T Nation

Middle-Class Woes?


#1

An interesting open letter to Mr. Lou Dobbs.

All too often here in the union saturated and automotive dependent state of Michigan, I will hear union members assail folks for buying a foreign vehicle, or any foreign made product for that matter, But why?

It seems all too often that these union employees are scared to compete with the foreign automakers, or simply don't understand how free market capitalism works. Certainly it doesn't help that people like Lou Dobbs go around running their mouths reckless and espousing the idea that american companies and their workers need to be sheltered.

Anyways, I digress.


http://www.csmonitor.com/2007/0104/p09s02-coop.html

Middle-class woes? A letter to Lou Dobbs.
America's trade deficit is evidence of its economic vigor and promise, not a cause for concern.

By Donald J. Boudreaux

FAIRFAX, VA. ? Dear Mr. Dobbs, Congratulations on having a large new bloc of voters bear your name! Politicians ignore the "Lou Dobbs Democrats" at their peril.
Every night on CNN you claim to speak for these people. They are America's middle class: decent folks who work hard and play by the rules but who, you insist, are abused by the powerful elite. Free trade is one of the policies allegedly supported by the elite and for which you reserve special vitriol. You thunder that imports destroy American jobs, reduce wages, and make the economy perilously "unbalanced."

But you are mistaken.

First, some basic facts about the state of middle-class Americans. The US unemployment rate now is at a healthy 4.5 percent. This rate is lower than the average annual unemployment rate for the 1970s (6.2 percent), the 1980s (7.3 percent), and even the high-growth 1990s (5.6 percent). Inflation, meanwhile, is running below the average for the 70s, 80s, and 90s.

Here's more good news for ordinary Americans. The percentage of Americans who own their own homes is higher than ever, even though the size of today's typical home is larger than ever. Workers' leisure time, too, is at historically high levels. And jobs are just as secure today as they were in the late 1960s, according to a research paper by University of California-Davis economist Ann Huff Stevens.

Perhaps you think that this prosperity exists only because so many of today's households require two income earners. But women started leaving homes for paid employment at least a century ago, with no jump since the end of World War II in the rate at which women enter the workforce, according to a recent report by the Bureau of Labor Statistics.

Had worker pay truly deteriorated in the past 30 years, and had families reacted by sending moms to the workforce, the rate at which women join the workforce would have increased. It did not.

Today, the percentage of household expenditures used to buy nonessential items is at an all-time high - about 50 percent compared with about 45 percent in the mid-1970s. That undercuts your notion that two incomes are needed just to scrape by. Not only is America's middle class not disappearing - it's thriving.

Perhaps you miss this fact because you are misled by familiar trade jargon. In your book, "Exporting America," in your columns, and on your television show you complain vigorously and often about America's trade deficit. You call it "staggering," and wonder how long America can continue to run such deficits.

Admittedly, the word "deficit" sounds ominous. In fact, though, America's trade deficit is evidence of its economic vigor and promise. Here's why:

When Americans buy foreign-made goods and services, foreigners earn dollars. The only way America would run no trade deficit is if foreigners spent all of these dollars buying goods and services from Americans. Instead, though, foreigners invest some of their dollars in America. They buy American corporate stock, they build their own factories and retail outlets in the US, they lend dollars to Uncle Sam, and they hold some dollars in reserve as cash.

Aren't you proud that so many people the world over eagerly invest their hard-earned wealth in America?

As an American, I'm proud and optimistic. Foreigners invest in the US so readily because its economy is so strong. And even better, these investments strengthen the economy by creating more capital for American workers. These investments raise workers' productivity and wages.

Remember: A trade deficit is not synonymous with debt.

I'm writing this letter on a new Sony computer that I bought with cash. I owe Sony nothing. If Sony holds the dollars it earned from this sale, or if it uses these dollars to buy stock in General Electric or land in Arizona - that is, as long as Sony invests its dollars in America in ways other than lending it to Americans - the US trade deficit rises without raising Americans' indebtedness.

Americans go more deeply into debt to foreigners only when Americans borrow money from foreigners. Uncle Sam, of course, borrows a lot of money, from both Americans and from non-Americans. I share your concern about the reckless spending and borrowing practiced by politicians in Washington.

Foreigners, however, are not to blame for this recklessness. Indeed, I'm grateful that foreigners stand ready to help us pay the cost of our overblown government. Fortunately, Washington's spending binges are not serious enough to cripple America's entrepreneurial economy. If they were, foreigners would refuse to invest here.

If you're still skeptical that America's trade deficit is no cause for concern, perhaps you'll be persuaded by Adam Smith, who wrote that "Nothing, however, can be more absurd than this whole doctrine of the balance of trade."

Smith correctly understood that with free trade, the economy becomes larger than any one nation - a fact that brings more human creativity, more savings, more capital, more specialization, more opportunity, more competition, and a higher standard of living to all those who can freely trade.

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics, George Mason University.


#2

I love it! Another analysis of the "thriving middle class" by a rich, white academic.


#3

There's a middle class?


#4

Yes, he should be ashamed for his hard earned money, his education, but most of all, the colour of his skin...


#5

I'd like to know what you think of the specific points referenced in the article, however, if all your going to do is espouse class and racial hatred, then don't bother.


#6

Everyone I know is middle class.


#7

What do you define as middle class, doog?


#8

PGA is from Connecticut where everybody is a rich Lexus driving golfer.


#9

Living between the mansions and the colonias. Cable, computer, two cars, 3 or 4 tvs, video games. Making between 40 and 100K as a family.


#10

If you make $60-70k a year where I live you can get a small condo with a low car payment and a TV or two with cable and the internet. 400sqft studios start at $200,000 around here.


#11

Sounds like a lot of rich people to me.


#12

Feel free to adjust my figures to fit your area.

Here you can get a 1995 4 bed/2.5 bath two story brick home for $154,000.

Edit: You don't think having a condo, a car, cable, the internet, and a tv or two makes you middle class?


#13

This is nothing to be ashamed of but it makes me wonder how in touch this guy really is. He has health care presumably, can afford his debt, is probably done paying for his education if he even had to pay for it, has a heated home which he probably doesn't even flinch at the cost of heating oil, etc. These are the real indicators of the middle class.


#14

racial hatred? Pointing out someone's race is racial hatred now?

All of his points are meaningless becasue they are merely observations on the class as a whole--they don't mean anything to the individual tax payer with debt and no savings and who won't be able to afford retirement. It takes more than being in a particular tax bracket to be considered middle class. Is being middle class earning a certain paycheck or a having a particular lifestyle?


#15

How in touch does this "academic" has to be when he is quoting "statistics" ?

I doubt that Dobbs is more "in touch" and I suspect he is an economic illiterate.


#16

His points are about our society and econmy as a whole as being successful and your points are about inviduals that have made bad choices and ended up in bad situations.

These individuals do exist but they are not representative of our whole society.

If you have no savings it is your fault. Cut the cable TV and cell phone and invets that money.

If you are in debt pay it off. Stop buying things you cannot afford.


#17

You cannot blame people because they cannot afford to live. The majority of people I am talking about earn within at least one standard deviation of the mean but cannot affor health care, cannot afford to have their car break down, cannot afford their education which was supposed to have helped them pay for all these wonderful middle class items.

I agree many people live out of their means but to many of those people living out of their means means having healthcare and a functioning automobile. It also doesn't help that our government serves as a wonderful example to living within means.

His analysis of the whole is junk because it is not really a representative of the whole but a minority within the middle class that make the rest look good--for example thoose with healthcare and 401k, ect.

So, hooray for the middle class, I guess. We rule.


#18

More specifically, I think his points are about Dobbs' claims about specific ways in which the middle class is suffering.

I tend to agree with Dobbs that double incomes drive inflation in certain markets (including housing), and I disagree with the idea that debt being more accessible (more people owning houses) is necessarily a positive economic indicator, if taken out of context. But being "in touch" or not shouldn't matter in relation to the facts as they are presented here...


#19

Exactly, statistics are only so useful when making a description of a system as large as this. Middle class is a very generic term by itself. It would be better to pull out specific wage earners, for example, those whom earn 40-45k, and make those same observations compared to some other brackets within the curve. A single mother of one earning 25-30k is way different that a couple of DINKs (double income no kids) earning six figures--so my claim that this analysis is meaningless stands.

I do not know about Dobbs becasue I don't watch cable news.


#20

Not too many people dropping dead in the US due to being poor.

Even our poor have access to health care and food.

The middle class is alive and well in this country.