Monday 5 October 2009

Wither the Middle Class

Growth, Democracy and the Middle Class






Economic growth if not distributed according to the normal dustribution leads to a persistent social syndrome which is the decline of the middle class and the birth of the goose stepping and comradery classes.

Too fast nominal economic growth leads to a lognormal distribution of incomes and depoverishment of the middle class. In it's worse cases of extremely rapid nominal income growth the distribution of incomes is a very highly skewed lognormal distrution with almost every one in the base of low incomes and a very few in the top tail.

How does an economy remain normal instead of lognormal in it's distribution of incomes? Easy answer!! To create a normal income distribution one has to have a normal economic generator of incomes.

Thus one has to avoid several generators of the lognormal growth pattern in nominal incomes and wealth.

The main one is inflation in sectors of long term investment, the so called capital goods sectors such as housing, automobiles, land, plant and machinery, and even education and skilled individuals.

Second in importance is overall inflation, which generally can be contained by limiting money supply growth rates.

A third is monopolies. These tend to destroy a normal distribution of incomes. They are usually based on technical economies of scale, but can arise from patents, monosony or monopolizing protections of government, government organizations, unrestricted uncompetitive practices, acquisitions and mergers financed through credit.

Such distortions as listed above are inherited from and promote modern forms of feudelism based on lognormal distributions of the benefits of economic growth. They predispose societies towards instability and unnecessary or excessively rapid evolutionary economic changes that lead to boot stepping or comradery mentalities.

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