The First Law of Growing Middle Class Wealth

To grow middle class wealth you must be making things bigger, better, faster, or cheaper.

This law is an acknowledgement that financial stimulus, bubbles, and wealth redistribution schemes create a temporary sense of wealth and aggravate the problems with income inequality. The crux of the problem is that financial stimulus, bubbles, and “bad” wealth redistribution schemes increase the risk of bad and delayed investment decisions on products that have the potential to create middle class wealth. Unless we are able to perpetuate a cycle of stimulus, bubbles, and new “bad” redistribution schemes, this temporary wealth is not sustainable and eventually the bad decisions have to be paid for. The key to growing middle class wealth is making good decisions that reduce risk and encourage the investment in products that can grow middle class wealth.

The background for making this statement is that history has shown that gains from productivity increases are sustainable. The best examples of these gains are the Industrial Revolution in the 1800’s, the innovative products at the beginning at the 20th century(e.g. automobiles, telephones, steel, oil, farming, etc.), and more recently the productivity gains from computers and computerization in the 1980’s. Arguably the increased risk felt by businesses in the 1930’s with the increased regulations and wealth redistribution schemes reduced capital investment and prolonged the depression. This was an argument put forth by Amity Schlaes in her book, The Forgotten Man. A similar argument can be made about the last thirteen years. With the real estate, financial, and health care sectors leading the way income inequality has gotten worse and we have not invested in products that grow middle class wealth. Instead we created a system that perpetuates decision making that results in temporary wealth and stagnant middle class growth. At the beginning of this century it was real estate and now its stocks and health care. Arguably the biggest beneficiary to the Federal Reserve quantitative easing policy is stocks. Eventually the Federal Reserve will taper off its quantitative easing policy and our health care expenses will reduce to the rates paid by the rest of the world. We have gone from one bubble to the next and gotten more separated from the policies that help the middle class grow their wealth. Until we get back to making things bigger, better, faster, or cheaper we will be caught in a zero sum game with emerging economies we cannot win.

The first corollary to the law is:

Growing middle class wealth is the only economic tide that lifts all ships.