New study: the middle class is collapsing in the United States
Posted by UncommonSense 9 years, 5 months ago to Economics
Good stuff here. The line that really stands out for me: "There’s no longer a career track, growth, or significant advancement." I've been experiencing just that for the last couple of years. I don't think I'm alone here.
When Nancy Pelosi said she viewed the overrunning of our southern border as "an opportunity," I thought that to be very telling.
I mentioned the 1% as "apexes of wealth". They are dynamic over time, growing and shrinking. Very few 18th century free market fortunes survived the 19th century and very few 19th century free market fortunes survived the 20th century. I expect few 20th century free market fortunes will survive the 21st century. Free market apexes of wealth only survive as long as they are useful and are intelligently administered. Not so for government wealth. Government can suck dry a source of wealth with the stroke of a bureaucrats pen. Happens all the time.
I wrote what I did to illustrate the dynamics of wealth in a free market system. In a socialist/communist system there is only one apex: government. Yes, the 2nd 1% as well as the 3rd, etc., are apexes of wealth, too. In a robust dynamic economy they can be rising to the 1% or falling from the 1% or anywhere in between. Hopefully, you get the gist.
This sort of security simply doesn’t exist anymore.
These days, it typically takes two working parents just to be able to afford a comfortable standard of living. And even then, just barely."
The flaw in that reasoning is what one considers "comfortable." If that were one car, an 1800 sqft home, no air-conditioning, no cell phone, no computer, no Wii, etc., etc., etc. then I think that a single income would be sufficient to live that lifestyle. The fallacy is trying to compare the current lifestyle with that in the '50's and wondering why it takes so much more income to live the current lifestyle. We want more stuff, that takes more income.
And that doesn't even count the additional tax burden for the middle and upper class.
You hit the nail on the head, I was composing a similar response while I read the first part of your comment and then saw your correct analysis.
The cost comparison of college carries through to everything else as well. A car used to cost $3,000 when the income was around $15-$18,000 annually.
Now that average income is around $48,000 a car that is desirable costs over $20,000.
Carry that concept through to housing and all other expenses and it is easy to see the problem. Starter houses for newly marrieds in their mid 20's don't need to be in the $200,000 plus range just because their parents after 30 years own a house in that range plus.
Fred Speckmann
commonsenseforamericans@yahoo.com
Some of the root cause 'changes' I've noticed started when I was graduated from college in 1968. One of the first 'gifts' I got was an ad from Sears to get a credit card. Mom and dad, who'd lived through the Great Depression, never had credit cards and abhorred debt. I grew up in a house that had no mortgage.
But after that period, credit cards made lots of money for banks and allowed tons of people to avoid 'delayed gratification' so long as they could keep up the minimum payments. Good Living was a credit card swipe away. Debt exploded.
Subsidized college loans (lower-than-free-market interest rates) created excessive demand and today kids are trying to figure out who they can hit up to pay off their loans.
Big advance in intellect and knowledge of economics, there, eh? Not.
Yep, every price or statistic quoted in treatises like that one should/must include normalization and graphs to show the relative cost and changes in price over at least the past 50 years, or someone is just blowing smoke up your butt.
In 1969 I bought an expensive car... sticker price around 50% of my gross income. But I had no debt, was living at home, had a good-paying job, negligible expenses and paid cash for the car after saving my income for a year!
Normalizing all that stuff shows me that today, looking at average home and car prices and average incomes, little has changed, other than the amount of debt people carry... and bitch about. And I didn't OWN a TV until I owned a home and turned about 45! But it was one of the biggest, best TVs you could buy back then, and I paid cash for that, too.
Fred
Thank you for noticing that as well. We don't have cable, Wii and we bought a fixer-upper...which keeps us busy.
Priorities are often the problem with folks.
The restrictions on capital gains also mean that making income through the stock market will increase your wealth much faster than working independently, which is quite a strange thing to push people towards.
The 0% capital gains only sets in if your "income" is in the bottom bracket, which is why you see so many executives taking $1 salaries and getting compensation in special stock options that are eligible for capital gains.
This, in my mind, is the most directly obvious way middle class people are being pressured into staying in middle class.
Are long-term capital gains not taxed?
That all makes capital gains roughly half of what income tax is.
So I guess it isn't as unfair as I originally thought it was.
So it looks as if the statement that the middle class is collapsing has a degree of accuracy. It also looks as if more people are 'shrugging' (non-employer businesses).
There is reason that more business are 'renting' employees: you get a chance to see if the person is worthwhile before you offer them a job; your burden is not as great because you do not have to offer them health coverage (now an increasing issue); if they work from home, there is less investment in brick-and-mortar.
That being said, my company has recently passed its 20th anniversary, and our employees have been with us for 5, 10, and sometimes 20 years.
Now onto the other side of the equation. I vent about a couple of brilliant young (! not so much any more) programmers we have. They have terrible work habits (getting better, though), big ed loans to pay off...but they do things like flying to the East Coast for a reunion with their buds when they are having trouble making ends meet. Somehow money is still 'magic' to them. (On the other hand, a self-made wealthy woman I know clips coupons and invests every cent she earns and still has enough money left over to enjoy a great life with many hobbies and options.) So I also think the argument that 'lifestyle habits' and the definition of how many TV/PC are included in a 'minimal home environment' has sway in many instances.
I find it more difficult to blame intelligent younger people for considering money magic when it is accurately become a fiction that is printed on whim. I also think that people are estranged from reality and this has led to the rise of modern liberalism (which is puzzlingly unrealistic). There are many threads to what is happening, and I do not like the pattern that these threads are weaving. I just hope that Atropos will spare the shears a while longer and give us a chance to work it out.
Jan
Let me re-write one of my above sentences, however:
"...when it is accurately become a fiction, that it is printed on whim."
I do not mean to say that it is a 'fiction that money is printed on whim'. I did mean to say that money is a fiction, BECAUSE it is printed on whim.
Woops. My bad.
Jan
quantitative easing and the like, from our friends
at the fed plus in congress, and welfare programs,
to maintain the progressives' voting base. -- j
and I felt it, as a professional engineer, seeing
less and less distinction during my "career" --
starting with a private office and regular pay
increases ... and, 33 years later, a roommate
and stagnation. . I retired, or shrugged, or quit. -- j
I hate it when people complain they can't have a certain"standard of living." What they mean is usually a huge house, a tv in every room, a new car every 2-3 years and other such "American dream" items. These aren't required for a good life. A little personal finance responsibility allows you to intelligently spend money in ways that positively impact your life, not just fall into the consumer cycle. You can have a nice tv but do you really need 5? That's (at least) $1000 less spent frivolously which can be invested or used to create value for the community. It's very possible to live a good life on one salary if you just take time to be mindful of monetary choices. From what I've seen choices are usually what determine a person's quality of life.
Yes!
When a nation disassociates the value of production from a fixed standard, this is what you end up with - an ever-increasingly warped value in the market itself. Inflation is universally destructive because it undermines achievement itself and most especially investment. Inflation works against the entrepreneur and the investor by demanding an ever increasing income flow just to break even. It works against the landowner by devaluing rent. It works against banks and institutions of lending by forcing them to account for inflation using higher interest rates. And it works against consumers by encouraging manufacturers to produce shoddy goods which constantly need to be replaced in order to pay off their loans.
The only people who benefit from inflation are governments who borrow too much money.
1.) Whats up with the Santiago, Chile byline, and what does that have to do with Pennsylvania? It seems to be more of a propaganda article.
2.) It makes blanket statements that simply are not true for much of the country.
- For example - the 1970 versus current cost of Univ of Pennsylvania. Isn't that an Ivy League or nearly so?
- 2012 price is $42,734, big deal, I paid over $10,000 at the Univ of Minnesota in the late 1990s and my GI Bill covered most of it. Think creatively, don't whine & moan about it.
- If the "median" income is $49,486 for a family of 2 working adults in Pennsylvania, are around $12.00 an hour each, I'm going to guess they are not investing that in a college degree there, or military experience, etc. $12.00 is less than the minimum wage in Seattle for example, and basically starting pay for a college student/level in most parts of the country, or half what a McDonalds worker makes in Williston, ND, or less than a high school student in the BWI corridor. Blanket statements like that are pretty dumb to make, when there are different places to live and different schools to attend. My wife and I are in the top 3% or so of earners, and I don't feel like I could afford to send my kid to USC or Cal Berkeley or whatever. He's fine going to a state college and will get the same degree.
- Umm... the "price of a piece of paper". You mean the ability to create scholar-grade documents or creative writing skills that make the difference between selling pest control or burglar alarm services door to door or selling aircraft for Boeing or something? (for someone in the sales field for example). No offense to home services stuff, but its the difference between a couple of hundred dollar commission and millions in commissions.
- Ah, yeah, real estate asset price inflation does help quite a bit if you only save 5% - most families control a much larger asset through the mortgage leverage. If you don't have a mortgage, you pay rent, so its an inescapable expense for a large asset with a lot of leverage. (A 5% increase in a $200,000 home is $10,000, or probably more than the payments totaled on it that year and would be 20% of the income for the people in this example while $200k @ 4 times gross earnings would be a realistic price point for the couple if they lived relatively frugally).
- if a workplace 5% invested, often, that is matched by the employer (or get a different employer). 5% + 5% = 10% invested, plus the growth. In 2 years, that's like $12,000 saved/invested. Not bad on minimum wage (using their example).
3.) Who wrote this? Citing studies from UC Berkeley and the London School of Economics? There are no two more liberal places on the planet.. "Workers of the world unite!". The UK has a lot to lose as far as their best & brightest going to the US - of course they want it to sound horrible.
Here's the cold, hard truth. I used to work in the finance industry years ago, and for a while, I reviewed and underwrote mortgage applications. You see a lot into people's "bad choices" doing that. Here's a few "mantras" I found:
1.) The "shakier" the income, the more they tended to spend on flashy stuff - a Porsche, etc.. While it was a lot of income - such as at a technology startup, what's the long term prospects for whatever money-losing enterprise it was of the day? I saw a lot of 20-somethings with software engineering degrees working for a startup, living in an apartment, with a $700/month BMW lease (always for 5 years it seemed like).
2.) No idea what it is about being a blue collar apprentice (a plumber can make a lot - his or her apprentice doesn't). Just because they "might" make a lot of money some day if they have their own shop, etc., doesn't mean they have it now. but they always had the F250 turbo-diesel with 4 more years of $750 / month payments on it, and the $40,000 ski boat loan. Sometimes it was the "toy hauler" and the his & her quad runners.
- Now, driving a used Toyota pickup or something at $250 / month, and skipping the ski boat and the toy hauler until you can afford to buy one - would have been an extra $1000 a month invested or buying the family home... but... "poor" choices.
3.) I do agree with the private enterprise investment comment, you can only invest in stuff like oil & gas or private mortgage markets if you are an accredited investor... either a million cash-on-hand or a $250,000+ income. What they are missing though is that the entry-point for most of those is a minimum of $50,000 or $250,000 investment - so someone on $49k a year isn't going to be doing that anyway.
4.) Wage stagnation is a fact of life with 15%+ unemployment or partial unemployment. Blame that on the democrats... they like to have a dependent society, brings in more democrat voters. Salaries and wages are like any other supply & demand curve, fewer people in the market create more demand and wages rise.
The middle class had a chance until the welfare state took it away.
I listened to our President in the beginning of his 1st term talk about creating jobs. He had thousands of "shovel ready" jobs, remember? At the same time I had decided I wanted to acquire a string of nicer rental homes. Something to provide income, local control, and the kind of assets talked about in the above article.
What I found was while the President struggled trying to understand why jobs were not being created simply because the President wished it to be...people were calling me in the dead of winter to confirm we were going to need flooring, electrical, plumbing, plaster and paint for next spring. Inadvertently, I was creating the Jobs the President could not. The difference was I wanted to do something. The President telling his chronie capitalist friends "we need some jobs here", doesn't give anyone an incentive.
If your father or grandfather worked for a manufacturer, his job became a career. It didn't matter if he ran a punch press or if he closed the deal on the Abrahm's tank, they were all part of the team. That kind of corporate structure started going away with free trade. We bitch about the foreigners building everything, but we love the price of the 50" flat screen at Costco.
So where does that lead? this is simply my opinion. A young person today needs to develop a skill that is theirs alone and start a business based on that skillset. It can be anything from Barbershop to Banking, but if it's your business and you've made it unique, people will want your involvement.
There is always a churning in American business. The new must come forth as the old withers. Bell Telephone was once so big it had to be taken apart by our anti-trust laws. Now, almost no one uses a land line. At the time, any snapshot would not have revealed this shift.
If I didn't have a burning idea of my own, I'd find someone who did. Those who hitched their wagon to Microsoft or Apple or Google or Ebay have done well, even if they haven't shared the fame.
In the first great depression many new companies were started, Channel and US Steel to name a couple. Others were made new by people of vision. Max Factor made several fortunes by offering "hope" to his clients as they searched for a more youthful appearance.
Economic turmoil has happened before, it just seems different now. We've seen pictures of the soup lines and people standing at the hiring office with a sign stating "no help wanted!" We don't see that today because the soup line is on your food stamp debit card, you just buy your stuff and go home. The resume process is mostly electronic, which begs the question "How do you make your resume stand out?" What we are aware of is the endless droning of the unemployment statistic, the participation rate, and so on. Harry Truman had a terrific answer to a reporter's question. When asked what he thought about the high rate of unemployment? Truman responded "It depends on whether you're working or not!" On the face of it, that is a great sound bite. But drill in and you find if you are working, you have a huge advantage. You have the ability to buy almost anything at the "on sale" price because business is not good in general.
I'm not going to blow smoke up your shorts, it tough and it sucks. If you're on the short end of this stick you have to find a way to change your position. Work and a unique "position" in the workplace/marketplace are your best options.
In the Carter years I had a barbershop. I was fortunate to have a location that was convenient to businessmen. Everyday was like going to school for me because I like people and I was curious about their success stories. When Chrysler Stock went to less than $3 a share, a lot of my clients were buying it. I didn't have enough cash to buy a pack of smokes. A few years later Chrysler stock was over $80 a share. What a difference a few thousand dollars would have made, but I just didn't have the cash. Fast Forward to recent years, what do you think I did when Ford stock went down to $1.91? My point is things like this happen over and over in the course of history and we have a choice. We can either pull over and sing a rousing chorus of "poor poor me" or we can use our mind to start to plan a way to change our position on the short end of life's stick.
For the audio library, there is a 2fer. recording 1 is "The Richest Man in Babylon" #2 is "The Magic Story" That disk is available on Amazon
If you look at the economic progress made by millions from the 40s to millennium, maybe we should review!
The transfer is in part going to China, but most of it is going to the 1%.
Which, quite nicely, brings us to the subject of upward mobility. Please note that the following is from the <i>New York Times</i>:<blockquote>The odds of moving up — or down — the income ladder in the United States have not changed appreciably in the last 20 years, according to a large new academic study ( http://www.equality-of-opportunity.org ) that contradicts politicians in both parties who have claimed that income mobility is falling. ( http://www.nytimes.com/2014/01/23/busine... ) </blockquote>
So, the basic premise of this (and <i>many</i> other articles here) is quite simply false. You <i>can</i> get ahead in this country. Its now easier than ever! There are many more resources available than there were only a decade ago. See www.fool.com and http://www.ycombinator.com just for starters.
Atlas Shrugged was supposed to be a warning, <i>Not</i> A Newspaper!
Finally, it is a well documented fact that real median family incomes are smaller than they were 15 years ago. That is not upward mobility. Or the land of opportunity.
Are you TROLL?
Your second point I did address - the same individuals aren't in the same income group as they were 15 years ago.
[Sarcasm] You're saying America is a place where you can get ahead through hard work w/o a handout? Why you must be a troll. [/Sarcasm]
I agree with everything you're saying, except that by definition, when someone moves out of a wealth percentile someone else moves into it. So when you say people are moving out the top decile, someone else is moving into it.
If the people moving in are moving in because the bracket value itself is declining, that is not a good thing
http://money.cnn.com/2013/09/17/news/eco... (the poverty rate is the same as it was in 1980-note the spike upward in household median income in 1999-when companies could still go public without onerous regulations)
http://www.geekwire.com/2014/shrinkage-n...
venture capitalist professionals plummet by 60% over the last decade.
WAKE UP!