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Wednesday, July 11, 2012

REBUILDING THE MIDDLE CLASS

- Two distinctly different approaches for putting the country back to work.

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There is a tendency in this country to label people in accordance with their political beliefs. Although we still say "Democrat" and "Republican," we're more inclined to say "Left" and "Right," or "Liberal" and "Conservative." Not too many people proudly proclaim themselves as a "moderate" or "independent" anymore. I have found those who call themselves such are actually closet liberals. And "progressives" fool nobody but themselves as "arch-liberals." Nonetheless, I find such labels distasteful and only clouds the issue at hand. In the end though, we use such monikers to express how fervently we believe in our principles. I've often been accused of being a conservative in such a way as to malign my character; that being a conservative is a bad thing. Actually, I tend to identify myself more as a Capitalist as opposed to anything else, and, as such, possess a deep distrust of Socialism and Communism. To my way of thinking, the individual has the freedom to try and better his/her station in life. Hopefully they will succeed but there are no guarantees and the risks can be great, but I have seen Capitalism succeed more times than it has failed and has proven itself to be the lynchpin of American growth throughout our history.

Regardless of your classification, everyone is cognizant this next election cycle is about rebuilding the economy and getting the country back to work. Ultimately, it is about rebuilding the middle class and there are two distinctly different visions being offered as to how this should be accomplished. First, understand that the American middle class is the economic engine not only for the United States but most of the world. Until a few years ago, it enjoyed a high standard of living not simply because it could spend more, but because it could earn more than most of the world. Outsourcing jobs overseas and the recession though changed all of this. According to a recent study by the Fed, the median family net worth dropped a staggering 40%(1). Suddenly, the middle class realized they couldn't earn as much as before and, consequently, couldn't spend as much, thereby affecting their standard of living. Life as they knew it changed; they could no longer afford to send their offspring off to college, retirement plans had to be put on hold, and in general they had to make do with less. Most learned to tread water for the first time, lucky to have a job and a roof over their heads, surviving paycheck-to-paycheck. Others were not as fortunate and home foreclosures and bankruptcies soared.

To solve the problem, the left wants to offer the middle class more stimulus money, and more unemployment benefits such as food stamps, all of which requires more massive government programs and control. To pay for this, taxes are to be raised and regulations tightened on business. In reality, American business is already paying the highest tax rate in the world (in excess of 39%) and increased regulations are still scaring jobs offshore. This approach may give the middle class money to spend but does nothing in terms of enhancing the earnings of workers. Entitlements also have the tendency of creating dependencies and discourages the incentive to work. In a nutshell, entitlements are supplanting the concept of earnings which is a dangerous development, both psychologically and economically.

On the other hand, the right wants to solve the problem by expanding the middle class's earning potential by putting them back to work, not on unemployment. By having more money, they will be able to resume the standard of living they are familiar with and spend accordingly. It will also have psychological benefits as opposed to creating a society of government dependents. To do so, they propose lifting the government regulations that stifle business and encourages the deportation of jobs overseas. They also wish to lower the tax rate thereby stimulating job growth by allowing companies to invest at home. This, of course, will result in a smaller government.

Both sides, left and right, understand the need for a middle class, but they cannot agree on how to cultivate it and herein lies the ideological rift polarizing the country. Whereas the left wants to enslave it through massive government and more regulations on business, the right wants to free it through less government and less regulations. So far, history is on the right's side. Only by freeing business can you rebuild the middle class. Somehow, I am reminded of the old expression, "The business of America is business." Government does not create business (or jobs for that matter). Instead, it should plow the way to allow business to flourish. By encouraging business, the government helps its citizens earn more, thereby causing the middle class to grow.

As I said, it's not really about Democrats versus Republicans, left versus right, or liberals versus conservatives. In reality, it is about socialism versus capitalism. And as any confirmed capitalist will tell you, don't give the middle class more entitlements, give them jobs, and the economy will take care of itself. Give them a purpose in life, not an addiction.

Keep the Faith!

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Tim Bryce is a writer and the Managing Director of M&JB Investment Company (M&JB) of Palm Harbor, Florida and has over 30 years of experience in the management consulting field. He can be reached at timb001@phmainstreet.com

For Tim's columns, see:   timbryce.com

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Copyright © 2012 by Tim Bryce. All rights reserved.