Friday, April 17, 2020

Week 29: The Middle Class

With the announcement April 8, that Bernie Sanders withdrew from the race for the Democrat Party’s nomination to run against Donald Trump in the 2020 presidential election and with former President Obama’s endorsement, Americans now have their presumptive Democrat candidate, Joe Biden.

A former New Castle County Councilman (1970-72), former U.S. Senator from Delaware (1973-2009) and former Vice President (2009-2017), Joe Biden has spent the majority of his professional life in government. In seeking the presidency, he has set out a tripartite vision for America. In this blog and the subsequent two blogs, we will explore the issues at the heart of each part of his vision for America.

As stated on Mr. Biden’s election website, “This is Joe’s vision for America. We’ve got to rebuild the backbone of the country: The Middle Class. We’ve got to demonstrate respected leadership on the world stage. We’ve got to make sure our democracy includes everyone.”

Regarding the Middle Class, Mr. Biden states, “The middle class isn’t a number — it’s a set of values. Owning your home. Sending your kids to college. Being able to save and get ahead. Across the country, too many families are being left behind.”

Prior to exploring the values of the Middle Class, as enumerated by Mr. Biden, it may be useful to consider the preoccupation that all politicians, including Mr. Biden, have with the Middle Class.

What is the Middle Class? In a publication by the left-leaning Urban Institute, citing Pew Research Center data, 90 percent of respondents, when asked which of six social classes they identified with (i.e., upper class, upper middle class, middle class, lower middle class, lower class), identified with one of the middle class categories, while approximately two percent identified as upper class and approximately eight percent as lower class.

In his book, Rules for Radicals, Saul Alinsky characterizes the three broad classes as the “have nots,” the “have a little, want mores,” and the “haves.” Implicit in his characterization is the false notion that economic success (i.e., wealth) comes in the form of a finite pie. In other words, for one person to gain, another must lose. He sees socio-economics as a zero-sum game. One need only have the most rudimentary knowledge of economics to understand that this is not true. Rather, it is not true in societies that use economic freedom and capitalism as the organizing principles for economic activity. It is true – and gravely so – in societies that depart from the principles of economic freedom and capitalism.

Based on the numbers, it is readily apparent why politicians cater to the middle class. It’s the largest block of people, and consequently, it’s the largest block of voters. With the upper class at roughly two percent, it’s easy to demonize them with little backlash in terms of electoral success or failure. With the lower class at roughly eight percent, it’s easy to ignore them, as well, with little backlash electorally.

The struggle between the classes, as Alinsky describes it (perhaps taking his cue from Marx, Hegel and the like) – between the haves and have-nots, with the have-a-littles in the middle – evokes images of Fortuna and the fourth circle of hell in The Divine Comedy. In Canto VII of Inferno, Dante writes, “Therefore one people triumphs, and another languishes, in pursuance of her [Fortuna’s] judgment, which hidden is, as in the grass a serpent.” In the case of socio-economic classes, politicians try to engrain judgment in the minds of the middle class that is based on a false premise. This false premise is, indeed, like a serpent, hidden and waiting to strike. In the meantime, the haves and have-nots are, like the souls in the fourth circle of hell, toiling incessantly and to no avail, while effort is expended by the demons in charge to create a special narrative about the middle class. Please understand, I am not blaming or shaming the middle class. My heritage is in the middle class. People in the middle class are no better or worse than those in the upper class or the lower class. Nor are people in the upper or lower classes better or worse than those in the middle class. Each of us has absolute moral worth, regardless of our pocketbook or social calendar.

In political rhetoric, we also hear about the “hard-working” middle class. Is this to imply that those on the lower and upper ends of the socio-economic scale do not work hard? I would entreat you, kind reader, to think of people you know. I dare say that you, like me, know people in each of the socio-economic classes. I would suggest that you, like me, can think of hard workers in each of those classes. You, like me, may be able to think of idlers in each, as well. The point, simply, is that politicians try to create a romanticized image of the middle class while portraying the lower class as helpless and hapless and portraying the upper class as conniving and heartless. It harkens back to Week 38 when we examined identity politics. Class distinction is yet one more manifestation of such politics.

Writing about economic progress achieved in capitalist societies, the Nobel Laureate economist Milton Friedman wrote in Capitalism and Freedom, “The chief characteristic of progress and development over the past century is that it [capitalism] has freed the masses from backbreaking toil and has made available to them products and services that were formerly the monopoly of the upper class.” In Free to Choose: A Personal Statement, Friedman dispelled the notion of a zero-sum game in terms of class in which some must lose for others to gain. In a free and capitalist society, he said, “The whole pie is bigger - there's more for the worker, but there's also more for the employer, the investor, the consumer, and even the tax collector. That's the way the free market system distributes the fruits of economic progress among all people. That's the secret of the enormous improvements in the conditions of the working person over the past two centuries.”

All this is to say that we, as informed and rational citizens, should guard against class warfare and should refuse to be made pawns in politicians’ game for absolute power over us.

Mindful of the false premises upon which classist ideologies are based and ever-mindful of Lord Acton’s warning about power and corruption, let us consider the values Mr. Biden listed: home ownership, college and savings.

Since 1900, home ownership has steadily increased in the United States. According to the U.S. Census Bureau, home ownership rates have gone up from 46.5 percent in 1900 to nearly 70 percent today. That’s a wonderful thing to think about. When a person owns his or her own property, he or she tends to treat it with better care than if it were rented or otherwise borrowed. The question becomes one of what rate of home ownership is desirable or acceptable? Some people choose to rent for a variety of reasons. If a person is in a job that requires frequent moves (e.g., military), ownership may make little sense and renting is a more practical option. People right out of school often rent while saving money for a down payment on a home purchase. Some people just prefer the liberty that renting affords in terms of being free from direct responsibility for maintenance and upkeep of a domicile. Perhaps home ownership isn’t the crisis that politicians claim it is.

What has been, and again has the potential to be, a crisis is the government’s attempt to increase already high home ownership by forcing lenders to approve home loans for people without the financial stability to make payments on the loan. When this happens, the borrower defaults, thus further damaging his or her credit, and lenders’ financial stability is damaged, making it challenging to provide loans. It becomes a vicious cycle that leads to poor financial health for all involved. Evidence of this may be found by examining the Community Reinvestment Act and its relation to the 2008 financial crisis. It was another lesson in what happens when the “C students of the world,” as President Harry Truman described politicians, are let loose to plan the economy.

College may be viewed in a similar way. By this, I mean that once the government gets more involved in higher education, the worse off it will be for students and for society. In her excellent article in US News and World Report (Nov. 23, 2011), “Why the Government is to Blame for High College Costs: Federal student loans are driving up college costs and adding to the deficit,” Mary Kate Cary thoroughly described how two intentions: that a college education should be within the reach of every American and that students should be able to borrow money from the federal government in order to attend college, have had devastating unintended consequences.

From Ms. Cary’s article, then-President Obama, under pressure from Occupy Wall Street protesters, “signed legislation ending subsidies for private banks giving federally guaranteed student loans—making the federal government, not banks, the lender of choice for most students.” As with any useful or valuable thing that can be exchanged, education is a commodity, and as such its value diminishes when the market is flooded. Consequently, an increase in the number of people with an English degree, for example, makes the value of that degree less in the marketplace, just as a marketplace with an excess of welders decreases the value of each welder in terms of what he or she can charge. It’s a fundamental principle of economics that competition drives down costs. This includes the cost of labor, which translates to what a person is paid. If higher education floods the marketplace with more and more English majors or Law majors (or any other field of study), graduates working in those fields will face greater competition and subsequently be paid less, making it more difficult to repay mountains of student loans.

In recent years, the higher education marketplace appears to be adjusting itself. shows that in 2011, public college enrollment was at 15.12 million students, but it declined to 14.53 million by 2018. Private college enrollment was at 5.89 million in 2011 and declined to 5.12 million in 2018. This seems to complement a growing body of literature that questions the value of a college education. It also comes at a time in which there are shortages in many trades.

Let me be clear, I think education is a wonderful thing. Exploring and debating ideas is, I believe, one essential hallmark of an advanced and civilized society. I simply question whether a university education to the tune of $100,000 debt is the only way to advance and to civilize. I suggest it is not. One of the most well-read people I know does not have a degree; yet, his counsel on any topic is dear to me for its profundity and balance. Granted, that is an anecdotal example, but it is true – and, I believe, broadly true – nonetheless.

In terms of easy loans for housing and education, which politicians like to peddle, let us not forget the words of Thomas Paine. In The American Crisis, he wrote, “What we obtain too cheap, we esteem too lightly: it is dearness only that gives every thing its value.” He was writing, of course, about freedom, but this sentiment holds true as a general rule.

Finally, as for savings so one may “get ahead,” I’m compelled to wonder, get ahead of whom? Again, the implication is that one person’s gain must be at the expense of another. Perhaps this is an incorrect inference on my part. That aside, the idea of saving is wonderful. Again, politicians put out a concept that is difficult to argue. Saving is good, and it can prepare you for the proverbial rainy day or for the golden years. The question comes down, as always, to the proper role of government in this aspect of a citizen’s life.

According to an article entitled “Comparing the Returns from Tax-Favored Retirement Plans to Social Security Yields” by Stephen J. Entin, senior fellow at the nonpartisan Tax Foundation (June 2016), a worker making an average salary will realize an annual Social Security Benefit of $19,646.40. If that same person had been permitted – or even required – to save privately, they could have expected an annual annuity of $57,318.82. It should be no surprise – at least it isn’t for me, when I compare my annual Social Security statement to my retirement account – that the government solution performs so poorly against market-based solutions. It seems that the best way for Americans to save in order to get ahead would for the government to realize that financial planning for retirement is not a core competency it possesses and to get out of the way.

As a classical liberal, I would not favor government-mandated contributions to a savings account or investment vehicle. As a pragmatist, though, I could heartily favor a mandated contribution (e.g., 10 percent of earnings) to some sort of retirement account (e.g., 401K, IRA, etc.) in lieu of Social Security. I almost certainly could do no worse than the government.

As we go through the spring, summer and fall on our way to November, don’t be satisfied with or deceived by lofty, altruistic rhetoric from any politician. Examine and debate policy proposals, and explore their potential unintended consequences. I think you’ll find that you are much more worthy of trust and responsibility than anyone vying for a seat in the halls of Congress or at 1600 Pennsylvania Avenue.

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