Notes From Babel

“Leveling Up” the Middle Class

with 3 comments

E.D. Kain asks whether we’re thinking about public sector pensions all wrong.  True, they generally receive higher salaries, more job security, better working conditions, greater benefits, more paid sick leave, vacation, and holidays, and better and earlier retirements than the rest of us.  But taking aim at public sector employees is exactly the wrong approach, E.D. suggests—by pitting working class against working class, they both ignore the real enemy, the rich, who casually continue to stockpile their wealth.  Thus, E.D. argues that the ideas of “austerity for all” and “upside-down egalitarianism” distract us from what we should really be working on:  infusing more wealth into the middle class:

Maybe we should be trying to bring the private sector more in line with the public sector. Maybe the logical conclusion is that private sector workers are getting screwed – and that comparisons with public sector unions simply makes this glaringly obvious. Nobody but public sector employees receive pensions anymore. And maybe this is an argument to move back to the pension model rather than an argument to get rid of public pensions. Maybe leveling the playing field is the right idea, but we should level it up rather than level it down.

I’ve written before that, despite my conservative biases, I’m mesmerized by the progressive/utopian ideas of Edward Bellamy and early Robert Heinlein, in which man is provided a comfortable living as a matter of right and left to his own devices to cultivate his productive capacity as he sees fit.  Speaking for myself, I don’t imagine I would suddenly become entirely unproductive if the government starting writing me a check each month.  Yet, I seriously question whether this applies to every American, or even a substantial majority of them.  Could we continue to support ourselves in the way we’ve grown accustomed if we all suddenly got comfortable?

Arguments like Bellamy’s Heinlein’s and E.D.’s suggest that our future holds a world in which the middle class is guaranteed comfort, stability, and reasonably interesting and not-terribly-stressful employment.  Nay-saying curmudgeons like me think that humans tend to fall prey to their own vices; thus, to have any kind of comfort, stability, and interesting work, people require certain unpleasant kinds of motivation—competition, stress, fear of unemployment, worry about the future, etc.  In short, while there are certain people who have a burning desire to be productive, most of us have only a latent desire to be productive.  As Thomas Edison said, "most people miss opportunity because it’s dressed in overalls and looks like work." It takes unpleasant external forces to get the human productive spirit whipped up into useful action.

Yet, I think I can safely assume that this view will never enjoy unanimous support, so we are left with E.D.’s suggestion:  Why not focus our middle class energy on “leveling up” the playing field to our collective benefit?  But think about what this suggests.  Public sector compensation is not determined by market factors.  Indeed, the very definition of the public sector is that it is something outside the private sphere.  While private sector numbers are sometimes used as a touchstone, the determining factor in public sector compensation is ultimately moral/political.  This is why the left loves to grow government, as this enables politicians and bureaucrats to engineer their own version of what the middle class ought to be.  Specifically, most of today’s public sector workers came to their jobs knowing they would be paid less, but that certain benefits were more generous.  But politicians, usually left-leaning, eventually decided public employees shouldn’t have to choose between future comfort and present comfort, and that they ought to have the best of both.  But, by now, many state and local government workers make more than their private sector counterparts, and the gap continues to widen each year.  From 2000 to 2007, public employees saw a 16% increase in compensation after adjusting for inflation, compared with just 11% for private workers, according to the USA Today.

So, to suggest that we ought to reconcile our two middle classes—the public sector and the private sector—by using the public sector compensation structure as the model, is to say that all compensation in the U.S. should be determined by moral/political factors rather than market factors.  

Before considering what this means, let me say that I don’t fault E.D. for being allured to that position.  For all the talk about how we ought to let the “free market” determine winners and losers rather than politicians and bureaucrats, the free market is inscrutable and substantially unfree.  As I wrote about recently, beginning at the turn of the 20th century, our economy has become increasingly diffuse, providing few obvious connections between labor and consumption, indicating the two are only loosely or insignificantly related.  Modern labor is attenuated from its ultimate product, making the idea of the traditional work ethic prevalent in pre-20th century agrarian America less and less relevant.  The American laborer no longer provides his own essentials of survival, but instead deposits his effort into a vast and complex economic machine.  His yield, his “wage,” serves as the only symbol of his output, a rebuttable presumption of the true “value” of his labor.  How does a cubicle worker in the marketing department of the Coca-Cola corporation have any idea how much his efforts contributed to the 1.3 billion servings of cola his employer sold that day?  Next to none.  And yet he counts on his paycheck form those efforts to pay his mortgage and buy cars and iPhones and college educations for his children. 

As his commercial appetites continued to increase—goaded by our consumer economy—the American middle class begins to closely scrutinize the legitimacy of that presumption.  It was this deadly cycle that ultimately led to a new, illegitimate basis for finding “individual rights” in American politics:  If the market would not set a wage sufficient to meet the standard of living the American labor thought he should have, he would set it himself.  And the tool he would use to accomplish this was collectivism—e.g., labor unions. Like the ills of slavery, since government had aided the accession of uncorked individualism (e.g., through a national bank and internal rail and telegraph projects), it was natural and perhaps even appropriate to look to government to redress its abuses.

As E.D. suggests, the finance sector might also deserve some blame for the middle class dilemma: 

I always thought a thriving middle class was good for business, that the corporate world would want to pay people well and keep them happy so that they kept buying things. But it turns out that you don’t need a middle class to buy things, to keep the engines of commerce humming and whirring and piling up vast stores of cash. These days anyone can buy things, all it takes is a little credit card debt, maybe a second mortgage. For the truly committed consumer there’s always payday loans.

This strikes me as correct.  The middle class allowed itself to be lulled away from the bargaining table by loose credit and home equity lines of credit, and have probably been getting lousier terms from employers over the last few decades as a result. 

But while I’m tentatively sympathetic to the labor movement for some of the above reasons, I believe it’s basically only justifiable on pragmatic grounds.  There is no reason why rampant individualism, whether of the late 19th and early 20th centuries or of today, is “wrong” from a legal point of view.  As leaders like Teddy Roosevelt have admonished, however, the masses will not tolerate gross income inequality for long.  If the wealthy do not moderate their own indulgences, the government, as a matter of political necessity, will have to do it.  However, getting the government involved in choosing winners and losers—or deciding the measure of those winnings—is an unpleasant and dangerous business.  It should be avoided at all costs, and probably should be abandoned once political exigencies have subsided. 

As E.D. suggests, having a strong middle class is good for everybody, but corporations won’t trickle it down unless the government or collective bargaining makes everyone else trickle it down, too.  Perhaps.  The big problem E.D. and others will have to contend with is, once you start redistributing power, how do we decide who gets more or less power, and how much more or less?  Conservatives and libertarians love leaving these decisions to nature and markets because, for all their faults, they’re procedurally fair—even though they may not be substantively fair.  If we give up or alter procedural fairness to achieve greater substantive fairness, as E.D. proposes, he will have to contend with how we can still guarantee procedural fairness.  This is the hill the left and the labor movement usually die on.

3 Responses

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  1. Even most statist progressives including (FDR) understood that public sector workers should not be allowed to organize primarily because the state doesn’t have the constraints on costs that private industry does. Private industry cannot continue to cave to bargaining indefinitely without going out of business. As we have seen the public sector overcompensates people and is very inefficient and wasteful. My wife works for the State and I know many people in public sector unions I can attest that you could get similar labor at a cheaper price. Furthermore wages in the public sector have little relationship to results. Often times the more teachers make the worse their results. L.A. and N.Y.. are great examples of this.
    The analysis here acts as if there is no downside to raising standards of compensation in the private sector as if that wouldn’t inflate prices the same way it has inflated state and municipal budget deficits and taxes. We have limited resources and the price system allocates them the most effective way. Everyone benefits in the form of lower prices. You can hike up wages and benefits but then prices will follow since labor is an input. Therefore there is no benefit to the higher wage because it is swallowed by price inflation, but also there is another consequence and that is that capital is allocated poorly and inefficiently which hurts the overall market resulting in shortages and or inflation. People always miss that low wages create low prices and affordable goods. Sure their may be a bigger income disparity in dollars but not in lifestyle. You can make less money and afford more stuff. That is called efficiency. Otherwise the rich would run out of consumers. This will not happen. Look at the standard of living of the poor in America? It is similar to the middle class of times past. Bigger televisions, better computers and cell phones that take less of their disposable income than a land line would have years ago.
    The market clearly works better than central planning. Even when people look at one piece of the puzzle and don’t think so. When central planners go to work they create shortages and or inflation. I would not be surprised that in a fully efficient free market that wages would sink lower and lower while the buying power of each dollar would rise equally or exponentially. Just like in inflation you have more dollars and less buying power, I think that when capital is allocated in the most efficient ways the opposite would be true. Although wages will fall it is because of efficiency.
    The comment about how easy credit distorts the market is valid but I think that it is a separate issue. The credit markets do distort the market, allocating capital inefficiently but that would not be so if the Government did not offer credit so freely and then shield people from the consequences of too much debt. i.e. debt forgiveness and ease of bankruptcy.

    Josh Barlow

    February 15, 2011 at 2:47 pm

    • Josh,

      I agree with you. I’m trying to understand the motivation for the labor movement here. I make a few basic arguments. First, that the labor movement has traction largely because of the inscrutability of first world economies. When labor is attenuated from consumption, true value gets difficult to determine, negotiations tack more toward political/moral ideas about what someone should earn. Second, income inequality exacerbates this effect. Third, once we give up on determining actual value and focus instead on moral/political values, we’re in the dangerous territory of leaving the government to decide winners and losers.

      Points one and two form part of the basis for the argument that there’s some kind of moral right to a certain level of income. I don’t agree, but this is the best I can begin to tell where it comes from. Ultimately, even if we were to buy into it, we have to square it with the idea of property rights. This is a bigger problem. But not quite as big as the third point, where the government chooses winners and losers. At that point, we’ve crossed over from a liberty-oriented regime to a power-oriented regime.

      Tim Kowal

      February 15, 2011 at 10:15 pm

  2. […] is a bad idea.  It’s an important distinction, since some middle class advocates are wondering whether maybe the public sector has got the right idea, and the rest of us should be trying to get […]

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