A taxonomy of economic classes.

Rod Dreher, writing at The American Conservative, points out the absurdity of both President Obama and Mitt Romney describing the upper end of the middle class at an income level of $250k/year.  The point is taken--though as commenters point out, this income doesn't factor in the greater expense of urban lifestyles.  This salary will not make you rich in Manhattan or San Francisco, on the other hand, one can live quite comfortably on half of that if one lives in Montana.  Other factors, such as number of children, also affect the standard of living one can purchase on a given salary.

But a more fundamental problem is that the trichotomy of poor/middle class/wealthy doesn't do justice to the varying economic circumstances of people around the globe.  Many US commentators try and subdivide this with phrases like "upper middle class", "working poor", "working class", "homeless", and the like; but these are not rigorously defined.

To that end, here's an entirely non-academic attempt at a more useful taxonomy of economic strata.  No references to specific income levels are made.

• Level 0:  Basic needs for biological subsistence are regularly not met.  Meals may be irregular, or the individual may in fact starve, be homeless, or lack any protection from elements.  Utterly dependent on charity, thievery, or begging for sustenance; death may result if these are withdrawn or unavailable.  In the US context, this mainly consists of the long-term homeless.
• Level 1:  Basic needs for biological subsistence are occasionally not met; individual may exist in unsanitary, unhealthy, or socially pathological conditions.  In modern welfare states, persons at this level typically are on long-term government support (which keeps them out of level 0--a major reason level 0 is rare in wealthy developed countries).  Many US ghettoes, Indian reservations, and poor rural enclaves (parts of Appalachia) qualify.
• Level 2:  Able to provide (or is provided) basic biological needs, though may need occasional public assistance, charity, or support from friends and extended family.  No disposable income (all goes to basic necessities), insufficient financial security for long-term planning, and unable to accumulate savings or afford long-term investments such as owning a home, education, or other big ticket items.  Significant cash-flow difficulties, lives paycheck to paycheck, may have difficulty coping with even minor unexpected events such as unexpected doctor visits.    Little or no access to credit on reasonable terms, may have dependency on predatory lenders.   "Judgement-proof" in legal parlance.   Many working poor.
• Level 3: Able to provide basic needs and accumulate modest amounts of capital, and afford (or finance) medium-to-large ticket items like a car.  May also be able to purchase things like health insurance or preventative medical care; and has enough capital to protect that these purchases become rational.  Rate of capital accumulation is small, however, and a significant crisis (such as unemployment) poses a threat.  Lower-middle class.
• Level 4:  Individual is able to provide basic needs, accumulate capital, and spend some money on large-ticket or non-essential items.  Ready access to credit, including the ability to finance the purchase of homes in some markets.  Able to meaningfully save for rainy days and or retirements, and also to spend non-trivial though not large sums on recreational items.  Able to financially withstand events like broken-down cars or appliances, minor medical emergencies, or short-term bouts of unemployment, though may be ruined by major crises.  Working class.
• Level 5:  Financially secure in the medium term, with significant capital appreciation.  Some ability to invest in financial markets, little problem with owning own home, except in markets where real estate is extremely expensive.  Reasonable levels of disposable income, and able to spend some money on luxuries, and may be able to save up big-ticket recreational items (such as boats), and things like private school.  Generally has good access to credit.  Middle class.
• Level 6:  Financially secure in the medium-to-long term.  Much of income is disposable.  Can afford quite a few luxuries, including big-ticket items like extensive travel, luxury cars, works of art, private schools, and tuition at elite universities.  Older members of this level could choose retire early and live off accumulated capital.  Upper middle class.  Top 10%
• Level 7:  Completely financially independent.  Able to, if one chooses, quit working and finance a comfortable lifestyle on accumulated capital, or plan to do so within a short time-frame if young.  Able to easily afford things like full-time servants, luxury homes, vacation homes, or private aircraft.  Moderately wealthy; top 1%-2%.
• Level 8:  Wealthy; have income or capital accumulation an order of magnitude above middle-class levels.  Able to afford any and all middle-class purchases without a second thought, and able to purchase luxury items which are simply beyond the ability of the middle class to even consider.  Depending on location, may be able to purchase some political influence.  Significant investments in marketplace; capital gains often exceeds earned income.  Top 0.1%.
• Level 9:  Very wealthy.  Have capital accumulation several orders of magnitude above middle-class levels, and an order of magnitude above even wealthy levels.  Able to afford items like professional sports franchises, and medium-sized corporations; able to purchase virtually any consumer good on the market without a second thought.  Significant political influence is available; able to self-finance a run to high office (many US politicians are here, including Mitt Romney).  Top 0.01%. 
• Level 10:  The wealthiest of the wealthy. .  Have capital accumulation which rivals that of many large corporations or small government entities; an order of magnitude richer than Level 9.  Able to live like royalty (and many in this class are royalty), and purchase absurdly expensive things like mega-yachts or other vanities.  Extensive access to politicians is available.  Top 0.001%--Warren Buffet, Bill Gates, Paul Allen.

Hyperinflation?

It's always amusing to hear scolds and cranks on the political right-wing (and I include libertarians here, as this article focuses on economic issues) warning about the possibility of US hyperinflation.  If I had a dollar for every time someone compared the United States to Weimar Germany or post-WWII Hungary or various African kleptocracies--I'd have enough cash to inflate the currency myself.  While the US uses fiat money, it ought to be obvious to anyone that the Fed is strictly under the thumb of banking interests, and that despite persistent 8% unemployment, isn't likely to do a damn thing about it--least of all, go off and print tens of trillions of dollars (and it would take an expansion that large in the money supply to devalue the currency sufficiently to trigger hyperinflation--generally defined as a halving of the value of a currency each month, or worse).  The size of the national debt is of some concern, but at present it is at a level manageable by current GDP.

Hyperinflation generally occurs when there's a very large change in the value of the money supply (money stock, bank deposits, etc) compared to the productive value of a country.  The biggest cause of hyperinflation is warfare and its aftermath, where massive amounts of capital are diverted to fund the war machine.  This is especially true for civil war and/or invasion--where productive assets are destroyed, civil society is disrupted, taxation becomes difficult, and/or punitive reparations are imposed on the loser of a conflict.  The other main cause of hyperinflation is ineffective government running unproductive economies (often also coupled with warfare).  Neither condition presently applies here--while the US is presently engaged in far too many foreign misadventures for my taste, all of the conflict is occurring abroad; US factories are not being bombed and the government remains able to finance its activities through taxation or debt.  And the country still has adequate infrastructure, productive farms and factories, and other ways of generating wealth.

So--could hyperinflation happen here?  The two times the US has come closest were during the Revolutionary and Civil wars.  The US was not yet a country at the time the colonists revolting against Great Britain were issuing "continentals" to finance the war, which quickly became worthless.  No other episode--including the infamous "stagflation" of the 1970s, come close--inflation then was on the order of 10% per year, not 50% per month.  As noted in the opening paragraph, the Fed seems to be in no mood to further expand the money supply, and US debt still is regarded as a highly safe investment.

If it does happen, it won't be in the way the tinfoil hats on the right predict.  My bigger concern would be a significant drop in the productive capacity of the country--caused by a continuing failure to invest in the infrastructure and human resources needed to maintain a first-world economy.   A first world economy requires quality roads and ports for movement of people and goods, an educated populace, a strong financial system, infrastructure for things like electricity, water, sewerage, and telecommunications, and a transparent and honest political and judicial system.  And recently, we have been neglecting all of these, often on the grounds that they are too expensive to maintain.  However, there remains ample money to fund a vast war machine for engaging in dubious adventures abroad.

If hyperinflation occurs here, it won't because the Fed fires up the printing press.  It will occur here because our infrastructure will become so neglected that it fails to function.  Our bridges will fall into rivers; our utility systems will become unreliable.  Our factories, many of which are shuttered due to cheaper labor (and better supply chains) available elsewhere, will become obsolete and no longer capable of high-level production.  Our children, deprived of a quality education, will not be qualified for any tasks other than physical labor.  Our politicians will become more bought, and our culture politics more poisonous.  And eventually, the GDP will plummet as the productive capacity of the land goes down, and all those dollars people have will correspondingly decline in value.

If hyperinflation occurs here, it won't be because of the numerator in the money/wealth ratio gets too high, it will be because the denominator gets too low. And that's actually the common denominator in cases of hyperinflation--a country that, for whatever reason, is poor.  Usually this occurs in a country that has never been otherwise, or which sees its wealth utterly destroyed due to catastrophe or sabotage.  It would be a rare thing indeed for it to happen due to simple neglect.

The Fourth Directive of economic policy

The 1987 Peter Verhoeven dystopian science-fiction film Robocop concerns the adventures of the title character--a prototype cyborg law enforcement officer, constructed from the remains of a dead Detroit policeman by a giant consumer-products conglomerate, which was seeking to win a contract to replace the Motor City's police force, which was involved in a labor dispute with the city.  Robocop's activities were bound by three directives which he would mechanically repeat at public function:  Serve the public trust!  Protect the innocent!  Uphold the law!   Unbeknownst to most, including the conscious mind of Robocop himself, there was a fourth directive as well, and while the first three were arguably platitudes more than anything, the fourth was not:  do not arrest or harm any senior executive of Omni Consumer Products, the aforementioned corporation which was his creator. 

The movie was critically acclaimed (and a big box-office hit) and is highly recommended (its lame sequels are another matter).  However, the purpose of this post is not film criticism, but analogy.

Economic policymakers around the world, both in the US and (more recently) in the Eurozone, have various policy directives which guide their activities.  The Fed explicitly has a dual mandate to fight both unemployment and inflation, policymakers elsewhere are similarly charged.  Yet in many cases, including the current handling of the European debt crisis, policymakers at institutions such as the Fed and the ECB act as though they are guided by a "fourth directive" as well; and that fourth directive seems to be something along the lines of the following:

Do not do anything which will significantly harm the interests of capital.  

The various policy arms of the US government went to heroic lengths to bail out the financial markets, but seems far less interested in bailing out distressed homeowners.  Whether or not this is because the banks are really "too big to fail" (meaning their demise would truly produce systemic collapse), or simply too politically powerful to be allowed to fail, is an open question--but after programs such as TARP were enacted, it seems offensive to hear politicians tut-tutting about moral hazard when the subject is people losing their homes to foreclosure.

A similar scenario is now playing out in Europe, where the ECB seems intent in ensuring that the financial markets in the wealthy northern countries get their pounds of flesh, via imposition of stark austerity programs on the poorer southern Eurozone countries, programs which will likely result in a severe recession (on top of the current one), and may lead to the breakup of the Euro itself.  Granted, some of the debtor countries arguably went beyond their means and over-leveraged themselves to the point that an economic downturn left them unable to pay off their debts (Spain, Italy), and at least one debtor country could be fairly described as a deadbeat republic (that would be you, Greece).  The sanest course of action for European policymakers--insisting that the (mainly German) banks which made the bad loans in the first place take a haircut, combined with an injection of capital into the markets to protect depositors and refloat the Mediterranean economies, however, is simply not under consideration. 

Interestingly enough, the Fed last week announced a program to lend dollars at low rates to the ECB, in an attempt to stabilize European financial markets, a maneuver which prompts three questions:  1) The ECB is a sovereign currency issuer; why does it need to borrow money to fund its market operations, particularly when the bulk of the debt in question is denominated in Euros and not dollars?  2) Why is the US government being so activist in bailing out foreign financial markets?  3) And, particularly, if the answer to question #2 is "to prevent/limit recession", which is itself not unreasonable, then why is there so much reluctance to similarly intervene in the domestic economy, particularly on behalf of beleaguered consumers and underwater homeowners?

A likely answer to these three questions can be found within the fourth directive.

Sprawl and the Free Market

Lots of bloggers are all over this one, so why not join the party?

The always-annoying John Stossel goes on TV to peddle the notion that urban sprawl is the natural result of the free market--and that urbanism, on the other hand, is the result of evil librul meddling in the high holy marketplace.  Or somesuch.

And is promptly whacked at by two columnists from opposite sides of the political spectrum, The American Conservative's Austin Bramwell, and our good friend Yglesias. 

Of course, I would be remiss if it weren't pointed out that it just isn't the zoning codes and such encouraging sprawl--the banking and finance industry has long been reluctant to finance construction of anything but.  Wanna build a big box store with a parking lot the size of Texas?  No problem, here's your money.  Wanna build it downtown on a 200' x 200' city block, above a garage and next to a transit line?  Sorry, the big guy upstairs considers that investment too risky.

I would also be remiss in pointing out that our forms of infrastructure and (sub)urban design carry a lot of inertia--the presence of lots of sprawl means lots of cars, and where's the most convenient place to park your car?  More sprawl.