The Middle Class in America Is Radically Shrinking.

[Hubbs]

[Grass and such]

You seem to think that savings account interest rates reflect the quality of a bank's investments. If every investment made by the banking system were exactly the same, but we were experiencing 70's-style inflation, interest rates would be cracking double digits. Savings accounts are a way banks borrow from individuals. A bank wouldn't attract any business if it offered 3% interest when inflation was expected to be at 8% for the foreseeable future. Who the hell would give it money? Who would take a 5% real loss on purpose?

[Smoot Point Really]

And where does this point of yours happen to be true? In the US? Not historically unless you feel that the US from 1930-1980 was communist when tax rates were high and not TODAY where the tax rates are lower but they are higher than the rest. Certainly not in Europe where their tax rates are by our standards insane.

Did you want to turn a discussion on reality into an ideological debate? That's not happening.

.

I'm having an English debate with you... By definition, a progressive income tax of the rich is Marxist no matter who is espousing it... Even the US Government.

I've told you repeatedly to read the communist manifesto... I really don't know who you are debating. There is nothing to debate... It's a fact that you keep trying to contradict.

[Willy Wonka]

As practiced it absolutely has been. Regulation, another thing absent pure ideological capitalism, have also proven to be the only way for capitalism to work in a sustainable manner.

As practiced by whom? Regulation by whom? Please provide examples of what you believe is sustainable capitalism.

[Willy Wonka]

There's something politically ironic in what you just said, so I'll first add a disclaimer by stating that I'm not familiar enough with you to know your political persuasions, so I'm not speaking specifically about you when I point out the irony. That said, given the two dominant schools of political thought in this country, I think there's a benefit to noting that, if you believe that spending is spending is spending is spending, then you have to believe that there is no economic difference between the government paying someone $10,000 to dig a ditch and fill it back up and Richie Rich paying the world's only golden toilet maker $10,000 for one of his products. Spending is spending. Moreover, you also have to believe that there is no difference between either of those scenarios and Richie deciding to use that same $10,000 as part of the necessary start-up funding for a small business in a very lucrative industry. Spending is spending... is spending.

If any of that gave you pause, well, that's because it should.

To break this down you have to apply a concept called "opportunity cost," which is explained in detail here if you'd like to take a look. In layman's terms, opportunity cost is basically a comparison of the different ways any given amount of money can be used. The fundamental mistake made in advocating either government ditch-digging or Richie's golden toilet is the assumption that those types of spending exist in a vacuum. "Even if Richie buys his toilet, the toilet maker is still making money, which he'll eventually use to buy whatever it is that golden toilet makers buy," says the Spending Is Spending crowd, which can be abbreviated to SIS, allowing me to refer to the members of that crowd as "Sissies" from here on out for no particularly good reason other than the fact that it's stupidly amusing to me. Anyway, the thought process that allows the Sissies to reach their conclusion is admittedly obvious and not entirely incorrect, which is why I used to believe it myself. First, the Sissies imagine what happens when Richie buys his toilet. Then, the Sissies imagine what happens if Richie uses his cash in some way that can't be defined as "spending," like, I don't know, dumping it into a big hole in his backyard and setting it on fire. Finally, the Sissies imagine the difference between the results of those two actions, and, as anyone would do, conclude that even spending money on a golden toilet supports the economy. Spending Is Spending.

The very, very attractive part of that logic is that it's not actually wrong in a very technical sense. Richie buying a golden toilet really is better for the economy than Richie dumping his money into a hole and setting it on fire. The flaw lies in the second option. If Richie is somehow prevented from buying his toilet, the odds of him grabbing a matchbook and heading for the hole in his backyard are very slim. In fact, I'd be willing to bet $10,000 of my own dollars that he would do something with his money that didn't involve him turning into the Joker and dousing it in lighter fluid. This is where opportunity cost comes in. The choice is never between a golden toilet and absolutely nothing. It's between a golden toilet and something else.

So what's something else? Let's say Richie simply wanted to save his money. The Sissies would immediately yell "Aha!" and point out that if Richie saves his money, by definition, he's not spending it, and this is therefore awful news. But Richie, being good with numbers, is unlikely to save his money by simply putting it in his backyard hole and not setting it on fire. He'd be earning exactly 0% on his "deposit" by doing that. Even putting it into a savings account at today's incredibly low rates would make more sense, because earning 1% is infinitely more profitable than earning 0%. (Really, infinitely. Try dividing by zero if you don't believe me.) And contrary to the kind of bank depicted in most cartoons, money in a savings account doesn't actually sit in a vault until Richie decides to withdraw. The bank puts that money to use, lending it to someone who wants to buy a house, or to an entrepreneur, or to Big Company, Inc. by buying one of Big Company's bonds. Whatever the loan, here's the most important fact: Despite recent events, banks are generally not in the business of losing money. They loan it out with the expectation of getting more in return. This is inherently conducive to growth, and also holds true if Richie decides to be a little bit riskier with his money and put it into a mutual fund, or buy stocks, or even pay off some of his Double Secret Platinum American Express. The money goes someplace that will be investing it with the expectation of profitable returns. And since banks and other financial institutions lend out more than $10 for every $1 they actually have (which can cause its own problems, but that's a discussion for another thread), saving $10,000 allows for over $100,000 in spend-tastic loans to be given out. By saving, Richie actually facilitates someone else's spending.

Well, the same holds true with the golden toilet maker, say the Sissies. Richie is facilitating someone else's spending. And again, this is technically true. However, if Richie is actually facilitating spending by saving, then we're back to deciding if it matters what $10,000 is spent on. To make this quick, we'll quickly turn to the government and pretend that it's debating between spending $10,000 on ditch-digging/ditch-filling and spending $10,000 on a highway. (This is obviously the world's cheapest highway, but that doesn't matter to illustrate the point.) What does it have at the end of either endeavor? At the end of the ditch project, the government has paid its workers $10,000... and has achieved nothing else. At the end of the highway project, the government has paid its workers $10,000 and it also has a highway, which has great economic value on its own. It's incredibly difficult to argue that a highway is no more valuable than nothing. If the Sissies would like to do that, I'll happily sell them every last bit of nothing I own at bargain-basement prices. This is the essence of opportunity cost. Much in the same way, when $10,000 goes into the golden toilet industry, what you get beyond the things that come from spending $10,000 anywhere - like paychecks for employees - is golden toilets. And never has the phrase been uttered, "Golden toilets are the key to a brighter economic future."

A savings account isn't a backyard hole. A highway isn't a short-lived ditch. A golden toilet isn't a factory. And spending is most certainly not spending.

Now go tell these people what they should be doing with their money:

JnX-D4kkPOQ

What?

[gbear]

Smoot Point,

I have told many people arguing the merits/evils of communism/marxism they should read the book. I still think the U.S. is closer to following Marx's predictions than the U.S.S.R ever was. I don't know whether to find that scary or not. In many ways, it's like reading Asimov's foundation series with predictions from Seldane (sp?). The book is more of an optimal flow of events based on human nature.

[Destino]

I'm having an English debate with you... By definition, a progressive income tax of the rich is Marxist no matter who is espousing it... Even the US Government.

I've told you repeatedly to read the communist manifesto... I really don't know who you are debating. There is nothing to debate... It's a fact that you keep trying to contradict.

The idea of a progressive tax predates Karl Marx and his communist manifesto.

[ABQCOWBOY]

I have not read through this entire thread so I'm probably covering ground that has already been mentioned but I don't really think you can say, with any certainty that the Middle Class is growing or shrinking. When 47% of Americans don't pay Federal Income Tax because they are classified as too poor or qualify for enough deductions, then the Middle Class numbers are not consistent with what was counted as Middle Class in prior years. I don't think Middle Class is going away. I just think the burden of paying for Societies Wants and Needs are being parked on a much smaller segment of Americans. If you want to say that this constitutes shrinking, OK. I would not agree with that thou.