What is "Middle Class"?

[Túrin Turambar]

[Note: I split this off from the President Obama thread - VtF]

Something like the preliminary Deficit Commission report released yesterday just appalls me into silence. It's utterly blatant. Dismantle the safety net, raise taxes on the poor and middle class, cut them enormously for the rich and corporations. We're on our way to being a banana republic.

Not so much the poor, but yes, the American middle classes have basically gotten a free ride when it comes to tax. They reap the full benefits of the two by far biggest and costliest Federal welfare programs, Social Security and Medicare, yet pay far less tax than is the OECD norm. We’ve already discussed this graph here, but basically the U.S. and Japan stand out among the OECD for making their corporations bear the brunt of their tax burden rather than individuals. And we also recently discussed how about half of Americans pay no Federal income tax at all.

[axordil]

And we also recently discussed how about half of Americans pay no Federal income tax at all.

That's not the middle class. That's low (or no) income people and a few very clever, monumentally rich folks at the top of the pyramid.

Social Security and Medicare taxes, by the way, are not the same as income taxes. They're payroll taxes. The people who get a "free ride" from them either don't get paid (see lower class, above) or live off of non-payroll means (see top of pyramid, above). Telling an American wage earner that they're getting a free ride from SS or Medicare after they've paid into them their entire adult lifetime is not going to end well.

[Túrin Turambar]

And we also recently discussed how about half of Americans pay no Federal income tax at all.

That's not the middle class. That's low (or no) income people and a few very clever, monumentally rich folks at the top of the pyramid.

I know, but there I was referring to the ‘raising taxes on the poor’ comment. It isn’t like the poorer half of Americans bear any sort of unfair tax burden compared to the wealthier half (including the middle- and upper-classes).

Social Security and Medicare taxes, by the way, are not the same as income taxes. They're payroll taxes. The people who get a "free ride" from them either don't get paid (see lower class, above) or live off of non-payroll means (see top of pyramid, above). Telling an American wage earner that they're getting a free ride from SS or Medicare after they've paid into them their entire adult lifetime is not going to end well.

That’s true, but a tax is a tax in macroeconomic terms. I know that people and the businesses that they work for pay into SS and Medicare, so I wasn’t entirely accurate in claiming that they get a ‘free’ ride. But they do get a much easier ride than is normal for middle-class people in the OECD. If you are poor and struggling, you won’t be paying any federal income tax, but you’ll still need to pay equivalent amounts of your income to SS and Medicare. And you won’t get much else – very little of the Federal budget goes into programs for the poor. IOW, if you are upper- or middle-class, very little of your money goes to the poor. About a third of the Federal budget will be paid out to you in some form after you retire. It is unusual for a country’s welfare system to basically pay out to everyone regardless of income.

I don’t include the very rich because there are so few of them. A household on 50k a year is doing better than 50% of others, and one on 100k (eg. two spouses making 50k each) is doing better than about 85%. Only 1.5% of households make more than 250k, and fewer than 0.1% make more than 1.6m (per wiki here). The middle class is the wealthiest sizeable group of people and households.

[Holbytla]

I wouldn't even know where to begin to refute much of what you say, but it is clear to me that the eradication of the middle class in this country is well on its way to fruition. It isn't the poorer or richer classes that are bearing the brunt of the cost for running this country and it isn't the poorer or richer classes that are as affected by companies declaring restructuring or economic feasibility. The poor still receive public assistance and the rich still receive bonuses. It is the middle class that is being forced towards the poorer classes with job cuts and pay decreases and bailing out corporations..

[Dave_LF]

We're on our way to being a banana republic.

Or already there. Summary: US wealth inequality has become worse than it is in several of the actual banana republics.

[yovargas]

I wouldn't even know where to begin to refute much of what you say, but it is clear to me that the eradication of the middle class in this country is well on its way to fruition.

People always say stuff like that and I always wonder where that idea comes from. Are there any actual numbers that support that notion? The numbers LM's throwing out there sure don't to me. Looks like a massive chunk of our population is in the 40-100K range which is pretty darn middle class to me.

And I find the "wealth inequality" discussion meaningless. What matters is the quality of life of the lower classes not how much more other people have. IMO, saying "that CEO has zillions more than me! unfair!" is little more than jealously if the average person has a decent standard of living and has opportunities to improve it.

[Holbytla]

Well ok maybe real life stories are will take the place of stats on a sheet.

Employee X has been working for company Y for 26 years. During the first several years of that time, the founder died and was replaced by his daughter and son-in-law. They came close to running the company into the ground, but still managed to retain a 20%+ market share.

Upon a stupendous mistake by them a few years later, a company known for dismantling and selling off portions of companies for profits bought the company. During the next seven years they redirected the company and brought with them a lot of foresight and made the company extremely profitable and garnered a larger percent of the market share.

At around year 10 of this employees tenure the company was sold again. This time to an overseas corporation that specialized in the field and had many holdings of similar stature worldwide.

Another ten years or so pass and the company still thrives. The market share has grown ten fold and the profits are being reaped like never before. Competitors are falling by the wayside and profits still run like a fast river.

Cue the economic crisis of a few years ago.
Profits are still rising and the market share has reached an all time high of 65%. Most corporations have suffered losses, cut staff, and have dwindled into protectionate status. Yet this company still thrives. Proftits are still exceeding goals and market share continues to rise as competitors fall by the way side.

The company, in its infinite wisdom, wants to remain competitive. Costs have got to be removed from the operation in order to compete with the Wal Marts of the world and the minuscule wages being paid by corporations overseas.

Umm yeah.

Employee X started working for this company 26 years ago at roughly $12.25. per hour. Starting wage today is $13.00 an hour. Yes both have had free medical and pension benefits, but it is supremely clear that any and all wage increases have been eaten up by medical costs. Compare that to cost of living over 26 years, and compare that to the top 10% of employees that are still receiving bonuses and are still garnering most of the wages.

Then tell me after 26 years of working weekends, nights, 12-16 hour days, 30 days working without a day off, holidays and whatever else for the good of the company, they have the temerity to ask for concessions and it is ok. How is it good for the country to have someone earning roughly the same wage after 26 years of employment in the face of continued record profits and market share?

Why are we better off that there are a few more millionaires? They still only buy one or two loaves of bread per week. Divide that salary by 10 or 20 and there you get 20-40 loaves of bread purchased in a week.

Sure this is a free market system and not a worker's paradise, but where do you draw the line?

People like employee X, built corporations like company Y and yet we stand idly by and watch the benefits be funneled overseas without regard for community.

Free market society? Earn what you can? Fine. We have a right in this country to organize and negotiate. We have a right in this country to bring into reality 40 hour workweeks, minimum wages and benefits. Worker's rights.

This is far from an isolated story. It is happening around you all of the time. Overseas and their tiny wages are making American corporations try and come up with ways of competing and it is coming off of the backs of the average Joe and not the executive. Research the meat packing industry and see there the abominations that have been perpetrated over the last 20 years.
Research the cost of living and the average American worker over the last 20 years and compare that with inflation. Then research cooperate execs and see what companies are reaping in for profits. The research public bailouts on Capitol Hill.

The middle class American worker has had to deal with inflation and rising costs with roughly the same wage as 20 years ago. If that isn't the eradication of the middle class, then I don't know what is.

[axordil]

What matters is the quality of life of the lower classes not how much more other people have.

Both matter, and not for issues of fairness or anything like that. Inequity matters because nowadays large concentrations of wealth are like financial and political black holes--they deform reality around them so that they can suck up even more wealth, and once there, wealth can't escape in a way useful to the economy as a whole.

When the very rich invested in things that created jobs for people here, as opposed to elsewhere, this was not the case. Even during the age of the robber barons, US money went back into the US economy via investment into US corporations with US employees.

Now the money goes wherever it can be leveraged for the most profit in the short term, and that almost never means it benefits anyone but its masters, at least not where we can see it.

What good does a cheap LCD TV do for someone who can't get a job, other than distracting them?

[River]

Social Security and Medicare taxes, by the way, are not the same as income taxes. They're payroll taxes. The people who get a "free ride" from them either don't get paid (see lower class, above) or live off of non-payroll means (see top of pyramid, above).

Just to illustrate this point, five years ago, my sister had to quit working for a few months due to illness and move home. She did not earn enough that year to pay income tax, but she still owed for Social Security and Medicare. One of the reasons I haven't received a tax refund in years is because when I was a grad student, the university didn't withhold my Social Security like they were supposed to and I had to pay in at tax day every year.

[Dave_LF]

Have you checked the unemployment stats lately? Scads of people do not have the ability to improve their circumstances. And the real killer is that fewer and fewer young people are finding good jobs. These facts have been bandied about before, but in the 70s, one adult with a high-school education could buy a house and support a family working forty hours a week. That's practically unheard of now. The middle class is being destroyed not so much by taking wealth from its existing members, but by making things tougher for each successive generation.

[Infidel]

I wouldn't even know where to begin to refute much of what you say, but it is clear to me that the eradication of the middle class in this country is well on its way to fruition.

People always say stuff like that and I always wonder where that idea comes from. Are there any actual numbers that support that notion? The numbers LM's throwing out there sure don't to me. Looks like a massive chunk of our population is in the 40-100K range which is pretty darn middle class to me.

The Skeptical Optimist delved into this a couple years back, using data from the Census Bureau, and noted that:
"The middle class of yesteryear is indeed disappearing: it is getting squeezed, like toothpaste from a tube, into the income category labeled "greater than $100,000.""

see the fourth chart down in this post:
http://www.optimist123.com/optimist/200 ... about.html

[Ghân-buri-Ghân]

Have you checked the unemployment stats lately? Scads of people do not have the ability to improve their circumstances. And the real killer is that fewer and fewer young people are finding good jobs. These facts have been bandied about before, but in the 70s, one adult with a high-school education could buy a house and support a family working forty hours a week. That's practically unheard of now. The middle class is being destroyed not so much by taking wealth from its existing members, but by making things tougher for each successive generation.

The designation "middle class" is a sleight of hand perpetrated on the working classes by the ruling classes with the specific goal of "divide and conquer".

Ultimately, all war is class war.

[Túrin Turambar]

I wouldn't even know where to begin to refute much of what you say, but it is clear to me that the eradication of the middle class in this country is well on its way to fruition. It isn't the poorer or richer classes that are bearing the brunt of the cost for running this country and it isn't the poorer or richer classes that are as affected by companies declaring restructuring or economic feasibility. The poor still receive public assistance and the rich still receive bonuses. It is the middle class that is being forced towards the poorer classes with job cuts and pay decreases and bailing out corporations..

(Just to begin, a lot of this post has been copied from a post of mine on TORC).

It is the lower- and working-classes who have borne the brunt of both the current economic crisis and changes in the economy over the past few decades in general.

Certain lower-middle class occupations have slid backwards, or are otherwise underpaid compared to the education and work needed to do their job or their social responsibility. Teachers are probably the prime example. Middle managers and lower-rung office workers have also been squeezed. But on the whole, I’d say that the middle classes are about as numerous and well-off as they ever have been since the Second World War. Educated professionals like doctors, lawyers and accountants, small business owners and middle- to upper-level white-collar workers in the public sector or private companies still own houses, send their kids to university, and go on holidays. They have far more debt than they used to relative to their savings and investments, but so does everyone else these days.

The people who’ve suffered most have been those whose jobs have steadily disappeared over the last few decades due to either labour-saving technology or outsourcing. There used to be literal armies of farmhands, miners, dock workers and factory workers. They weren’t well-off and had to work damn hard, but in the 1950s it was quite normal for them to own houses and raise families on one income, and even become more or less economically independent in their retirement. Only the construction industry still seems to employ very large numbers of blue-collar workers. Unloading a container ship on the waterfront, a job which in 1940 took a hundred men, now takes fourteen using modern cranes.

As a result, the sorts of people who used to have steady, long-term unionised blue-collar jobs now largely work unstable, casual, low-paid jobs in the service industry. Far more people go into higher education, which is a good thing in many ways, but also means that competition for graduate jobs will be fierce and large numbers of people will end up with degrees that won’t help them on the job market. It also means that, more and more, the economies of countries like the U.S. seem to run on a large, low-paid retail workforce selling low-priced imported goods to each other and everyone else.

There’s also some factors specific to the U.S. Unlike in every other OECD country, the U.S. doesn’t have a national public health insurance scheme, so wealthier people do not subsidise the healthcare of poorer ones (much) through taxes. And given that education is heavily-funded on a local level through property taxes, people in middle- or upper-class neighbourhoods don’t pay as much towards the education of people in poorer ones as is the norm. That is the basis for my comment above that the U.S. (federally) has an unusual welfare system – in a large part it pays out across the board. The poor American doesn’t get much more government assistance than the middle-class one. And in turn, the middle-class one doesn’t pay that much to support the poorer one. That (along with comparative corporate and personal tax rates) is the basis for my original claim that the American middle-class has something of a free ride by OECD standards.

[Holbytla]

But on the whole, I’d say that the middle classes are about as numerous and well-off as they ever have been since the Second World War.

This is essentially the antithesis of reality imo. I am not in any way capable of refuting this in any substantial way at the present time, but the crux of my argument will eventually revolve around this.

[Dave_LF]

But on the whole, I’d say that the middle classes are about as numerous and well-off as they ever have been since the Second World War.

I don't know how the quantities compare, but the most salient fact for me is that in general, people who are still middle-class have to work more than twice as hard as their grandparents to do it (two adults working two full-time jobs, usually at more than 40 hours a week). If you have to work twice as much for the same amount, you're losing. In addition, they have to spend much more time and money on education, which means they're poorer when they start earning and have less time to do it.

And as I said before, the above is what people need to do. Due to a shrinking demand for labor and enormous price increases in (especially) education, healthcare, and housing, more and more simply can't. We don't know yet how that will end.

[vison]

While it is true that often nowadays both partners "have" to work, it is often just as true that people "expect" or "need" to have a great many things their parents and grandparents did not have or need.

I grew up in a small house with 5 siblings. We were never hungry or cold, but we had: no TV, no washer and dryer, no vacuum cleaner, no microwave, no computer, no second car, no vacations other than visiting relatives who weren't that far away, no camper or RV, no riding or, indeed, any kind of motorized lawnmower. My mother cooked every scrap of food we ate.

We were poorer than many, but everyone we knew lived like that. Kids did not have after school jobs unless it was in their dad's business. Few of the mothers worked away from home.

There was no MacDonald's to hire kids, no Walmart, no vast empire devoted to selling music to kids.

With the possible exception of housing, the necessities of life are cheaper now than they have ever been. Americans spend less of their income on food than anyone else on earth.

I do think that many ordinary people are losing ground in this century, however. We expect much more. Our health care (rather, our sick care) requirements are enormous compared to 50 or 100 years ago. I know that somewhere there are statistics that will show what the actual costs of things are, in terms of hours of work required to buy them. I don't have the time to scope that out right now.

[yovargas]

With the possible exception of housing, the necessities of life are cheaper now than they have ever been.

Another reason I don't usually buy the "shrinking middle class" narrative. There's such amount of everyday stuff that has improved our lives or made our lives easier and more luxurious. It's so everyday we put no thought into it at all but you have to factor what we have now that people decades ago didn't if you're going to attempt to do a fair comparison.

Oh, and let's not forget that with those rising health care costs have come vast improvements in medicine. Such as certain beloved folks managing to beat cancers that 30 years ago likely would have been fatal.

[Dave_LF]

Things that begin as luxuries have a way of turning into necessities. Especially when both adults need to work all the time. Cellphones, internet access, cars, electricity... just try being successful in the modern world without them (though I intend to fight the cell thing to the bitter end ).

[axordil]

There are a lot of hidden costs in keeping food and consumer goods cheap. Family farms, animals raised without quarts of antibiotics and hormones, jobs for those without college, US manufacturing of anything except BS...what are those worth? Because we spent all those to get $79 LCD monitors and the dollar menu at McD's. And we're borrowing too, from our children's future, every time something is extracted, manufactured and discarded.

[Túrin Turambar]

But on the whole, I’d say that the middle classes are about as numerous and well-off as they ever have been since the Second World War.

I don't know how the quantities compare, but the most salient fact for me is that in general, people who are still middle-class have to work more than twice as hard as their grandparents to do it (two adults working two full-time jobs, usually at more than 40 hours a week). If you have to work twice as much for the same amount, you're losing. In addition, they have to spend much more time and money on education, which means they're poorer when they start earning and have less time to do it.

And as I said before, the above is what people need to do. Due to a shrinking demand for labor and enormous price increases in (especially) education, healthcare, and housing, more and more simply can't. We don't know yet how that will end.

Vison and yovargas' comments aside, I think that these things have hit the lower and working classes harder than the middle classes. Middle class folks can still own houses and save for retirement, even though they need to work longer hours for them. Such things are increasingly beyond the reach of blue-collar households, even those with two incomes. The days of the factory worker who owned a small house and supported a wife and three children are more or less over.