A reader reminded me of this post.
Let us consider some possibilities.
1. Maybe the middle class is not going to stagnate. Both Tyler Cowen and Eric Brynjolfsson have it wrong. We are all in a pessimistic mood now, but once the economy picks up, upward mobility will resume.
2. Many people are slipping downward relative to the top, but their attitude is “We’re all right, Jack.” People are able to satisfy their main consumer needs, and they don’t really want a Great Redistributor to come and steal from the rich people to give them a few more dollars.
3. Ultimately, the people will fall for a demagogue. We will have our own Hugo Chavez.
4. The center will recover. Government will become more competent, and this competence will improve the well-being of the middle class.
5. Democracy will fail gracefully. We will head toward a “thousands nations” world of competitive government. People will not worry about their status relative to the richest individuals in the West. They will just try to find the most congenial community in which to live.
I think that (3) and (4) are the least likely.
Of course, some people will tell you that we got (3), well, sort of. It seems like a safe bet that we are not going to get (4).
We did not get 3, but what we got over the past 3 presidential elections shows that we very well could.
From Warren Buffett: Wealth is gushing up, not trickling down.
I have a gloomy proposition: “If there are multiple Ricardian sectors, then while one can tweak distributions with interventions, here can be little improvement in some core aspects of the average living standards, and every attempt at reform is futile, unless it stops those sectors from having a Ricardian character, because any new surplus will immediately be used to bid up Ricardian assets” I am using “Ricardian” in the send of zero-sum, rat race, inelastic, or positional goods sense.
If you care more about who wins which medals than absolute times, then if someone invents a new sports drink that makes all runners 10% faster, then one could observe, “runner stagnation” noticing that the same individuals are winning the same medals. This is true even if someone invents a better drink each and every year, because every competitor will drink it, for fear of falling behind.
In particular this poses problems for adjusting wages for inflation and trying to see what has happened to them in “real” terms. If most wage increases are used to bid up housing and educational credentials, and these are significant costs in the average person’s typical basket of expenses, then they will tend to correlate strongly and chase each other around, no matter what those wages can now buy in terms of positive-sum goods.
I still say most nations will go down the direct of Japan in their version and we will muddle through these issues.
1. Maybe the middle class is not going to stagnate. Actually middle class wages have had some increase since 2013 and it is creeping up. It is just a lot of the middle class is comparing ourselves to high points in 1980s or 1990s.
2. Many people are slipping downward relative to the top, but their attitude is “We’re all right, Jack.” Other than healthcare this is probably true.
3) Yes it did happen but Trump is an incompetent authoritarian who cares more about polls than power. So we will get past.
4. The center will recover. This oddly enough might be happening as the 2017 candidates that have done well (Handel, Jones, Northam) are good boring candidates for the position.
5. Democracy will fail gracefully. I still don’t see this happening as Democrasy does allow political creative destruction and changes. Things might feel great for China but there will be a large recession at some point and it will harder to control the people.
3. Duh.
4. Well, they dragged Omarosa, babbling obscenities, out of the white house today. Maybe there’s hope?
5. Idk. Maybe? Lots of people like New Zealand, or maybe Singapore, but it’s not that easy to just go there and live. Yet.
3 Sure, 4 It’s all relative. The future will be brighter given the depths we have plumbed.
Every time we hear the middle class is stagnating, when we look into the details we see that the middle class is actually “disappearing” by greatly moving up to the upper classes, while the lower class gets beefed up with 40 million new immigrants (statistically pulling down averages while everyone gains).
When we hear median incomes are stagnating, the messy details actually reveal that when adjusted for inflation (PCE), household size, benefits, taxes and transfers, and mix changes (primarily to retired), that actual median working incomes are UP by 40 to 60 percent.
How about we put this issue to bed and agree that longer term there has been absolutely no MC stagnation? At worst, I would say the rate of gains has been a bit slower for developed nation MC, though this is a thousand times offset by the global gains in developing countries (and globally our MC are the 1%)