Soak the Middle Class

The economic paradigm has always been defined as the battle between the haves, and the have-not’s i.e. the “rich” and the “poor”. This has been the rhetoric since the times of Karl Marx. However, eminent American economist Milton Friedman challenged this assumption in the 1980’s. He believes that the biggest beneficiaries of all governmental programs are not the very rich or the very poor. Instead, it is the middle-income group that reaps the maximum benefits whereas others have to pay the price. As far as the rich are concerned, the price is nominal and hence doesn’t affect them much. However, from the point of view of the poor, they have to pay a significant price for the benefits that they will not receive and this impoverishes them further.

All this has been summarized in what Milton Friedman has called the Director’s law. In this article, we will understand what the director’s law is and look at its manifestation in real life programs implemented by the Congress.

Director’s Law

The director’s law states that the middle class is the biggest beneficiaries of the government programs. They benefit at the cost of both rich and poor. This is because the American middle class plays the most active role in selecting governments. They are educated enough to understand the impact of the government policies. This is in contrast to the poor who are gullible and can be easily misled. Milton Friedman, therefore, believes that it is in the best interest of the government to alienate a few rich people as they could be taxed and also alienate the poor as they don’t matter as much! He states that every program that has been implemented by America is actually a tax on the poor for the betterment of the middle class.

Higher Education

The most obvious program cited by Milton Friedman is that of higher education. As per the demographics, the people who attend school are mostly middle class. Very few of them belong to the higher class and even fewer belong to the lower class! Even the ones belonging to the lower class are likely to end up in the middle class once their education is completed. However, the money to fund these colleges is paid by the taxpayers alike. In fact, the poor have to bear a disproportionately higher burden of taxes given their lower incomes. Due to various social factors, very few poor kids make it to college even though their parents have been funding these universities. Therefore, funding state-sponsored education is equivalent to laying a regressive tax on the poor.

Social Security

Social Security is no exception to the director’s law. As mentioned above, the average age that poor people start working is in their teenage years. This is because they do not pursue higher education. To the contrary, the average age that the middle class starts working is in the late 20’s. Hence during those years, the poor is paying heavily towards both college education and social security. On the other hand, the middle class doesn’t have to pay for social security and are at the receiving end of college benefits! To make matters even worse, the average life expectancy of the poor workers is considerably less as compared to the middle-class workers. Hence, the poor have to pay for a longer duration of time and end up receiving benefits for a shorter period of time. All this makes social security an anti-poor program instead of a pro-poor program.

Medicare

Medicare is also a manifestation of the director’s law. The very nature of jobs held by the poor and middle class make it so. The poor class usually holds jobs that require hard manual labor. Hence, they keep exercising their bodies unknowingly as they perform their daily tasks. This helps them stay fit for longer unless they are prone to some kind of addiction. On the other hand, the middle class generally holds sedentary jobs. They eat far more calories than they burn. Most of the obese people in America are in the middle class. This is the population that suffers from lifestyle factors such as diabetes, hypertension, etc. Hence, the lower wage people are subsidizing the health care system for the middle class. The middle-class people take advantage of the subsidized health care system to have a better healthcare system and live longer.

Unemployment Benefits

The middle class tends to receive more unemployment benefits than the poor people. This is because the middle class has higher paid jobs which are being outsourced now. As a result, a larger number of middle-class people are without jobs. The poor on the other end have stable lower end jobs that they are likely to retain. Even if they are fired, they may quickly find another job and are less likely to receive any unemployment benefits.

Hence, the legislation of the future should target the middle class instead of the wealthy. Soaking the middle class and stripping them of the excess benefits that they have received would make perfect economic sense. However, it wouldn’t make much political sense given how American politics works. It is, therefore, a difficult but necessary decision that needs to be taken.


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Managerial Economics