We Killed the Goose That Laid the Golden Eggs

I suspect more strongly worded versions of this narrative is going to play well in the coming backlash. It's going to be VERY ugly in the US as conditions worsen.
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In Aesop's fables, there is a tale of the goose that laid golden eggs. The owners of the goose, getting ever wealthier due to the golden eggs laid each morning, weren't content. They wanted grow rich faster. So, they reasoned, if we could only cut open the goose, we could get to the source of the gold and avoid waiting for our reward. However, when they killed the goose and opened it up, they found that the goose was like any other. They had destroyed the miracle and soon became destitute.

In a very real way, the US middle class is the Goose that laid the Golden Eggs for the US and the global economy. Looked at over history's long view, the arrival of the US middle class after WW2 looked like a first: a nation of educated and politically empowered workers fully compensated for their toil. The wealth it produced during the years it was in ascendence has been unmatched in history.

However, things changed. The US middle class is now in deep decline -- average incomes have been stagnant since the mid seventies and rapidly increasing costs are eating the rest. Its emergence is looking more like an historic anomaly than any self-reinforcing trend line.

The reason for this decline is that we are in the process of killing it. Here's the rogues list that killed the Goose:

• US political parties via wealth distribution. The Democrats (wealth given to the poor) and the Republicans (wealth taken by the rich).
  
• Corporations via profit maximization. Shifting the productivity of the US middle class to global locations (which undermines any presumption of comparative advantage). Corporations are not aligned with the interests of the US middle class, but with that of profit maximization within the global marketplace.
  
• The financial world running successive bubbles/scams. A natural consequence of rapid wealth accumulation (see wealth transfer above) in the hands of a global elite is that there are too few real investment opportunities at manageable scales. The result is an endless stream of speculative bubbles/scams aimed at drawing wealth out of the middle class and each other.

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Comments

[Will]

Good analysis, John. I would go one step further with the corporations. The focus on cost-reduction keeps wages down for the middle class. We have forgotten Henry Ford's lesson of increased salaries fueling expansion.

Your final comment on the effect of the financial world is particularly important, I think. Those at the top play wealth games that have no connection, and no need for connection, to the middle class.

The middle class is superfluous for the power and wealth elite. I'm not sure the middle class is the goose any more. There are artificial eggs elsewhere.

[John Robb]

Thanks WIll. You are exactly right, corporations did participate in the destruction of labor's bargaining position and replace US workers with illegal immigrants (rather than paying living wages). Henry Ford was a radical. His first car models ran on pure ethanol, which he thought would allow buyers to grow their own fuel.

Based on the numbers, the US MC is still the center of the real global economy. Everything else is derivative or ancillary.

[Rob Paterson]

Is not the measure of a society's health the size and health of its middle class?

[John Robb]

t is. However, there isn't a governmental, financial, or business body that is truly focused on that (despite some rhetoric to the contrary). Much of what they do is an anathema to growing the wealth and size of the middle class.

However, that will prove to be the undoing of the system. The health of the middle class is the bedrock assumption upon which the entire US economic, governmental, and financial system is built. That assumption is proving to be invalid.

The current mortgage/credit crisis and the breakdown of BW2 may be the straw that breaks the camel's back --- and introduce us into an era of steady declines in real incomes.