How can we truly help the middle class?
According to a recent article by the Wall Street Journal, the number of Americans identifying as middle-class has decreased over the last seven years.
Citing a study done by Pew, the Journal found that 44% of Americans identify as middle-class, 9% fewer than in 2008.
Unfortunately, there is considerable ambiguity about what incomes qualify as middle class. Suggested amounts range from $25,000 as the lowest bracket in one estimate to over $600,000 as the highest bracket in another.
This confusion permeates the debate. The recent State of the Union reflected the growing concern about the dwindling demographic, particularly with the President’s use of the term “middle-class economics.”
As he identified, the key to a thriving middle class is a thriving economy, but improper economic thinking can be devastating to economic prosperity, despite good intentions.
It’s Dangerous if Christians Don’t Get Economics
A thriving economy requires a thriving middle class, and the greatest threat to prosperity is getting economics wrong.
As Christians, we find it especially incumbent upon us to act with compassion. We care for the least of these because this demonstrates our faith.
It’s complicated to extend love combined with wisdom and discernment. The solution are not as clear cut, and the immediate discomfort caused by austerity measures or asking the difficult questions often outweighs the longer term impact on others’ dignity and ability to care for themselves.
The goal is to get more flourishing for everyone, and our individual role is to fulfill the cultural mandate. This all implies a positive sum game. We flourish when we serve others. We harm ourselves and the world when we plunder.
Economics is woven into the fabric of creation. God created economics so that we can think more clearly and strategically about what we’re supposed to – economics helps us carry out our callings better. That’s why these economic principles work and why Christians need to understand them.
Bad economic thinking can diminish our ability to flourish. Here are a few examples where ignoring economics can have a harmful effect.
One of the biggest economic myths is that the rich are getting wealthier at the expense of the poor.
The sentiment that the disparity between income brackets is unjust has fueled numerous policies stifling the wealth creation of the rich to prevent further polarization, including the President’s proposal to instate tax hikes for the rich and tax cuts for the middle class.
Steve Horwitz points out in his research some fallacies inherent to the measurements often used in these figures. In the US, the growing trend is toward income mobility.
Not only does each individual’s share of income increase from one year to the next, but the poor individuals included in one year are not the same as the poor individuals in the next. Without tracking the individuals specifically, these statistics are essentially comparing apples to oranges.
Horwitz found that,
Families who were in 1975 in the bottom 20% had an average income increase of almost $28,000 by 1991, while the folks in the top 20% only gained an average of $4,354. So the rich did get richer over this period, but the poor’s income grew substantially more than that of the rich! That is, the rich got richer but the poor got even richer, not just in percentage terms but in absolute terms.
It’s important not to neglect income mobility when discussing income inequality.
If the rich are truly getting wealthier at the expense of the poor, it makes perfect sense to try to equalize the spectrum.
However, if all individuals gain when entrepreneurs innovate and gain a profit, everyone suffers when these entrepreneurs are penalized for creating wealth. This is not an instance of zero sum outcomes. The positive results earned by one individual mean greater earning potential for those around them.
As I wrote with Jay Richards in a piece for The Daily Caller, the Bill Gates Foundation, while it has helped as many as five million lives as of 2013, falls short of the effect Microsoft has had.
Microsoft has arguably helped a countless number of other lives through technology that has improved quality of life in unfathomable ways. If Bill Gates had been penalized for making profits through Microsoft, these advances would never have taken place.
The most tantalizing proposals offered during the State of the Union were the free community college initiative and the free childcare initiative.
For many working parents, trying to find childcare to match their working hours can be a frustrating puzzle. Having access to affordable childcare would solve many issues for them.
Unfortunately, it’s not that simple. Even though childcare costs them zero dollars, the monetary costs are still widespread through taxes. If the demand for childcare increases dramatically, parents may face the cost of being placed on a wait list, not having access to a convenient location, or not finding a vacancy at all.
The same issue arises with the free community college. As I discussed in my recent post on the subject and on Janet Parshall’s radio show earlier this week, students seeking affordable community college education in California weren’t always able to access it. Ultimately, someone is always paying, and that extra tax might have a similar effect to the wealth redistribution mentioned earlier.
Turning down proposals that seem to solve many of the issues Americans are facing today may seem foolish or even heartless, but there is a better way.
The way of the Christian was never one of comfort, but it is the one of flourishing. By choosing to invest in an individual’s gifts and understanding incentives, we are able to unleash the creativity we were designed to embrace.
Leave your comments here.