Investing In The Middle Class

Love listening to the debates between Democrats and Republicans on the middle class.  Democrats love to cite the economic stats from the 1990′s about how Bill Clinton raised taxes and economic growth increased.

It’s the incorrect conclusion when you look at the underlying economy.

If you recall, the 1990′s is the first time that large scale usage of technology began invading the operations of companies.  Companies became exponentially efficient.  Greenspan in his testimony to Congress consistently marveled at the productivity statistics of the American worker.

As technology developed, it began to replace workers.  Hence Andy Kessler’s thesis, Eat People.  At the time, we had an artificial housing boom thanks to heavy government subsidies, so there were plenty of jobs for people to fall into.   Democrats believe in government allocation of resources so they got a false positive from the Clinton years.

Republicans like to point to the Kennedy tax cuts, and the Reagan tax cuts as emblematic of what happens to economic growth.  We did have strong growth after the Kennedy cut.  We also had strong growth under the Reagan cut.  It wasn’t a period of innovation that replaced jobs-so whenever there was economic expansion, there was job growth.

Today, it’s a little murkier.  Clearly, government spending doesn’t do the trick.  If it did, the Obama stimulus would have worked.  If higher government spending as a percentage of GDP worked for economic development, the PIIGS would be in great shape.  But what about the middle class?

There are several things that can help the middle class.  Access to good education is one point, but that’s long term.  In the short term, the best allocators of economic resources are private companies and private individuals.  If incentives are created for them, they will allocate capital and make investments in the middle class that will give them opportunity.  That means corporate tax cuts, and tax cuts on small businesses.  Changing the economic incentives for business will change their decision making-and lower taxes will cause them to pursue expansionary opportunities.  That creates jobs.

The other thing to remember is there will always be a segmented society.  There will always be the super rich, the middle class, and the poor.  The trick is to get the standards of living for the lowest class to the highest level possible.  Only way to do that is by creating economic opportunity for them-which means getting money out of the hands of government and into the private sector.  Only the private sector can do something about it.

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