Why the World Should Care About America’s Middle Class
by Kenneth Thomas
Guest post: Why the World Should Care About America’s Middle Class
Tim Worstall, in his Forbes blog, attacks my series (here and here) on whether globalization is good for America’s middle class. Not on the basis that he disagrees with my conclusion (though he does), but because, he argues, there are much more important facts about globalization than a decline in the economic well-being of the middle class in America and Europe. In particular, he points to the great decline in poverty among developing nations that have embraced globalization:
This growth in incomes, in wealth, has been uneven, this is true. Largely speaking those places which have been taking part in globalisation, Indonesia, China, India, have been getting richer. Those that have not been, Somalia perhaps as an example, have not been.
Let’s leave aside the fact that these successful countries are hardly poster children for the kinds of so-called “free-market” policies that Worstall espouses, a point made particularly well by Dani Rodrik. And in the spirit in which Worstall granted my claims for the sake of argument, let’s grant his as well. (But if you want to get down into the weeds on the extent to which poverty reduction claims may be overstated, take a look at Robert Wade’s work.)
Here is the crux of Worstall’s argument:
So I would actually posit that whether the American, or European, or rich world, middle class benefits from globalisation is actually an incomplete question. Incomplete enough to be the wrong question. Almost to the point that the answer is “who cares?”.
The correct question is what is the distribution of all of the costs and all of the benefits of globalisation? To which my answer would be that a generation, perhaps even two generations, of stagnating lifestyles for the already rich, those middle classes, looks like a reasonable enough cost to pay for the other thing that is happening: the abolition of absolute human poverty in the rest of the world.
First, I think we should certainly care when hundreds of millions of people are suffering unnecessarily. Yes, unnecessarily, because contrary to Worstall’s claim, we are not trading off reduced economic well-being for hundreds of millions of middle class people for the lessened poverty of billions of other people. Indeed, the two are happening simultaneously, but as Ronald Rogowki pointed out in Commerce and Coalitions, it is perfectly feasible to have rich country winners compensate rich-country losers and still have all of them be better off from trade.
Politically, it is a hard row to how, as Rogowki pointed out: the winners from expanding trade increase their political power as a result of their increased income, making compensatory policies less likely. But ending globalization’s harm to the middle class in rich nations does not require us to take anything away from poorer people, not if you accept the theory of comparative advantage and the Stolper-Samuelson Theorem. It does require us to figure out a political solution to the problems faced by the losers, which as we can see in the United States is made more difficult by the decline of unions and by the Citizens United Supreme Court decision.
And second, we should care about the U.S. middle class (and Europe’s, for that matter) because how they react to their situation politically will have enormous consequences for the world economy and world politics. If the U.S. comes up with a “Smoot-Hawley” response to its economic problems, that would undo a lot of the gains Worstall sees as flowing from globalization, a point made recently by Dani Rodrik (via Mark Thoma). Even more ominously, in both the U.S. and Europe, we see increasing political polarization and the rise of nationalist political parties and movements, as noted by Paul Krugman. Economic decline is a scary thing, and people’s reactions to it can get downright ugly, to put it mildly.
For both of these reasons, then, what happens to the middle class in the U.S. and Europe will have repercussions far beyond those acknowledged by Worstall.
crossposted with Middle Class Political Economist
Don’t worry! The US & Europe are destined for a Haiti style system in which 90% live in extreme poverty, but 1%, closely tied to foreign powers (think India, China) use military force to quash the demands of the excluded masses. There will be no rebellion. The middle class will simply be crushed; there’s an even 50-50 chance will see the re-emergence of slavery in the form of debt prisons that employ debters as serfs picking fruit, and cleaning pools for the Indo-Chinese upperclass and their stooges.
“…the abolition of absolute human poverty in the rest of the world.”
Tim is so often such a jerk. Aboultion of absolute posverty? Or transference of such poverty from one part of the world to another? The very rich don’t suffer the transference of their wealth so I think the changes that Worstall seems to champion are a bit skewed.
“..whether the American, or European, or rich world, middle class benefits from globalisation is actually an incomplete question.”
Again Tim shows total disdain for the working classes of the (possibly) formerly wealthy economies. I suggest that for those formerly middle class people the only incomplete aspect of the issue is how and when do they take their share back from the wealthy and safe people in their own societites. Funny how the very rich and their sychophants (that’s you Timmy) don’t mind giving up what isn’t theirs. I suppose its fine for the middle classes to give their shares to the global poor while the global and local rich amuse themselves with arcane economic theories of globalization’s benefits to the world in general. Of course those toiling poor across the several seas may be little better off than their formerly destitute circumstances. Now they can toil away in the new and grander sweat shops of the far east so to enrich their One Percent.
Maybe its only a matter of time until Alex Hamilton’s fears come to be though I think if things get to be that bad, and they may before too much longer, the rich may be distressed to find themselves to be on the wrong end of a Jacobin Solution.
Worstall: “my answer would be that a generation, perhaps even two generations, of stagnating lifestyles for the already rich, those middle classes, looks like a reasonable enough cost to pay for the other thing that is happening: the abolition of absolute human poverty in the rest of the world.”
Since when are “the already rich” the same as “those middle classes”? The problem is that the already rich who are richer than “those middle classes” are making out like bandits. Let the benefits of trade be shared.
There is also a systemic problem, in that the consumers who power trade are mainly those same middle classes. Making them better off will keep that engine going, to the benefit of all.
Worstall: “my answer would be that a generation, perhaps even two generations, of stagnating lifestyles for the already rich, those middle classes, looks like a reasonable enough cost to pay for the other thing that is happening: the abolition of absolute human poverty in the rest of the world.”
Since when are “the already rich” the same as “those middle classes”? The problem is that the already rich who are richer than “those middle classes” are making out like bandits. Let the benefits of trade be shared.
There is also a systemic problem, in that the consumers who power trade are mainly those same middle classes. Making them better off will keep that engine going, to the benefit of all.
Worstall: “my answer would be that a generation, perhaps even two generations, of stagnating lifestyles for the already rich, those middle classes, looks like a reasonable enough cost to pay for the other thing that is happening: the abolition of absolute human poverty in the rest of the world.”
Since when are “the already rich” the same as “those middle classes”? The problem is that the already rich who are richer than “those middle classes” are making out like bandits. Let the benefits of trade be shared.
There is also a systemic problem, in that the consumers who power trade are mainly those same middle classes. Making them better off will keep that engine going, to the benefit of all.
“Economic decline is a scary thing, and people’s reactions to it can get downright ugly, to put it mildly.”
Does the date July,1789 have any signifcance for the wealthiest in the weatern world? Twice in the years immediately preceding that period the French head of the Treasury (Comptroller of Finance) had recommended revising the tax codes in order to reduce both the Frenc governemtn’s debt and the enormous strain of taxation on the poor. Both Necker and his replacement, Calonne, suggested that the nobility and the clergy pay more so that the poor could be relieved of the greater burden of taxation. The nobility and the clergy were the land holders and held all of the wealth. Both men were sent packing for their suggestions. July, 1789 was a frustration reaction, and still the wealthy refused to capitualte their positions seeking outside help for an increasingly unstable situation throughout France. Calmer heads amongst the liberal minded of the nobility and clergy tried to negotiate the situation without mush success. Robespierre was only a focal point for that frustration and those who shared his ideology took control under the most unstable circumstances. As they say, the rest is history. Jacobins unite!
In case it isn’t clear, I refer to the French upheaval because of the parallels with our current economic situation. The differences are only a matter of degree. Extreme government debt. Extreme distortion of income and wealth distribution. An unbalanced system of taxation which puts the greatest burden on the middle class in favor of the wealthiest citizens.
Since when are “the already rich” the same as “those middle classes”?
Have a look at the global distribution of income. Someone on US median income is in the top 10% of world income. Yeah, that’s “already rich”.
Help us out Tim: Feature or bug?
You argue that a decline in standard of living for the U.S. median is a good thing because that allows the poor in other places to become better off.
Do some math. Divide the total wealth of the U.S. middle class across the world’s poor and see how much that does for them.
The facts are that the vast majority of the people in the U.S are becoming poorer, and needlessly so, while a very small number within the U.S. gets richer. And among the rich, the new distribution powerfully favors those who already have the most.
You are being frighteningly obtuse.
What globalization has accomplished is the formation of an elite 1% in a greater number of counties.
Raising a large number of people worldwide from the furthest depth of poverty to the penultimate depth of poverty is not accomplishing great social good.
JzB
“Yeah, that’s “already rich”.”
No Tim, because being rich is a relative concept. Certainly our standard of living is far better than many other peoples’ across the globe. For many Americans, remember that median income is only around $30,000 annually, financial life is increasingly a struggle. That’s one of the peculiarities of American politics. The Republican Party has no history of dooing anything that would remotely be ween as helping the working poor. The Democrats are often stymied by the Republicans and neo-con Dems in any effort to even minimally improve the life of the working poor. Yet conservative social issues rule the decision making process of those working poor.
That Tim even thinks that he can get away with the concept that Americans in general are rich enough to give up some of what they have in order that the impoverished of the world can have better lives is an astounding display of hubris. Let the truly rich of the world combine their efforts and give up just 25% of what they have in order to assist the poor. Or maybe Tim wants to organize the workers at Walmart to tithe 10% of their regular incomes to be given to the poor. That would be like giviing to themselves.
We do not disagree that the middle classes of the developed world are rich by comparison with the rest of the world. It’s the sin of omission, Tim. You, by the rules of English, equated the rich with those middle classes, leaving out the upper classes, which are benefiting from globalization.
We do not disagree that the middle classes of the developed world are rich by comparison with the rest of the world. It’s the sin of omission, Tim. You, by the rules of English, equated the rich with those middle classes, leaving out the upper classes, which are benefiting from globalization.
We do not disagree that the middle classes of the developed world are rich by comparison with the rest of the world. It’s the sin of omission, Tim. You, by the rules of English, equated the rich with those middle classes, leaving out the upper classes, which are benefiting from globalization.