Archive for April 13th, 2011

In a nutshell, how economic policy comes about in a democracy.

The so-called Director’s Law states that the bulk of public programs are designed primarily to benefit the middle class at the expense of the upper and lower classes. The empirically derived law was first proposed by Chicago economist Aaron Director. His idea was that based on the size of its population and its aggregate wealth, the middle class will always be the dominant interest group in a modern democracy. As such, it will use its influence to maximize the state benefits it receives and minimize the portion of costs it bears.

So it’s not the upper fifty percent against the lower half of the population. Rather we see the middle class forming a coalition of some 50+ percent to pass programs to their own benefit. The bottom twenty percent usually does not participate in the democratic process for the same reasons that cause them to be at the bottom of the income distribution. And the top 10-20% are just there to finance government programs. However, from time to time they use their abilities to push through some of their favorite laws.

One very obvious example of Director’s Law can be found in financing of higher education. In this area those of us who are in the middle-income class have conned the poor (and to some extent the very rich) into subsidizing us on the grand scale – yet we not only have no decent shame, we boast to the treetops of our selflessness and public-spiritedness. It is really astonishing to see what students take for granted, e.g. subsidized meal plans or housing. Instead of being grateful they just keep on increasing demand without the slightest sign of humility.

If you are interest in the details of Director’s Law, you can access the respective article online.


Read Full Post »