How The Middle Class Lifestyle Became Unaffordable

There are four structural drivers behind the soaring costs of the middle class lifestyle.

Why have the costs of a middle class lifestyle soared while income has stagnated? Though it is tempting to finger one ideologically convenient cause or another, there are four structural causes to this long-term trend:

1. Baumol's Cost Disease2. Systemic headwinds to the current version of capitalism3. Dominance of global corporate capital4. Financialization

The key take-away here is that the first two causes are structural and cannot be changed by passing a law or funding another state bureaucracy. Though many believe they can tax global corporate capital to eliminate wealth inequality, capital is mobile and will move to where it can expand. The dominance of money in politics also means that the political machinery is for sale to the highest bidder, which just so happens to be global capital.

Since financialization rewards both capital and the central state that depends on tax revenue, reversing financialization politically is a non-starter.

No wonder the middle class is evaporating. These trends are far more powerful than the proposed solutions.

Baumol examined the relationship between productivity and cost, and found that productivity in labor-intensive services (for example, nursing and teaching) had intrinsically lower rates of productivity increases than goods-producing industries.The performing arts offers a striking example: it takes the same time to learn and play a Mozart concerto now as it did in 1790, so productivity gains will be modest.This can be clearly seen in this chart of the consumer price index, 1977-2005:

Note how manufactured goods such as TVs, clothing and autos fell in price while education and healthcare soared. Baumol foresaw the crunch that his theory predicted: as healthcare and education took a larger share of the national income/GDP, taxes would have to rise substantially to pay for those services.He described the social choices we faced in a seminal 1993 paper: Health care, education and the cost disease: A looming crisis for public choice.

Baumol under-estimated the power of the low-productivity sectors such as healthcare and higher education to exploit political capture to increase their share of the national income. In other words, the extraordinary rise in healthcare and higher education costs arise not just from the low productivity of these sectors, but from their cartel power to obscure the true costs of their bloat and push prices higher.

Baumol also failed to appreciate how the state (government) is the willing partner in this exploitation of low productivity. The state enforces the monopoly pricing power of these cartels. As a result, potential gains in productivity from technology are suppressed to protect the cartels from any real competition. (The same can be said of the military-industrial complex and other state-protected cartels.)

That's how we end up with college degrees and medical procedures that cost more than a house.

The second set of systemic cost drivers were identified by Immanuel Wallerstein, who views these forces as threats to capitalism's prime directive, which is to accumulate more capital:

1. Urbanization, which increases the cost of labor2. Externalized costs (dumping private waste into the Commons, environmental damage and depletion, etc.) are finally having to be paid3. Rising taxes as the Central State responds to unlimited demands by citizens for more services (education, healthcare, etc.) and economic security (pensions, welfare)

In brief, urbanization drives wages higher, regardless of the era or economic system, and external costs such as pollution and depletion must eventually be paid out of labor and capital alike. The demand for more state services is unquenchable, and the state responds by buying off key constituencies with more benefits.

Wallerstein is one of the few who clearly understands the State's role as enabler and enforcer of monopolies and cartels. High profit margins are most easily maintained by persuading politicians to create/regulate quasi-monopolies and cartels.

The State has two core mandates: enforce quasi-monopolies and cartels for private capital, and satisfy enough of the citizenry's demands for more benefits to maintain social stability.

If the State fails to maintain monopolistic cartels, profit margins plummet and capital is unable to maintain its spending on investment and labor. Simply put, the economy tanks as profits, investment and growth all stagnate.

If the State fails to satisfy enough of the citizenry's demands, it risks social instability.

That is the nation-state's quandary everywhere. With growth slowing and parasitic cartels increasingly difficult to maintain and justify, the State has less tax income to fund its ever-expanding social spending.

In response, the State raises taxes and borrows the difference between its spending and its revenues. This further squeezes spending as the cost of servicing debt rises along with the debt. The rising cost of debt service is an ever-tightening noose that cannot be escaped.

Here are two charts: the first is productivity, the second is corporate profits. Note that while wages have stagnated, the cost of benefits (healthcare and pensions) has absorbed much of the increase in productivity. The rest has gone to corporate profits:

And this leads us straight to financialization, the parasitic extraction of profits from the real economy by finance and the state. Remember Wallerstein's key insight: the state depends on cartel pricing to sustain high labor costs, investment and the taxes that flow from high wages and profits. As the real economy stagnated, the state (which includes the Federal Reserve) incentivized financialization and speculative credit bubbles to keep the money flowing to feed its own spending.

In other words, the state isn't just a passive patsy in financialization--it is a willing partner, because financialization funds the state. Just look at the enormous expansion of property taxes and income taxes that flowed from the housing and stock market bubbles.

Asking the state to limit financialization is like asking the fox guarding the henhouse to stop eating plump hens. If the fox stops consuming the plump hens, it dies. If the state stops financialization, the state's enormously expensive programs and its debt machine all die, too.

In essence, the state has no choice: to save itself, the middle class must be sacrificed. From the point of view of global capital, the ideal partner is a powerful central state that imposes cartel pricing on the economy: $200 million a piece F-35 fighter jets, $100,000 college diplomas, $200,000 medical procedures, $1,000 a pill medications, etc.

From the point of view of the state, it's more important to protect corporate profits and preserve the ability to borrow another trillion dollars at near-zero interest rates than it is to restore a vibrant middle class.

Debt-serfdom works just fine for the financial sector and the central state that enforces the serfdom. Food stamps (bread) and distracting entertainment (circuses) are cheap. What's not to like about debt-serfdom to those in power? Not only is it an ideal arrangement, it's the only one left to the state and its partner, global capital.

1) Private banks literally purchased your government, lock stock & barrel, bro (from the CONgress to the ,TOTUS to the SCOTUS, and every regulator and administrator in between), and with it, the power to control the volume of the money supply (they care not who writes the laws).

The problem is that all those fancy measures of productivity do not capture where the real productivity has gone over the past few decades ... to places like F*c*book and Tw*tter and their ilk, where such productivity is rewarded in intangible, non-spendable currencies like Likes. If we could just march those useless twits out to the rice paddies to teach them to feed themselves, we would be golden. Where is Pol Pot when you need him?

Too bad it is the vested interests who rule in Washington and use the politicians in Congress to protect, defend and legalize their acquired rights to plunder the people.

Frederic Bastiat explains how justice is annihilated when law as a collective force is placed "at the disposal of the unscrupulous who wish, without risk, to exploit the person, liberty, and property of others." Bastiat in The Law outlines how this happens:

“The nature of law is to maintain justice. This is so much the case that, in the minds of the people, law and justice are one and the same. There is in all of us a strong disposition to believe that anything lawful is also legitimate. This belief is so widespread that many persons have erroneously held that things are ‘just’ because law makes them so.Thus, in order to make plunder appear just and sacred to many consciences, it is only necessary for the law to decree and sanction it. Slavery, restrictions, and monopoly find defenders not only among those who profit from them but also among those who suffer from them.”

To make this clearer, one need only remember: Harry Reid, John Boehner and Obama with his executive “orders” are the law. Eric Holder, wielding his room-size race card as a weapon, is the enforcer.

To which I add this caveat from Bastiat:

Rather than state that the purpose of the law is to cause justice to reign: “It ought to be stated that the purpose of the law is to prevent injustice from reigning. In fact, it is injustice, instead of justice, that has an existence of its own. Justice is achieved only when injustice is absent.”

Injustice is very present in Washington, DC, today. The law has been totally perverted.

The money junkies/ money changers/ midas types hire intellectuals to confuse and win over the warriors (military, police, and high skilled labor). By using intellectuals to control the thinking of the warrior class (those with the capacity and disposition to physically establish & maintain order, but with less mental skill than the intellectuals), they control the rest of the society.

In the past, these hired intellectuals were often priests. Today they are economists, some agenda pushing scientists, and lawyers.

The money changers have bought the lawyers, judges, and politicians. So now, the 'law' and the courts ultimately serve them. And, the legislatures also serve them. Ultimately, the greed of the money changers leads them to completely exploit everyone else in society and it collapses in chaos.

Following that comes a new age dominated by the warrior/adventurer class and completely different than the world considered 'normal' when the money changers ruled society. The early phase of a warrior age is often a Golden Age, a time of exploration.

Note: these ideas were expressed in the writings of Indian philosopher Sarkar. Right or wrong, they do encourage a fresh look at how our world may work.

I am not sure why tis is not obvious to everyone: You can't purchase a govt offical. You can only rent one. The govt offical is the one with the power, not the corporation. The govt can force a legitmate business out of business if they refuse to pay ball. The Regulations passed are to ensure the cronies stay in line, and keep paying thier extorted money into the politicans coffers so they can continue to run thier businesses. Of course once you are paying into the politicans' coffers, you start asking for additional favors - and this eventually becomes largely symbiotic. But you shouldn't be confised about who is paying who. It is the politican that is running the show, and forcing the croporations to tow his ideological line, not the other way around. This can be seen in the GM Bailouts where Bondholders got stiffed so Unions could be paid, and dealerships were closed based on the polictal orittation of the owner. It can be seen in the Bank Bailouts by which CEOs were replaced with a more reliable stooge. It can be seen in the propaganda and shakedowns of media organizations - via spying and overt threats to deny access to the halls of government. The Private banks are not in charge, and even if they were, they would be far more interested in enrinching themselves than they would be in a pushing an ideological agenda. Big Government is what gives the politicans (or any ideological stripe) the power to do this, and that ius the reason that neither party in the US is anti-big government or anti-big-corporation. Who wants to deal with 1000s of small business stooges when they can deal with five big ones?

So make no mistake, the politican and the business elite are in bed with each other, and are ideoligcally aligned, but it is the political class that holds all of the cards.

All effective states are founded on law and opportunity. Complex civilisations which adopt corporatist policies that fail to apply the law to the powerful and regulate away innovation and entrepreneurship kill the hope for a dull life and lose legitimacy. Populations walk away. Western Roman Empire in 408AD, Hittites and Eastern Med in 1200BC.

Over the longer term and hence easily over looked, fecundity rates tell all. Developed populations are shrinking. First time mums getting older and older.

The trigger. Mass white collar and transport unemployment driven by cheap every business cloud hosted software automation is a done deal. It's not an assembley line revolution that creates new jobs and new industries to soak up the unemployed. Re-set politics with academic backing aka Solon, is already gaining traction. It's clear the electorate want something different and inherent in mobile tech is a new socio-economic compact.

Some of the people leaving comments 'get it.' But being Kos, there are plenty who are positively hypnotized by Obama, and it reminds me exactly of how so many on the Right defended Bush at all costs while he was in office.

(Funny how every single Republican now claims to have always hated W. Five years from now, you won't find a single person who voted for Obama.)

Useful idiots are useful because they're too stupid to realize they're being played, and both parties have no shortage of the morons. Every time I think maybe people are waking up, something happens that destroys that thought. Recently it's been the Ukraine thing, and it's been nothing short of hilarious to listen to Republicans and Democrats grapple with whether they should be pacifists or bloodthirsty warhawks.

They're confused, you see, because now that Obama is revealed to be the same as his predecessor, they can't decide whether they have an actual core political philosophy or whether they're just rabid fans of a particular team.

I was a Bush supporter, arguing for his policies, "it was good fer 'merika"! Shut the fuck up you liberal goodfernothing hippie piece of shit.

Then he did the banking bail outs...and I woke up.

48 fucking years of being asleep and being woke up by an icy drench of cold water down my back.

I'm still fuckin' pissed to the point that I have changed my entire lifestyle...and even though I was a Marine I never had a gun,,,now I have multiple, with a shitload of ammo, my silver and gold, and about two years worth of food in the room I used to use as an office.

I'm looked at as the mild mannered corporate controller of 43 entities in mining, retail steel and steel fabrication...but I am vocal. In today's daily meeting that I host I recognized that we had Obama, Pelosi and Reid in Los Angeles...AND that we had Russian bombers cruising the coast...let all of us Pray that one of the bombers drop something more than leaflets.

My eye/hand coordination has gone to hell with some nerve damage but I can still scare the life out of you from 50 yards with a pistol and clean your skull with a rifle from 300 yards without a scope (too damned cheap to buy one.)

I''m over 50, have got a shitty attitude: I'm locked, loaded and packing...and I want the facists off my fuckin' lawn.

Yes but- the (semi) oligarchs are also shitting in their own beds by shedding personnel who suddenly find they have nothing better to do than try and find out exactly why they are suddenly 'redundant'.

You've been free of the magical spell of 'wise leadership' for some time now, I gather. You, as I, have had some time to digest all this as what I think of as early adopters.

We're not really early-just the early ripples of this iteration-as evidenced by the likes of Bastiat and Boetie, but (hopefully) simply the early signs of a coming tsunami of awareness of things.

Anyway, what I started out to say- Can you imagine the outrage of a 40-something accountant (or similar), unemployed, who ran across ZH (or similar) in his/her browsings?

Each wave adds to the power of the tsunami. When it reaches critical mass is when things get interesting.

Maybe I'll meet you on the battle field, maybe not. Alex Jones is right about one thing- there is a war on, for your mind. You can't fight this juggernaut with firepower, OldPhart. You can only withdraw support. By this, I mean you can ignore your "elected leaders" and point and laugh at every opportunity at them. It drives them batshit crazy- witness the ads they're running.

"Baumol also failed to appreciate how the state (government) is the willing partner in this exploitation of low productivity. The state enforces the monopoly pricing power of these cartels. As a result, potential gains in productivity from technology are suppressed to protect the cartels from any real competition. (The same can be said of the military-industrial complex and other state-protected cartels.)"

The "99% vs. 1%" socialists and government-worshippers won't like to hear THAT. They're into the "evil rich corporations have captured government" nonsense.

Government and corporations feed off each other and work together. But only ONE of them is ARMED.

Nonsense how, exactly? And I don't get your comment about only one being armed. It suggests that the oil majors cannot get a sitting president to go to war in the ME and N Africa to secure oil resources for them, when that happened three times already.

Given your other (spot-on) comment on protecting cartels these others just sound like some kind of wilful and baseless ignorance.

Until this simple truth is understood we will remain fucked. Forever. And ever.

The ones with the guns (powerful) will continue to sell favors, access, and privilege, and blame the buyers (wealthy) or even act like they are the victims. Nancy Pelosi will lecture the CEOs of major corporations about using private jets when she has a private fleet of them at her disposal, and the crowds will cheer. Obama will wring his hands about the 1%, and go on a taxpayer-funded multimillion dollar vacation- but he isn't one of those nasty rich guys, because it wasn't HIS money.

Yes, the rich, crooked cronies are pieces of shit, but people who fail to understand the mechanism that makes it possible are doomed. Access to power isn't the same as power. Paying a bribe to get a decision you want isn't the same as being the one who makes the decisions. And a single bullet can make Warren Buffet or the bum on the corner irrelevant with equal alacrity.

It's nonsense because not all corporations are evil. It is not a virtue to hate the rich. It is not rational to hate a company that has more capital than a small company. And, lastly, it is not Coca Cola patting you down at the airport.

college tuition costs that escalate in direct relation to the amount of money being printed for student loans

Mandates that require the conversion of corn into gasoline instead of feeding farm animals the purpose of which was to stuff money into the pockets of ADM.

mandates that required banks to loan money welfare bums so they could compete with real wage earners for housing thereby driving up the cost of housing.

regulations that tell manufacturing companies pack up your manufacturing equipment in crates ship it overseas and find people who wsnt to work and not spend the entire day thinking up new lawsuits for personal slights.

Nozzle
Did it ever occur to you that without decent jobs people BECOME decadent? (I suppose YOU flip burgers and your life is hunky dory)
In my worldview, the off shoring came 1st...then the brats, tats and fats

Part of the reason for offshoring was to avoid havint to deal with the constant harrassment brought about by the liberal interpretation of Title VII, workermans comp statutes, OSHA and of course the EPA. You cant deny that jst like I cant deny that the attraction of reducing wages costs was a significant inducement. But, if you look at the ascendency of Title VII, workermans comp statutes, OSHA and of course the EPA, you have an undeniable correlation with offshoring of manufacturing.

You are quite correct; that was the obvious choice for the large manufacturing corporations--they were forced out. Competing with a totally unregulated China paying slave wages (then) was absurd. Likewise, however, all smaller businesses of any stripe are subject to all of the same regulations and reporting requirements, local, state, and federal, as any giant. Try doing that with a staff of 20 or so--it's a joke, and anybody with a mind to do it can put you out of business in a heartbeat with one call to one regulatory agency, no matter how good your record keeping is, and has been, historically. The attorney costs alone can bankrupt you, even if you are found totally blameless. I am forever glad I sold my business in 1998.

Companies like these cannot afford to buy a K Street firm representative, who will in turn rent a Member of Congress or Senator to pass the legislation its attorneys have handwritten. The idea that any of the small business trade groups on the Hill could ever compete is a total joke.

The under $100M companies remain the most vulnerable and embattled, and Obamacare may well prove to be their final undoing, as many simply cannot relocate; they are service industries. Ridding the country of these companies will eventually kill it--we might as well declare that Mussolini won after all (and I often wonder if his buddies in Berlin, Moscow, and New York had more than a little bit to do with our current state). These companies have always been the wellstone of prosperity in the US, and still fund the majority of jobs. The ongoing trend since the 80's, however, remains horrific. Financialization produces nothing. Rather, it is parasitic: like the legal profession, and government itself, it produces nothing, but consumes what it touches. As of now, we are beginning to resemble a vast potlatch, and I shudder to see what awaits us if nothing changes.

Of course you are correct. Now think if you only had a staff of one. That's where I'm at. The janitor, the machine operator, the salesperson, the compliance officer, the estimator, the purchasing agent, the bookkeeper, the maintenance man, the programmer, the IT tech, and the ceo are one and the same.

And, he's about ready to say fuck it. However, this is exactly what TPTB hope he'll do. So, he continues- If being a hemmorhoidal irritant to those who presume to 'lead' him is all he can do, so be it.

And just imagine what the labor pool is gonna look like when the generation who saw their parent's pensions wiped out despite working 30 years comes of age...There go your police and firemen, because why would anyone DO these high-risk jobs knowing they'll just be screwed, having seen it for themselves? Come to think of it, what are our roads and bridges gonna look like in an era where a public sector job is held in contempt, and pays little with few benefits?

The vast majority of cities don't need that many police. And I grew up in a town with volunteer firefighters. There are plenty of people that would go back to that system.

As for the roads and bridges, just look at how they look in an era of HUGE public sector jobs with pay/benefits twice the size of the private sector!!! Big government has not done a thing to improve our infrastructure!

Where there is risk, there is profit. Therefore, as long as there will be justifiable demand for roads there will always be someone willing to take the risk in supplying them.

And the sooner the current system breaks down the better. As it stands now, the government is the one allocating resources, and is doing so as a result of political considerations. Not as a result of true supply and demand. That's why roads are maintained today - because it's politically profitable. Once government is removed from the equation you'll have private entities competing with each other to cater to the demand for roads. He who provides the best product at the lowest price will be the most successful.

In my area, north Denver, the main artery connecting with Boulder is being improved and lanes added. A 50 yr. lease has been sold to an Australian company so they can charge tolls on the HOV lanes. It comes with guarantees that if any disruption of traffic causes loss of income to them, it will be replaced with taxpayer money.

Centrally planned post capitalist neoliberal economy is the main systemic reason for the vanishing middle class. Global capital flows? It's fiction. "Money" on long strips of magnetic tape means nothing. Governments supporting and fortifying vertical ownership structure sure are the problem. Governments are the enemy of most people, hence they need to be done away with.

the govt is not the biggest offender here but they are complicit with the real crooks who find varied ways to seperate people from their savings. The fed res does it legally and right under the noses of a largely ignorant american public, through monetary inflation

However, it's tough when you figure out you're the one getting eaten alive by the more evolved humans. But, really, it's what nature requires and it makes our slow-motion flags and predatory bird stronger.

Hey CHS I'll give you four other factual causes for this disease under Pax Americana morph :

1° Aldous Huxley day and mindset change bigtime of US Potus and elites. The war economy.

2° Great Society and Nam and PEAK US OIL that sends consumption north of 16 Millon B/D vs local production of 9 MBPD. Enter BW Revoke. and Friedman's floating rate euro/petrodollar construct making fiat the debt pump to recycle Arab surpluses. That spells chronic first world deficits, inflation and Volcker/Thatcher decoupling of welfare state salaried middle class from runaway inflation of oil and other commodities.

3° Enter supply side Reaganomics under Friedman's Mantra that THE ONLY FUNCTION OF THE CORPORATION IS TO MAKE SHAREHOLDERS VALUE. PERIOD. NOT SERVE CLIENTS AND SALARIED CLASSES. Greed is good becomes the ONLY WS/crony government rule. We go quarterly report and asset strip capitalism bigtime; fed on junk bonds and first capital market blow up in 1987. Reagan orders Japan to kneel at Plaza accord and Nippon goes into tail-spin for thirty years.

4° Enter Outsourcing and world globalisation, under NWO US uber alles mantra, under CHindia slave labour arb. and Zirp and cheap money Greenspan's shamanism. Which becomes SQuid shamanism under Clinton and GS revoke and hey presto we are into Bubbleonomics. BIGTIME.

Dystopia begins with the asymmetric wars of 9/11 and Iraq. Big stick, Oil and money now all corrupted in 2008 crash as R>> G. Thank you Piketty; as its chronic and getting worse every day.

<Very simple cause and effect. Forget all the rest its smoke n mirrors.

1)1913, Creation of the Fed reserve and the unconstitutional income tax to support all the resulting debt and enable all the resulting wars. (WWI, WWII, Vietnam etc)

2)1930-1945 FDR and the so-called new deal creation of the modern, debt financed welfare state starting with that wondeful Ponzi now called "social security".

3)1964, LBJ and the so-called great socieity welfare state funded by debt along with the Vietnam war. You know the other Ponzi's called medicare, medicaid, foodstamps, etc. responsible for the entire US debt and deficit.

4)Everything else you mentioned is a MINOR PERTURBATION and effect of the first three causes. Failure to understand that reality is why you need to read Griffiths great book, "The Creature from Jeckyl Island" Then you'll gain an even longer temporal perspective on the root cause.

But, in case you lack the time, let me summarize, "The name of the game is debt and its solution is always bailout" Debt is "the road to serfdom" (hope you can name the author is that one!) QED

The problem is the compensation of labor. It has been become completely disconnected from the metric used to value it, and has been completely left behind while the rest of the economy soared. And labor is what that middle class depends on for its income.

A working man can produce ever increasing value to his employer because of technology and automation. So his productive output is always expanding, making his employer wealthier.

But technology will never give that working man more than 60 minutes an hour to 'sell' to his employer. His ability to capture his share of the gains is very limited when labor is valued by the hourly wage, the 40 hour work week.

As an old fart, I clearly recall - when I was a young male - laughing at the textile worker's union TV ad.

Get a real job you uneducated losers, I don't need MY slow-motion flags and predatory bird weighted down by paying you more money when the MORE WORTHY (higher evolved) JOB CREATORS should be getting that money in order to INVEST in our COUNTRY!!!

Show of hands of everybody who laughed at - or laughs at - the average and below average people? GET AN EDUCATION YOU MORONS!!!!

To get an idea of how that might feel, imagine a scenario where, for whatever reason, gold prices were locked into 1970's rates. But only for YOU, the retail SELLER of your own personal gold. Everyone else gets the current market value. So, you walk in with your little handful of scrap and get 35 dollars an ounce.

Then the buyer turns around and sells it for 1100.

You'd wonder why YOU weren't allowed to capture any of that increased value, yet others could.

“But technology will never give that working man more than 60 minutes an hour to 'sell' to his employer.”

In the absolute you are correct. In the abstract, technology makes the working man more productive during those sixty minutes. The labor of the working man now holds a greater value to the employer.

The value of the working man who masters the technology first is exalted. The value of everyone who masters the technology second is diminished. After a while, the added value of the technology dilutes because the technology becomes widely adapted.

In the end, the exalted is an owner of a high frequency trading computer skimming EVERYONE ‘earning’ $400,000 an hour.

Vs

The diminished receive monthly EBT as a parting gift.

Wait until Artificial Intelligence has to make sense of the systems. LOL

Because nominal = real. Riiiight. And explain to me how older labor compensation models were so much better? Real disposable income and real net wealth rose the most DURING industrialization, precisely when "technology and automation" came on the scene. Laborers have always provided more value than managers and executives, but there are were also far more of them, always, so they were and are highly replaceable.

If the amount of value a single employee can create is a function of external processes, it will rise or fall across each industry as a whole, at the same or lower labor cost overhead, making it as if nothing at all had changed - if the mean has changed, everything else logically must have done so as well. Diminishing marginal returns. Increasing productivity continuously raises the minimum necessary for an employee to be profitable, period. The question is, why, exactly, should a laborer be compensated more for the same or less work? Exogenous productivity and efficiency increases REDUCE labor's bargaining power, as the resource they are selling - their labor - is now less scarce. (Employment and compensation in the so-called knowledge professions bear this out.)

You can divide the labor up any way you want, but if you invented a non-monetary non-temporal unit of labor and tied compensation to the number of them someone "produced", you'd find the same thing. The laborer has less to offer, thanks to a positive externality, which actually makes their jobs "easier".

The problem is not the metric, the solution is not moving the goalposts.

"explain to me how older labor compensation models were so much better?"

That would be a little hard to do, as I never said they WERE better. In fact, the problem is that we are using older labor compensation models NOW.

We need a NEW model, basing labor's compensation on productivity. And we need to do this by labor sector, so that workers within each sector would be properly compensated for the work they do at their particular jobs. An hourly wage compensates a busboy the same way as factory worker, when that factory worker's job has much higher productivity because of automation. In our current system, any attempts to raise the factory worker's pay ends up pissing-off people because it also raises the busboy's wage to an unreasonable level.

Also, linking compensation to productivity by sector would take a lot of the incentives to downsize just to cut costs. Firing your experienced, trained senior employees just to hire new, cheaper workers wouldn't make sense if those new workers couldn't be paid cheaply enough to make it worthwhile.

It would allow skilled lower-paid workers to be paid fairly without unfairly rewarding the bottom-tier unskilled jobs.

Yes, the problem IS the metric, it no longer works. We need a new one.

All politicians are 'niggers'. Politicians are bought and paid for early on. They arent servants of the american people. They are slaves to a system and particular people, put in place long ago, and if you cant recognize who their master is, if you think our fucked up state of affairs is a result of one mans racial inclinations, im sure you'll find many here out of your league, and that leaves you with very little insight to contribute

Baumol's Cost Disease. God almighty, someone got this piece of basic rudimentary self-evident obvious-to-a-ten-year-old-child 'finding' named after them. Just shows what a pathetic excuse for a science is economics.

Piece of crap article. How about unchecked immigration that started driving wages lower in the 80s, illegals came by the millions and slashed wages in halh I know because I was makeing 10-12 dollars an hour at the time then they hired illeglas for 6. H!b visa takes care of decimateing the higher wages, the companies move production over seas. Whats left? Mcdonalds and Walmart.

Oh stop blaming this on illegal immigrants! There have always been migrant workers, it is only when business started actively looking for sources of cheap labor that we had any problem with illegals. Before that, we called them immigrants, and welcomed them with open arms, even if we didn't like them.

Anyone thinking this is a problem caused by illegal immigration is a fool...you have been successfully manipulated by the "shiny object wavers" into attacking the guy next to you instead of enlisting his support to join forces against the REAL enemy.

We have not always welcomed immigrants with open arms. We have stopped immigration many times to let the immigrants assimilate. Pat Buchanan has documented this over and over in his books, and I'm sure many others have as well. You could find the numbers if you wanted to.

There is only one good way for the middle class to fight back ... buy gold. It preserves the value of your money, removes your nest egg from government control, and sends a "no-confidence" message to everyone. The government cannot fight back by printing more money, that only drives up the price.

Cuz it turns out that if even our elite are given the chance to sell out their country for great gain they will do so. I'm talking about your banksters, your vulture capitalists, and your DC politicians. They each decided to rape the middle class, and so raped it is. Lay back and enjoy it, peons.

What is real wealth? Well being? Hmmm..."happiness"? Does that big screen make you feel good each time you look at it? The new economy is here. It is called the black market. Manned by spaced out hippies. Yeah, well they aren't killing themselves with nail guns.

The only economy is the one you can control. Everything else is shackles.

"If the State fails to maintain monopolistic cartels, profit margins plummet and capital is unable to maintain its spending on investment and labor. Simply put, the economy tanks as profits, investment and growth all stagnate.

If the State fails to satisfy enough of the citizenry's demands, it risks social instability."

It is unsustainable and social instability is already here. The only piece missing is social unrest, which will occur in the next downturn.

It’s interesting that Wallerstein, if I understand Charles correctly, is blaming the State’s enforcement of quasi-monopolies and cartels on capitalism; I blame it on socialism in the hands of financial oligarchs.

But then, Wallerstein is a socialist, and overall, “sees the development of the capitalist world economy as detrimental to a large proportion of the world's population (in short, socialists blaming capitalism for what they do). Similar to Marx, Wallerstein predicts that capitalism will be replaced by a socialist economy."

Furthermore, in “his most important work, The Modern World-System… Wallerstein mainly draws on several intellectual influences,” particularly

Karl Marx, whom he follows in emphasizing underlying economic factors and their dominance over ideological factors in global politics, and whose economic thinking he has adopted with such ideas as the dichotomy between capital and labor, the view of world economic development through stages such as feudalism and capitalism, belief in the accumulation of capital, dialectics and more.”

On the other hand, the great Austrian economist Ludwig von Mises argued that monopolies were the result of government intervention not that of the free market. According to Mises:

“As has been pointed out already, there is no such tendency toward monopolization. It is a fact that with many commodities in many countries monopoly prices prevail, and moreover, some articles are sold at monopoly prices on the world market. However, almost all of these instances of monopoly prices are the outgrowth of government interference with business. They were not created by the interplay of the factors operating on a free market. They are not products of capitalism, but precisely of the endeavors to counteract the forces determining the height of the market prices. It is a distortion of fact to speak of monopoly capitalism. It would be more appropriate to speak of monopoly interventionism or of monopoly statism…

“The market economy is the only system of society’s economic organization that can function and really has been functioning. Socialism is unrealizable because of its inability to develop a method for economic calculation. Interventionism must result in a state of affairs which, from the point of view of its advocates, is less desirable than the conditions of the unhampered market economy which it aims to alter. In addition, it liquidates itself as soon as it is pushed beyond a narrow field of application. Such being the case, the only social order that can preserve and further intensify the social division of labor is the market economy. All those who do not wish to disintegrate social cooperation and to return to the conditions of primitive barbarism are interested in the perpetuation of the market economy.”

Frederick Hayek (another Austrian economist) believed that large, increasingly ossified corporations and wealthy financial oligarchs, in order to preserve and perpetuate their status quo, would use their substantial wealth to purchase political influence, special treatment and dispensation, as well as competition-crushing regulation and enforcement, from the State, creating monopolies and cartels, destroying entrepreneurship in the process and creating stagnation. This is exactly what has happened in the past (example: wealthy Romans bought political power to preserve and enhance their economic power, even at the expense of the empire and its citizenry/tax donkeys). Crony capitalism replaces real capitalism, graft and corruption set in, judges and lawmakers are bought off, and increasingly the state and cartels are joined at the hip. Historical examples of economic power purchasing political favor includes the Federal Reserve Act and the Income Tax Act.

When the illegals in my neighborhood have three married couples with 11 kids in one single family home and I say something I am a racist! So six working people pay the same taxes for the shitty schools that 2 adults in my house pay for! When the Mexican I buy firewood from asks me to write the check to his name and not the business name on his truck just how many taxes do you think he pays on his income at the end of the year? See my city tried to enforce the single family codes against the Mexican wave and the American Hispanic Society sued and won in court! My kid brother owned a successful drywall company until The late 90's. Until the Mexican wave hit and now drywall is being hung, taped and finished at 1980's rates! We have stores now with no English signage! Bilingual teachers to encourage no need to learn English! Hell our school district sent scouts to Columbia and Ecuador to recruit bilingual teachers for the schools I support with 7 k a year in my property taxes. America that I grew up and raised my kids in is long dead and gone!,, so sad, truly!!!

Well that's an easy one. The American public was lured into the belief that the "American Dream *TM" was achievable through credit many decades ago. And now that the financial system has had its time to go to work on those who borrow money to achieve said "dream," we have arrived at a point that the credit system supporting the "dream" is collapsing.

This "dream," as sold, will eventually come to an abrupt and economically tragic halt. The question is are you prepared for it.

The worst part of the story is that the "American Dream" is nothing more than something that has been fabricated and sold to the American public by the same people who provide the loans required to buy that American dream. Home ownership is not the "American dream." Freedom is. And until people wake up to realize that freedom is the dream, we will continue to be enslaved by financial institutions.

Bingo. This echos my thoughts exactly (I commented below). The show is over, folks. The middle class dream was a lie. My theory is that we're headed back to a 1970s standard of living. That will be a huge awakening for most people.

I, for one, had an aversion to credit, I didn't want to owe anyone anything.

I minimized credit to the point that my credit score penalized me. What credit I had was for the house, car and education (education was totally paid off within seven years). I don't play credit well today. I pay more than the minimum on ALL debt. And I still get penalized.

My 1998 house purchase of $75k has an 'all-in equity, tax and escrow' amount of $726 per month...I pay $1,000, our car payment is $600 per month, I pay $800. My credit score has gone down because I'm not perfoming acording to the terms.

Happily, I haven't given a fuck about my credit score since 2008. My goal is to pay off needful debt as quickly and as cheaply as possible.

Best benefit, it totally mind-fucks the creditor when they call seeking a payment to tell them they won't get one since I'm paid up through 2016, and the only reason they won't get one is that they called.

Not that anyone should buy that Bernie Sanders is altruistic in the plight of the 99% although he asks some good questions that are not always "softballs" especially when he addresses the Fed -this one was interesting given the two faced response from Old Yellen...

What middle class lifestyle are we talking about? The one in the 1970s where nobody had a credit card, McMansion, multiple cars, vacations, designer goods, etc? Or the one in the past 40 years that has been fueled by a giant credit bubble?

Because the latter "middle class lifestyle" was NEVER affordable. It was a lie.