpayers would build if they had the freedom to choose which government organizations they gave their taxes to.

If the temple being built by congress is truly better than the temple that taxpayers would build...then why would we want to increase the middle class share of income?  The government is clearly better at spending their money than they are.  However...if somebody is going to argue that we're better off by increasing the middle class share of income...then the argument is that we're better off by giving the middle class more money to spend.  But why would this be true in the private sector but not in the public sector?

If the middle class is going to sacrifice its income for the government...then let the middle class choose what the government does that's worth its income.  If the lower and middle classes want the upper class to sacrifice its income for the government...then let the upper class choose what the government does that's worth its income.  The only people who should be allowed to decide whether the government is worth the cost are the people who bear the cost.  The alternative is completely ignorant nonsense...aka representative economics.  How can somebody who doesn't bear the cost accurately determine whether a benefit is worth the cost?

If you don't bear the costs of fighting the war against poverty...then how can you know whether the benefits are worth the cost?  If you don't bear the costs of fighting the war against drugs...then how can you know whether the benefits are worth the cost?  If you don't bear the costs of fighting the war against terrorism...then how can you know whether the benefits are worth the cost?  If these things are worth the cost to you...then does that automatically mean that they are worth the cost to your neighbor?

Markets work because each and every consumer has the freedom to decide for themselves whether the cost of what they want is worth the benefit.  The outcome reflects our diverse perspectives, tastes, values, interests, preferences, concerns, hopes and dreams.  The government fails because there's just no way that 538 people can determine for millions and millions of taxpayers whether a government expenditure is truly worth the cost.  If we want government to succeed...if we want the benefits to be greater than the costs...then we simply need to give each and every taxpayer the freedom to choose which government organization they give their taxes to.

The temple that we must destroy is the idea that the human race benefits from representative economics.  If we agree with Thoreau that the "price of anything is the amount of life you exchange for it"...then representative economics is the idea that somebody knows better than you do what your life is worth.  Our lives are way too short for that crap.
It is through the gaze of my extinguished self that I realize the limitations that make scarcity necessary. Through this gaze into my own limitedness - a limit always established by the impending cessation of space and time for me - through this gift of death, I discover in nature the best way to be efficient. Thanks to death I must choose x rather than y. This has become a feature of 'nature' - a demystified 'nature' that bears no possibility of participation in the eternal. This is consistent with capitalism. - D. Stephen Long

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