The Real 'Goldilocks Economy,' Part III

NEW YORK (TheStreet) -- In Parts I and II, we first looked at what a Goldilocks economy is not, then we broke down the actual characteristics of a Goldilocks economy. But what does Goldilocks herself really look like?

She looks like the the Middle class.

As everyone knows, the entire Goldilocks fable centers around her entrance to the domicile of the Three Bears, and her quest for balance: not "too hot," not "too cold," but "just right." And so it is with the Middle class. It inherently epitomizes this Goldilocks concept, and thus it is by no means a coincidence that the Middle class has dwindled to a minority at precisely the same time our economies are plummeting toward total collapse and bankruptcy.

At the risk of over-repetition, I will trot out the 2,000-year-old maxim from Greek philosopher Plutarch:

An imbalance between rich and poor is the oldest and most fatal ailment of all Republics.

I've explained this concept in detail in previous commentaries, but for the moment I'll simply deal with its outward appearance. A normal (healthy) economy has a wealth-distribution pattern relatively spherical in shape: a big bulge in the middle, which tapers sharply at both ends.

Conversely, as an economy becomes hollowed out, and a chasm between rich and poor emerges (as is the case today), that wealth distribution curve takes on a very unhealthy hourglass configuration: bulges at both extremes, and tapering at the middle. Why was it already "old news" 2,000 years ago that a small Middle class was "the oldest and most fatal ailment of all Republics"? Because of all of the "Goldilocks" economic virtues epitomized by the Middle class.

The reason why B.S. Bernanke borrowed the Goldilocks concept for his own propaganda in the first place was because of one specific analogy. Economies, like porridge, can be both "too hot" or "too cold," and what is ideal is a "just right" balance between those two extremes. Living in "consumer economies" (i.e. anemic, mature economies that have lost their manufacturing base), we can summarize the Goldilocks concept with a single economic statistic: the marginal propensity to consume.

This economic jargon merely refers to the percentage of each dollar that is spent by a consumer. Thus if we spend every dollar as fast as we receive it, that would represent a marginal propensity to consume of 100%, while if we hoarded every dollar we received that would represent a marginal propensity to consume of 0%. It's easy to understand why hoarding all of our money is bad.

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