Understanding the structural underclass

Photo by Billy Black — Photographer for Sail, CC BY-SA 4.0

The imperative to find work or starve is at the foundation of most economic systems in place today. In the face of scarce resources, we all need to pitch in and do our part, so this seems only fair. Can we attain a level of abundance that makes this premise obsolete, or even cruel?

Productivity has increased dramatically in recent centuries. Now many fewer people need to work to produce essential goods. As productivity increases, the overall demand for labor decreases, and wages decline.

Requiring people to find work or starve necessarily results in some number of people employed at subsistence wages. This establishes a permanent underclass that is sustained structurally. Class divisions are an inherent characteristic of such an economy. These class divisions remain in place regardless of the skills, efforts, and education levels of the lowest paid workers.

Here is a simple thought experiment than can help to illustrate the system structure. Imagine an economy with exactly ten jobs and exactly ten people. The top job pays $1milion a year, and the bottom job pays $7.25 per hour. The other eight jobs have pay levels distributed within that range, and job assignments are based on merit. Unfortunately, you are only able to secure the lowest paying of these jobs. You work hard, reduce your spending, budget your money, and eventually save enough money to further your education. You get your hard-won degree and advance to the second-lowest paying job. However, in doing so you displace the person who held that job and now that person fills the lowest paying job.

In this system there will always be someone in the lowest paying job. This it true regardless of the education level, expertise, dedication, productivity, and hard work of the people.

A patchwork of safety nets attempts to disguise this problem. In the United States these include food stamps, food banks, unemployment benefits, minimum wage laws, social security, philanthropy, and other social welfare programs. These are incomplete, inconsistent, and ineffective.

The aphorism “a rising tide lifts all boats” is used to defend the conjecture that economic growth is sufficient to eliminate poverty. The empirical result is closer to the observation that a “rising tide lifts all yachts”. What policy changes might lift everyone out of poverty?

A Universal Basic Income can raise the level of wellbeing for the least well off, and is likely to improve the social structure for all of us. This begins to eliminate the structurally created underclass. Congress and the Federal Reserve can make this happen.

Like using food to cure hunger, we can decide to use money to reduce poverty.

Seeking real good.