Low taxes. Less government. We've seen this movie before.
Whether it's a class war, or whether it's mere trickle-down economics, the Republicans are determined to press their small-government, low-tax agenda on America. It's business as usual for the party of big business: relieve the wealthy of the burdens of taxation and regulation. Let the middle class pay more, and let the buyer beware.
There's only one problem: The wealth of the wealthy largely comes from, and is largely supported by, the middle class. As the middle class loses its prosperity, the rich are going to lose as well. It won't be as fast, but by and large their fall will be the greater.
I'm not talking Marxist class struggle here; I'm talking straight capitalist economics. Come with me over the flip, and I'll explain.
Would you rather be a poor person today, or a wealthy person in 1860?
If your choice is to set the WABAC Machine for 150 years ago, think of what you'll be giving up: Automobiles. Electricity. The Internet, TV, movies, telephones, air conditioning and central heating, virtually any kind of health care... and that's just the beginning. In the United States as we know it today, even the poor have at least some access to all of these things. (At least in theory, they also have the chance of pulling themselves out of poverty -- certainly a much larger chance than a person living in 1860 had of still being alive in 2010.)
I don't know about you, but I'd take contemporary poverty without a backwards glance. Of course, I'd also rather be wealthy today than wealthy in 1860, but being here now at least gives me a head start.
Inflation notwithstanding, the dollar now actually has greater purchasing power than it did back then. Innovation, investment, and infrastructure have made goods and services available to us today that even the wealthiest could not possibly have obtained 150 years ago. By the 1890s, John D. Rockefeller had become perhaps the richest American ever, measured by his share of the economy, but even he could not have bought an iPad. American society is simply wealthier today than it was in 1860. The rich should be especially appreciative of this, because it's far easier to get rich in a rich society.
It's no coincidence that most of the additional societal wealth -- these advanced goods and services that weren't available in times past -- is embodied in products that are affordable on a middle-class income. With a few exceptions, there's little reason to create a product category that only the top 0.1% of the population can afford; the greatest money is usually made by selling in volume, not at astronomically high price. The rich may have fancier cars, or own their own airplanes, but you and I can buy cars and fly on airplanes too.
Now let's turn that thought around: What would the United States look like today without a healthy middle class? That is, what might our economy look like if most of the population had lived in poverty for the last 150 years? (To simplify the picture, I'll leave aside the impact this might have had on the global economy.)
The demand for cars would be a small fraction of today's level, simply because the price would be out of reach for most consumers. (There wouldn't be much of a market in used cars, because fewer people would have been buying new cars to begin with.) In turn, fewer cars would likely mean fewer, and poorer, roadways. That feeds back into even fewer cars: Why buy one if there's nowhere to go with it?
As bad as it may seem to be now, our health care system would be considerably worse. If most people couldn't afford basic health care treatments, then there'd be much less investment in the field. Many more illnesses and injuries would still be untreatable today; vaccines would be available for fewer diseases, and in shorter supply.
Needless to say, there'd be no Internet, at least as we know it now. It might exist as a research vehicle, as it was in the 1980s, but it would not have reached almost every American. Computers would likely exist, but in far smaller numbers, and without the computing power even of today's popular MP3 players.
Hollywood? Gone. Hollywood simply would not exist if only 300,000 Americans could afford occasional outings at movie theaters regularly, let alone purchase televisions.
Maybe we'd have electrification. Cities probably would get electricity, because the concentration of wealthy customers (and businesses with need for it) would support electrification at least in some neighborhoods. Outside of cities, it's a different story. Perhaps if FDR still became President in this version of the USA, there'd still have been a Rural Electrification Administration, but otherwise the investment required to bring electricity to everyone would probably have been considered prohibitive for a private company to take on. (Yet even if we assume electrification did happen, it would have brought far fewer benefits to the general population. In drawing the previous scenarios, I made no assumptions about electrification.)
Each of these scenarios would ripple outward, having effects far beyond what I've outlined here. The rich would hardly be insulated from the results. A diminished middle class means fewer opportunities to create wealth, and far fewer ways to use it. Just as one example, look again at the reduced automotive infrastructure that forms without a middle class. Now consider the impact this would have on manufacturers, distributers, and retailers in all industries. (I'll have a bit more to say about this in the second part of this series.)
Ronald Reagan liked to use the phrase, "A rising tide lifts all boats." But economics isn't nautical science. In economics, the inverse is more accurate: Lifting boats raises the tide. As the middle class prospers, so do the rich.
You'd think, then, that the rich would go to great lengths to preserve and protect the American middle class. But alas, we humans don't treat our resources very wisely. If the rich need us to save them from themselves, then let's do it; no one else will.
(To be continued.)