Simple Solution to Homelessness and High Inflation: July 2022
Most people don’t know this, but homelessness and inflation come from the same source. Both come from the reduction in the wealth of the middle and lower classes that has been systematically occurring since the mid 1980s. This hollowing out of the middle class means more and more Americans are becoming poorer and poorer. Though conservatives like to speculate that homelessness is caused by mental illness, drug addiction, and laziness, all careful studies show it is mostly caused by expensive rents and poverty.
Inflation is normally quoted as the increase in prices as measured by the consumer price index (CPI), but what is important for average people is actually the difference between the increase in prices and the increase in wages. Over most of the years from the 1930s until the 1990s, wage inflation for middle class workers was larger than price inflation, meaning that a middle class person was able to buy more things and so felt richer year by year.
However, over the past three decades, this trend reversed and prices have risen faster than incomes, meaning that the purchasing power of the middle class has dropped. High price inflation is not so bad if ones wages increase faster, but high price inflation drives people into poverty when wages don’t increase. Thus more and more people can no longer afford their rents, and so become homeless.
It really is this simple. Here are more details.
From the 1930s until the late 1980s the middle class became richer year-by-year, then in the 1980s this trend reversed and the middle class wealth has been shrinking year-by-year. What caused this major shift to happen? Here is an article I wrote explaining it in great detail: https://kimgriest.medium.com/real-reason-the-american-middle-class-is-disappearing-901cb78ababf
In brief, the basic reason is that rich people make most of their money from investments, and when their after-tax return on investments is higher than the general growth of the economy, they take a larger share of the total wealth each year. That extra money going to the wealthy comes directly from the middle class, who then get poorer every year.
The total value of goods and services produced each year is given roughly by the GDP. If the GDP is not growing much, it means the total amount of wealth in the USA is roughly constant. With a constant size pie, when one group gets richer, some other group must get poorer. With a slowly growing GDP there is a roughly fixed amount of stuff to go around, and by simple economics, people get an amount of that stuff in proportion to the amount of wealth they have. Smaller share of total wealth means less stuff, eventually resulting in poverty and homelessness.
Americans blamed the great depression on the wealthy and elected FDR as president. The Democrats under FDR put a 90% tax on income over $3 million, and an 80% estate tax rate on large fortunes. That high tax rate reduced the after-tax income of the wealthy to below than the increase in GDP, so each year the total wealth share of the richest Americans fell. As a result, the total wealth share of the middle class increased. All that tax money was used to build the highways, electricity and water infrastructure, national parks, mental hospitals, public housing, libraries, the Food and Drug Administration, the National Science Foundation, etc. That is, that extra tax money was largely spent in ways that benefited the middle class. The wealthy hated this of course, and worked hard to change this tax structure, but even under Nixon, the tax rate on the wealthy never fell below 70%. Finally, the Republicans, under Reagan, got their way and reduced the highest tax rate to below 30%. With these lower taxes, the net return on rich people’s investments became larger than the increase in GDP. Thus, the share of the nation’s wealth owned by the wealthy started increasing year by year. And that meant the wealth of the middle class shrank year by year. Since the 1980s, the increase in GDP has been quite small, so with a roughly fixed amount of stuff, each middle class person gets relatively poorer each year.
The Republicans fool Americans into not knowing this and continue to lower the taxes on the wealthy; most recently Donald Trumps only legislative “accomplishment” was another lowering of taxes on the wealthy and the large corporations they own.
As long as this current tax structure continues, the middle class will continue to become poorer year-by-year. Thus, the people at the bottom of the middle class, will continue to move into poverty, and more and more of them will not be able to afford rent. When you can’t afford rent, you become homeless.
A lowering of the share of wealth of the middle class might sound like an abstract concept. How does this actually feel to a middle class person living through it? It feels like everything getting more expensive, i.e. it feels like high inflation.
Once you understand the above incontrovertible logic, the solution becomes obvious. All that needs to be done is to return to the tax rates that were in effect in the 1940s under FDR or even the 1970s under Nixon. Then the wealth of the wealthiest 1% will start decreasing year-by-year and the middle class share of wealth will again start increasing. To speed up the recovery of the middle class, one could also add in an actual tax on wealth over say 20 million dollars. Strong enforcement of such a wealth tax would also stop the wealthy from hiding their fortunes in tax havens like the Bahamas.
Now, many people and many groups offer many different “solutions” to the homeless and inflation problems. Unfortunately, unless those “solutions” increase the wealth of the middle class, they just won’t work. So, if we don’t change the tax structure back to FDR/Nixon rates, the situation will continue to get worse; that is, we can confidently predict that the number of homeless will increase year-by-year until America looks like a third world country, with huge numbers of people living in giant slums and a small plutocracy owning and controlling everything.
So, homelessness and inflation are simple problems with a simple solution. But the wealthy work very hard to ensure that ordinary people don’t understand this simplicity. Think about it, and don’t get fooled.