Hi Martin,



If the U.S. middle class is one of the main engines of the American domestic economy, then the lower economic class are the the brakes on the American domestic economy.



(Through no fault of their own it must be clearly stated as two-thirds of American manufacturing jobs have departed for Asia since 1974)



Therefore, any gains that might be realized by the upper 3 quintiles, will eventually be eroded by the necessity to pay for the negative economic consequences of largely ignoring the bottom 2 quintiles. Which has been our M.O. for since the 1970's.



Whether those middle class gains will be eroded by taxation in order to pay for social programs, or via an increased unemployment rate, homelessness, illegal drug use, policing, court costs and incarceration costs, social unrest, or any other negative consequences arising from any level of substandard existence experienced by those in the bottom 2 quintiles, those very real costs will be borne by everyone from taxpayers to insurance companies that sell personal injury, home and business, and auto insurance, to lost opportunities for the American economy by orders of magnitude.



So why not just create policies designed to create the largest possible middle class in America, and thereby bypass all those negatives?



Instead of endlessly focusing on the annual required rate of budget increase to police, court, incarceration and social program costs (snoring sounds) -- we should be setting policies that allow the bottom 2 quintiles to join the middle class as robust economic contributors to society.



In a country as rich as America, every person of working age should be considered and treated as an asset to the country, with each and every one of them contributing (instead of taking away from) American growth stats.



Let me state it this way; In America, each individual of working age must be considered as an economic asset that policymakers must find and design ways to exploit the maximum reasonable economic potential from each person, in a way that *works* for those people.



Allowing an unemployment rate of 7% is *clearly not* the best way to do this, and truth be told, the number of people who've given up looking for work is probably twice or thrice that percentage.



That's not maximizing the utility of each individual in America!



Neither is having 1-in-31 U.S. adults in prison, on parole, or awaiting sentencing (Pew Trusts info) those people are not making their best possible contribution to the economy.



That's not maximizing the utility of each individual in America!



For those on social programs other than unemployment insurance, the U.S. is definitely not maximizing the utility of each of those individuals.



That's not maximizing the utility of each individual in America!



To sum up on this point; We need to start designing policies to fit square pegs into square holes and to fit round pegs into round holes -- instead of ignoring 2/5ths of our human asset base, and expecting the other 3/5ths to pay for the fallout of the economic circumstances of the bottom two quintiles.



How to fix this?



1. There should be no income tax payable for those households which earn less than $25,000 per year. Taxing them means they will never get out of the situation they're in and consequently, they and their children will always remain in the bottom 2 quintiles. Generational poverty!



2. The 1% should be treated to a bit of 'carrot and stick'. Either tax their annual income with a 'personal windfall tax' of 5% -- OR, allow 1% people to avoid the personal windfall tax by investing that same amount (or more) in American SME's.



Small and Medium Enterprises can employ many unemployed people and even begin to employ those with expired UI claims who have given up looking for work and are now receiving social benefit payments.

Working people spend more and pay more tax. That is better for the economy.



The 1% people presently do not help the unemployment rate in any substantive way.



I suggest making the 1% part of the solution, instead of part of the problem.



(Not that it's the fault of the 1%, as the formation of their formation was just a consequence the way the tax system evolved)



3. Cut the 'red tape' so that tradespeople certified in one jurisdiction can be allowed to work in another, without loss of status or salary. Cut red tape so that workers can more easily move to a job. Labour mobility is not what it needs to be.



4. End welfare and all other social programs (but leave Unemployment Insurance alone, as it is funded by workers and employers) and turn it all into one program.



Guaranteed Basic Income of $1000. per month, per adult. Without any strings attached.



Those people will spend that money at the grocery store (however they want to spend it adds to the economy) at the gas station, for their rent (eliminating the homeless crisis and resultant crime) and for other life necessities.



Crime rates, policing costs, court costs, property crimes, and so much more will drop by orders of magnitude -- more than paying for this one-stop solution.



5. Legislate coal-fired power plants out of existence. That will lower the gross healthcare spend.



Power plant operators that covert to natural gas from coal should be given a generous subsidy (we're already subsidizing them to the tune of more than $500 billion per year, according to this Harvard study) or perhaps they will choose to decommission the coal-fired facilities and build new, renewable energy capacity.



Either way, lower healthcare spends and more quality jobs will be created.



http://www.chgeharvard.org/sites/default/files/epstein_full%20cost%20of%20coal.pdf



One final thought on coal. Some of the purest fuels on the planet can be obtained from coal via the Fischer-Tropsch process.



Coal power plants may therefore choose to decommission their power plants to enter the liquid fuels marketplace.



Each gallon of South African gasoline (petrol) and aviation fuel (avgas) consists of +30 percent fuel obtained from coal, cars and aircraft burn that fuel and it is extremely clean burning.



A subsidy to coal power generation companies (that is equal to just one year of U.S. healthcare savings from quitting coal) could accomplish all that and so much more.



Instead of trying to force the existing paradigm to produce the results we want, it's time to switch to a better model.



Thank you for sharing your thoughts here at ProSyn, Professor Feldstein.



As always, best regards, JBS