The New Middle Class: the 1%

Lecture Notes  9-23-12

To:  Mr. Romney

Subject: In the Defense of the One Percent.

 

A new class is forming world wide.  I call it the New Middle Class. 

The British first used the term, middle class, to describe the class which occupied the place below the Landed Aristocracy yet still above the working classes both white collar and blue collar.  In America when we discuss the middle class we mean the most numerous class.  There is not the same awareness of classes as the British identify. 

Americans include just about everyone who is working, from plumbers to lawyers, in the middle class.  It is virtually a mathematically determined category.   

It is this British concept of middle class that I am thinking of when I defend the One Percent.  This One Percent is above the upper class (and middle class) but below the so called New Class of government leaders, and the menagerie of toadies and hanger-ons, including the lobbyists, journalists, and power brokers. 

My defense of the One Percent can be stated in just one sentence.  Would you rather have Mr. Obama in charge of Bill Gates’ estate?  Do you want all the power to be located in the hands of the New Class who already control the vast apparatus of the modern state?   

By inserting into our society the One Percent we create a new power center to counter balance the power of the state.  These One Percenters, most of whom are very savvy  characters, can compete with the state in carrying out new programs and projects that are beneficial to our society. 

Take for example Bill Gates’ investments in research for a cure of Malaria. The state could have lead the way on Malaria but the New Class wasn’t interested.  These One Percenters as I have said are very savvy and form not only an alternative center for action in the world but an alternative perspective to see what is needed in both private and government affairs.

It has been argued that this New Middle Class uses its wealth to manipulate the state for their own and sole benefit.   It is true some have used the state to manipulate the market.  Mr. Slim in Mexico for example.  This would argue for the Republican Party’s stance that the state should stand at arms length and let the market determine winners and losers not for the Democrats stance that the New Middle Class should be taxed out of existence.

For reasons explained elsewhere, without wage and price controls, the New Middle Class will respond to higher taxes by transferring the higher taxes via the price mechanism on to their customers.  Remember the One Percenters  are rich because they offer goods or services that are in high demand.  This demand allows the One Percenters  to transfer their costs, including taxes, on to their consumers.  Unless wage and price controls are applied there is no limit to what the One Percenters can charge. 

When we say someone is rich what we mean is that their goods and services are in high demand.  Most of us have a more limited ability to pass on our costs including taxes,  because the goods and services we offer are in less demand, meaning that we must absorb some costs including taxes. 

The poor are poor because the goods and services they offer are in low demand.  The poor have a low ability to transfer their costs including taxes.

The  One Percenters’ goods and services are in high demand perhaps in part because they reduce the number of people in the middle or the poor classes that are needed by their customers.  Mr. Ellison for example may supply Oracle products and services that reduce the number of accountants (middle class) and file clerks (poor class) needed by his customers.

And this may cause you to think we should tax the One Percenters.  But without wage and price controls the high demand for their goods and services will allow the One Percenters to pass on their taxes to the other classes who have lower demand for their goods and services.  The One Percent pay 40% of the national income tax.  Where do you think the One Percent gets the money to pay these taxes?  From the other classes via the price mechanism.    

This is the real reason why taxes should be kept as low as possible, because taxes settle into society on those with the lowest ability to pass on costs to customers:  the poor.

 The New Middle Class may be involved in the process of creative destruction, which negatively affects the other classes but this is inevitable and certainly taxing them will not change a thing.  Or do you think technological progress should be outlawed?

Republicans have long argued that corporate taxes are passed on by the companies to their customers through the price mechanism.  This is certainly true for successful companies, those whose goods and services are in high demand.  But if this is true for companies why should we be surprised that the New Middle Class can also pass on its taxes and other cost?

 PS  And I think Iran’s nuclear program should be destroyed and the regime must be over thrown.