The Mudsill Theory: The foundation of modern US capitalism

Investment Analysis Clubs Macro Economic Trends and Risks
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{{ Mudsill theory is the proposition that there must be, and always has been, a lower class or underclass for the upper classes and the rest of society to rest upon.

The term derives from a mudsill, the lowest threshold that supports the foundation for a building. }}

Mudsill theory - Wikipedia

Thom Hartmann explains:

From a macroeconomic perspective, a wage & salary worker can only move up if he’s able to avoid all the skim, scam and fraud that takes his wages, and then makes an early exit to the “leisure-class taxation regime” that favors investment income and inherited wealth.

Perhaps the most startling example of this dynamic is the WSJ article that explained how Warren Buffett made his investors insanely wealthy by merely not screwing them on fees and investment costs…

https://www.wsj.com/finance/investing/theres-more-to-warren-buffetts-game-than-just-picking-great-stocks-7b58fe86?mod=djintinvestor_t

intercst

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In an equal opportunity society there will always be different economic groups, the inevitable result of the Pareto or Power Law distribution… That is What is Seen.

What is NOT Seen and purposefully ignored by many, is the mobility of individuals up and down the different economic groups.

What is Seen and What is Not Seen, or Political Economy in One Lesson 1 [July 1850] [final edit]

The Captain

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That’s been declining since the 1980’s. Crony capitalism will do that.

intercst

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Mudsill theory perhaps maybe conceivably makes some kind of sense, but a big part of why there are immobile poor people are two quite simple reasons waay beyond Pareto distribution:

Middle class and up do not like poor people (they are smell weird, are scarey, bizarrely dressed, …) and
Repairing the damages of a poor abusive childhood requires long term reasonably continuous investment in education and public health (including mental) services, and politically that is a long hard pull.

The real Pareto distribution is in the various differernt social/political cultures, viz Finland, Singapore, Costa Rica, Oman near the top, most in the middle, and nightmarish Haiti, Myanmar, DRC, Israel/Palestine at the bottom. Smart individuals (Pareto really at work here) flee the latter for the former whenever possible no surprise,

d fb

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I would strongly agree with that. I grew up in a very poor household in 1960’s Britain but could see a way out with a highly subsidized education system that paid my way to a top UK university from where I moved into a profession.

The poverty of children these days seems worse than it was then. The education system in some ways is worse as people are being ‘sold’ useless university degrees. The UK government is trying to do something about this but without success so far:

The problem with young people now is that the schools are pushing universities and young people are being taken in. I’ve tried telling younger members of my family that an arts degree from a third rate university isn’t going to get them anywhere, but no one listens!

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Thank you for confirming that economic mobility is alive and well.

The rate of mobility is influenced by the state of the economy. Take China, when they adopted equal opportunity the rate of upward mobility was close to 100%. As they got richer and the economy plateaued, the upward mobility slows. Maybe America needs to get poorer to get back to 90%

It’s nice to have a whipping boy to blame it on.

The Captain

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The reality is, it’s all of these things. Some people just have their little talisman. Croney capitalism? Anybody says this doesn’t matter is blind and an enabler. Hard work? Not without it’s relevance but really, it’s like a lottery ticket. You can’t win if you don’t play and ultimately merely an indication of survivorship bias. Doesn’t show all the workers who didn’t succeed. Parreto/law of nature? Of course that’s part of it but. But that doesn’t mean they were the best. Or deserving. It just means they were the beneficiaries of all the unknowable things that need to happen in sequence to cause an outcome. Invisible hand stuff. Everybody’s right. Everybody’s wrong.

But the Mudsill premise is ultimately right. We cannot all be tied for first place or even be allowed to finish the game. Some of us (most of us) have to do the actual work that causes success and that success might not be that of the worker. We all know the winners will never allow everybody to win, or even be able to win. And they ain’t relying on no Parreto Principle to stay ahead. Voltair said: The comfort of the rich depends upon an abundant supply of the poor

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But in the US with the UK following that is changing again. We will be going back to upward mobility.

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Part of any loss of upward mobility might be the notion that everything in the US now needs to be rationed by ability to pay. College was heavily subsidized in the 70s. In my last year in High School, a court decision that “free public education means free” resulted in no longer my even needing to buy books, pencils or notebook paper.

Now, not only have high schools gone back to requiring students to pay for all their books and supplies, but I have seen some school districts charging a fee for virtually every academic class. Colleges in Michigan now lay 70% of the cost of education on the student, because state funding has been cut to a fraction of what it was 50 years ago. Now people come out of college or trade school with many thousands of dollars of debt, so they can’t save and invest to build their personal wealth as readily as my generation could.

While educational debts inhibit upward mobility, it seems to be very easy to fall down the economic scale. A couple old g/fs of mine, both very intelligent, with middle class childhoods, fell down a couple notches, or more.

Steve

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There have always been routes out of poverty–especially through free public education. Stay in school, get a high school diploma and training programs are available.

Sadly not enough seem to follow this path. Parents, mentors, role models all help. But disadvantages tend to compound.

Note that poverty is a relative term. Move one group out of poverty and one way or another someone is still at the bottom.

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Colorado just passed a law going in the other direction.

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New York State has a free tuition program for families earning less than $125,000/year. That might not seem like much in New York City, but I suspect it’s still good money in Rochester or Syracuse.

intercst

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