The Forgotten Man

In 1883 Yale professor of political economy William Graham Sumner wrote an essay titled “The Forgotten Man” wherein he lamented the lot of those used by politicians. In his expository piece, Sumner suggested that government programming is akin to A and B getting together to help D, but never really consulting C, even though C will pay the price. Sumner’s analysis has proved accurate and eerily prophetic as it pertains to the economic policies pursued by modern presidential administrations and congresses. The forgotten man in Sumner’s essay represents those not politically well-connected, but who are on the hook for the policies pursued by those who are. In our modern context, I’d humbly suggest that the forgotten men and women of these collectivist policies make up American middle income earners (I outright reject the concept of using the word “classes” in this country).

Economists on the left and the right agree that those of middle income represent the backbone of the American economy. Never before in human history has any society succeeded economically without providing the opportunity for upward economic mobility for its people. As goes the middle income earners, so goes the economy. This was true in Rome and Britain, and it is certainly the case in America. The road to the middle income bracket is paved with the economic opportunities provided by truly free-markets, not by government gimmicks designed more to win elections than grow the economy. President Obama and his Congressional allies may tout government interventionism as the road to a strong and vibrant middle income bracket, but they are either blatantly misleading or are ignorant to the facts of history.

Those in the middle income bracket are folks who fought, worked and saved to achieve continual economic improvement. As they saved and invested, free from government interventionism, they were able to improve their economic lot and become part of the middle income earners. The same is true of those who are the highest income earners in America. Unlike most places on the planet, most American millionaires weren’t born rich, and most didn’t inherit their fortunes. Instead, they worked, saved and invested to move from a middle income earner to an upper income earner. That’s why class warfare is so evil; it creates classes where none existed in the first place. America is a meritocracy, where no classes exist and everyone has the opportunity to improve their economic status. Government cannot provide this sort of economic environment, only the private sector has that capacity.

Take, for example, the government’s attempt to foster home ownership as “the ticket to the middle class.” Aside from the fact that it was collectivist politicians who used the word “class” in a classless society, these programs were not successful in maintaining a strong middle income bracket. Allow me to explain why this is the case. For decades, the 1990s in particular, the Federal government decided it would try and “stimulate” home ownership across America. Since home ownership was already widespread among those of middle and upper income-earning brackets, the only place to expand ownership was among the lowest income earners. This meant, in many cases, families just starting out in life and those who had less-than-desirable credit histories. In order to incentivize home ownership among those who couldn’t afford homes at their present stage of life, government would have to expand financing for those who could not currently qualify.

When government got involved in the housing industry, it had to incentivize financial institutions to make loans to people who couldn’t pay them back. That’s a pretty hard sell, unless you tell them that taxpayers will foot the bill in the event of a loan default. So, that’s exactly what Uncle Sam decided to do. Thus, the expansion of home ownership on the government’s watch was accomplished by the government guaranteeing bank loans for folks who couldn’t afford to pay them back, using taxpayer money.

Not only is such a scheme dangerous to the overall economy, it’s devastating to the folks who took out the mortgages and disastrous to middle income earners in America. The natural economic result of such a sudden expansion of homebuyers was an artificially inflated price for housing across the country. Thus, when folks of all income brackets went to buy homes, they were purchasing them at prices driven up by direct government interventionism. This means that the housing boom would bust once all these government guarantees were exercised. And, that’s precisely what precipitated the financial crisis of 2008. Those of low income, who took out mortgages they could never afford, were financially ruined due to the debt load. They were foreclosed on and the banks exercised their government guarantees to make up the lost revenue. The whole house of cards came crashing down.

The result was widespread, and it took more people from middle income to financial ruin than the programs had ever pulled people from poverty to prosperity. The collapse of housing demand, which was as sudden as its surge, deflated the inflated housing prices most folks had paid, thus ensuring that they owed more on the homes they bought than the houses were even worth. Thus, in a matter of months, the net worth of millions in the middle income brackets was wiped out. The programs that promised to “pave the way to the middle class” had actually done the opposite; they paved the way to poverty for millions and financial ruin for those they were designed to aide.

Truly free market capitalism, which takes its cues from true market forces instead of central planning by politicians, paves the way for prosperity for all Americans. Ill-conceived government interventionism, even if conceived with good intentions, will spell disaster for our culture and economy. William Graham Sumner was right about C being the “forgotten man.” For in the housing-industrial complex creation of the government, the middle income earners paid the heaviest price: the destruction of their hard-earned net worth, which was tied to their investment in their homes.