If we believe this video that went viral on the internet, Wealth Inequality in America, the problem with the middle class is that a CEO make about 380 times more money than the average worker. This video is based primarily on the charts created by the Mother Jones article, It’s the Inequality, Stupid. The Mother Jones charts make it pretty obvious that they think the problem with the middle class is that the rich are paid too much. Their fix for the middle class is some income adjustment on the wealthy.
Paul Caron argues that raising the Estate Tax will curb wealth inequality and spur economic growth, Using the Estate Tax to Curb Inequality and Spur Economic Growth. In his analysis the problem with the middle class is a wealth problem. The rich have too much wealth and redistributing their wealth via estate taxes is the most equitable way to fixing the middle class.
So lets see if I understand this problem correctly. The rich are paid too much and have too much wealth. For this privilege they pay the government a disproportionate share of all the income taxes collected. Okay, I get it that everyone is in favor of taking another million dollars from Warren Buffett or Bill Gates but what does that have to do with middle class wealth and income problems? Just maybe, the problem with the middle class is not the rich. It is not the poor. The problem with the middle class is the middle class. The problem with the middle class is they made bad life style decisions. Instead of saving and investing like the rich folks, the middle class took the easy way out and used long term mortgages, permanent credit card balances, and student loans to avoid or postpone tough decisions. The results are not surprising since debt seems to encourage bad decision making. If you accept the argument that this bad decision making has been going on for at least the last thirty years, then it is logical to conclude that the primary reason the rich are so rich is because the middle class has been so dumb with their money. Ploys to increase consumer spending and bubbles seem to be the favorite tools used by policy makers to extract wealth from the middle class and give it to the rich. When these ploys inevitably do not work, the follow-up strategy is to claw back some of the success of the rich. It is a never ending circle until the middle class has no more to borrow. It is the microeconomic solution to the unintended consequences of misguided macroeconomic policies. Increased consumer spending is the solution until it isn’t!Nowadays we call it the Dave Ramsey strategy. It requires both sacrifices and tough decisions to work up the wealth and income ladder. The goals are simple, too. It is hard for a middle class family to live beneath their means but it is necessary if a family wants to pay down their debt. It is hard for a family to pay down its debt but it is necessary if they want to save the money for retirement and their kid’s college education. With a clear vision of where you are going, the hard work translates into results the middle class can see in their bank account. It does not depend on how much we tax the rich or cut the benefits for the poor and elderly. It depends on the middle class living beneath their means, making good spending decisions, and saving for the future. For those middle class folks whose parents lived through the Great Depression, they are embracing the financial strategies of their parents.