Tuesday, December 22, 2015

The U Shaped Curve

Yes, America's middle class has been disappearing....into higher income groups - AEI | Carpe Diem Blog » AEIdeas:

The linked article is worth reading ... yes, the middle class is shrinking, BUT it is shrinking because people are BOTH falling and rising! The bottom grew from 25 to 29% since 1971, the top grew from 14 to 21% ... so 4 points for poverty, 7 points for wealth!

We should also note that the lower middle and upper middle stayed basically constant -- so all the "middle flight" was to the extremes.

We are heading toward a classic U shaped curve -- the opposite of "the standard curve", or the "bell shaped curve" -- the "normal distribution". In the U-curve the action is at the extremes, the UNnatural curve.

I did a LITTLE research on it, and ran into Francis Galton, an interesting guy who came up with a machine that would show the normal distribution, but also came up with one of the first U shaped curves relative to "consumption" ... "wasting away", normally from cancer, but they didn't know what in those days.

One of the other references referred to the U shaped curve as "the hard math class curve" -- the one where the good mathematicians excel of course, but one that is advanced enough that the vast majority of people know not to get in the class, so the "middle" bows out -- only the foolish, those with inflated opinions of themselves, etc also enter and fail miserably. Thus the "U".

Nobody really "knows" why this is happening ... the article just focuses on the good news that more people are rising than falling, but "nature" would expect a BELL with tails at the ends and nearly 70% clustered in the middle, with tails on either end dividing the rest. Both "poor" and "rich" would hold 2.27% each, with lower middle and upper middle holding 13.59% each.

My reasoning as to possible reasons is the following:
  • Technology is leverage. Those that are able to use it excel, those who do not tend to fall -- a long way. 
  • Technology allows "mass everything" ... those that win, win A LOT, those that don't win fall to the bottom. 
  • The vast increase in government means that the lower class is subsidized, but both the middle and upper classes are penalized. Our two IBM incomes made us "upper". We are now falling to being "middle to upper middle" ... we were HEAVILY penalized for being "upper",  and the penalties continue and are rising as we fall -- huge deductibles on our insurance for higher cost insurance, and always taxes, taxes, taxes. 
  • The previous point creates a "step function" ... if you can stay below the point at which you lose government benefits and start paying taxes, it is a big benefit. If you want to stay at the upper level, it takes A LOT of effort, income, risk taking, etc, **AND** you pay HUGE penalties for all that work! Because of the technology leverage, there are more people that CAN achieve that level, but it takes a toll, and after a certain length of time (the voice of experience speaking here), they just get tired of running the rat race and paying the penalties ... so they slide down the scale, PLUS government policy hastens their slide as it sucks away the assets / pension that they have built. 
  • Given the previous two points, the vast majority of the population "wises up" ... "you can't fight city hall", let alone Uncle Sam! College doesn't pay, and even learning a trade means you have to get up and go to work every day. Father a couple kids out of wedlock, live with some single mother on welfare -- move around a bit. Tomcats do it, why not people? (covered here)
I could keep going, but the point is that unless we change the course of the nation, I'd expect this trend to continue and become a "backward J" with a large number of people on the low end and less and less on the high. One might call that "The Statist Curve" ... less and less people willing and able to take the risks, work hard enough, and pay the penalties required to support those at the bottom, and more and more than either burn out, get old, see that both the "deck" and the sanctions of their nation are stacked against moving up the income ladder.

The UNnatural curve is a sign that nature is not taking it's course -- the average are not excelling to the best of their ability while being led (and provided workplaces) by the few able to achieve at the very high level, with only a small set (the same as the upper set) falling to the bottom unable to cope with the environment. For the moment we are moving slightly toward a "J-shape" since more have moved  to the top since '71, but 29% at bottom and 21% at top tells me that this hopeful trend will not likely continue. I predict the bottom is going to grow more and the top will slow down.

Were trends to continue with more rising than falling, perhaps a U-shaped curve could continue, but it seems unlikely to me. I suspect that the left is fine with a slightly tilted U (more at the bottom) as we have now, or even the reverse J with LOTS at the bottom voting for "The Party", and a tiny minority at the top "happily" paying the freight for all the "free stuff".

Interesting none the less ... not the kind of info you see much of in "The Party" controlled media!

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