Welfare State Drivers of Middle Class Hollowing

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27 January 2013

Jon Evans' recent article in TechCrunch on how America Has Hit Peak Jobs is quite eye opening in the way he gets the reader to step back and look at the meta-issues involved, but at the same time misses the factors outside of his blinders. Writing for a publication called TechCrunch it's unsurprising that he'd focus on the technological drivers hollowing out the middle class, but that he would completely ignore the government driver of this process is somewhat unforgivable. However much one may posit causality from correlation, until such causality is established, deriving the most important factor driving a trend is mere guessing. 

The crux is this graph:


and what's driving that bulge on the left to increase. Evans claims technology is the primary driver but, although he makes a very good case that it is a factor, provides little evidence that it is the primary driver. Since I have had some experience living in the bulge on the left I can paint a fairly good picture of what it's like. The government pays for medical care. The government pays for food. The government subsidizes housing. You get an income tax "refund" every year even though you pay no taxes. Whatever little money you make can go to other things. 

Now think about increasing your income (moving to the right on the graph). As your income increases the government pays less for food and housing, so you see no increase in your standard of living. And at some point the monster cost of medical care pops in and actually lowers your standard of living. At roughly the same point you stop getting income tax "refunds" and start to pay income taxes, additionally lowering your standard of living. You have to increase your income quite a bit more before you can get your standard of living back up to where it was. Why would anybody in their right mind work harder for that? Unless one believes they can get past these Welfare State hurdles to the place where they can actually increase their standard of living it seems to be but an exercise in futility. 

So is it more than just technology driving the trend hollowing out the middle class? My guess would be yes.


This blog was also published here as part of our family blog.

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Last modified on 3 February 2013 by Bradley James Wogsland.
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