Middle-class pandering easy for politicians

Launching his bid to become Liberal leader, Justin Trudeau declared himself squarely on the side of the middle class. The “key to growth,” he said, was “a thriving middle class.” It is the middle class, indeed, “that makes this country great.”

Mind you, if there is one group of people whose side Stephen Harper is on, it’s the middle class. The prime minister never misses a chance to remind people of his affinity with middle- class values and middle-class ambitions.

Barack Obama, too, is on the side of the middle class: his whole campaign is centred on the need to “build” the economy “from the middle class out.” Even Mitt Romney recently expressed concern that the middle class has been “buried” these last four years — no, wait, that was Joe Biden. Still, you get the idea.

All of these gentlemen are out there fighting for the middle class, and want you to know it.

Which is really great, because it would be terrible if we elected those other guys — you know, the ones who are against the middle class.

How did this banal bit of boilerplate come to be so popular? Does it mean anything more than “most voters”? Not only are the middle class objectively more numerous than their richer and poorer cousins, but polls show a lot of people who aren’t middle class nevertheless think of themselves as such. So if pretty nearly everyone is “middle class,” why exactly do they need politicians to be “on their side”? Against what?

Of course, as panders go, this one is pretty close to ideal: the stealth pander, a pander so overt it escapes notice. As long as you’re pandering to everyone, it’s pretty hard to be accused of being in the pocket of special interests.

Not that the middle class is noticeably suffering for lack of politicians’ attention. During the long expansion from 1992 to 2007, median household incomes rose by 20 per cent after inflation.

The share of all income going to the middle 60 per cent of the population is almost exactly the same now as it was 20 years ago, give or take a percentage point.

So why is this tender concern for the middle class — as opposed, say, to the poor and the unemployed — part of every politicians’ stump speech?

The alarming possibility is that it might actually mean something. Read between the lines, and it’s not hard to detect an underlying agenda. At the very least, there is a whiff of resentment, whether directed at those lower down the income ladder, the recipients of government benefits denied to those who “work hard and play by the rules,” or at those at the top, “the one per cent” — which conveniently allows the second through 20th percentile to get in on the class warfare game.

But I think there’s something else at work. Consider this passage from Trudeau’s speech: “The great economic success stories of the recent past are really stories of middle class growth. China, India, South Korea and Brazil, to name a few, are growing rapidly because they have added hundreds of millions of people to the global middle class.”

Really? Or have they added hundreds of millions of people to the middle class because they are growing so rapidly?

Does growth lead to higher incomes, or is it, as Trudeau suggests, the other way around?

Elsewhere, Trudeau praises the middle class as “a robust market for our businesses,” and the suspicion is confirmed. This is a consumer-led theory of growth, the “money in your jeans” approach: the government, or somebody, puts money in your jeans, and you go out and spend it, making everyone richer. Vulgar Keynesianism, in short.

The same thinking, I’ve a hunch, underlies Obama’s “from the middle class out” rhetoric. The reason he brings it up, after all, is to contrast it with the “tax cuts for the wealthy” that is supposedly the Romney program. In fact Romney is proposing tax cuts across the board, but let that pass.

Romney’s approach, so far as it includes cuts in the top rate, is rooted in a different theory of growth: one led by production, rather than consumption; supply rather than demand. It aims not to put more money in your jeans, but to give you more incentive to earn it.

Taxes, as economists put it, “drive a wedge” between the pre-tax and post-tax returns to labour and investment. Some part of the tax on labour income falls on workers, some on their employers, making labour more costly to the latter and less rewarding to the former.

The same applies on the investment side: taxes, so far as they increase the cost of a given investment, make it less likely to occur. The pre-tax return has to be that much higher for it still to be worth the risk, after tax.

And yet the myth endures — that growth arises out of consumption. A moment’s thought is enough to dispel it.

If we consumed everything we produced, we’d never grow at all. It’s only because we save and invest, adding machinery to human labour, that we can produce more goods and services than we could with our bare hands, and it is only so far as we produce more that we can pay ourselves more.

People who go on about “the great middle class” like to cite the example of Henry Ford, the father of mass production, who paid his workers $5 a day, so it is said, in order that they could afford to buy his cars: an especially magical form of “money in your jeans” thinking. (Why not pay them $10 a day? Then they could buy two!)

I rather suspect he paid them the $5 because they’d earned it.