What are the main factors contributing to the shrinking North American middle-class?

---

Request for Question Clarification by pafalafa-ga on 08 Jul 2006 15:20 PDT

Perhaps this answers your question:


http://www.washingtonpost.com/wp-dyn/content/article/2006/03/22/AR2006032202137.html


Seems as if the latest available data show the middle class expanding
in the US, partly as a result of increased levels of home-ownership
and the rapid rise in the value of real estate.

What do you think?


pafalafa-ga

---

Clarification of Question by ryuuri-ga on 08 Jul 2006 22:45 PDT

The Washington Post article confirms that income inequality has been
increasing steadily since the late 70's and that recent changes are
only dips in that overall trend. The article does little to explain
"why" income inequality seems to be on this quarter century growth
trend.

In regard to your comment on rising real estate values, I believe that
rising real estate prices only benefit those with enough money to buy
investment properties that the owners themselves do not live in. If
someone lives in the house they purchased then it doesn't matter how
much that house is worth because if it were to be sold the former home
owner is left to buy an new home in the same infalted housing market.
Most middle income earners do not have enough money to purchase a
second home for investment purposes and therefore although their paper
wealth has risen, their real income remains unchanged and may in fact
diminish due to rising property taxes.

Who said that it is shrinking?  Read the book.

What book?

The "middle class" is a weird thing to define, to start with.  The
first modern exploration of economic classes in society is the work of
Marx.  Karl Marx, in Das Kapital, described 3 classes of society.  The
proletariat - the workers.  The rentiers - land owners, people living
off of fortunes.  And the bourgeosie - people in the middle. 
Professionals, small businessmen, traders.  To Marx, the bourgeosie
were taking over control of society from the old aristocracy, and were
a danger to the proletariat's control over their own lives.

What is interesting about Marx's class structure is that it is not
directly correlated to income!  A prole earning a good wage might have
more money coming in than a struggling storekeeper (bourgeosie) or
scion of a wealthy family with a small trust fund (rentier).  What
makes these people different is not their income so much as the way in
which they earn it.  This is the original definition of social classes
in modern society.

In modern American discourse, class designations are often different
from those of Marx and other writers of his time.  In the mainstream
media, "middle class" is a matter of having an income that is not too
low and not too high, never mind how it is obtained.  The Republicans
and other right-wingers, in the USA, tend to talk a great deal about
the sad lot of the middle class.  However, when a Republican
politician says "middle class" he usually follows Marx and really
means small businessmen and professionals.  The kind of people he
might meet on the golf course, the kind who might be able to spare him
a few hundred for his campaign.  When a Democratic politician says
"middle class", he is often talking about someone who earns $25,000 a
year at a job, and maybe has health insurance also if they're lucky,
and has about 2 kids and a spouse to support on that.  Not that the
Democrat hangs out with this sort of person, he sure doesn't.  So, if
you're a median American, a Republican promising tax cuts for the
middle class and a Democrat promising benefits for the middle class
are equally useless to you.  Or bad, if your own taxes go up to make
life easier for people who aren't you.  But it wins elections all the
same.

The American tax code seems to follow the Marxist/Republican
definition of class.  Although taxes are seemingly income-dependant,
the same dollar is taxed differently if coming in from a paycheck,
from a business, or from an investment portfolio.  And the well-off
wage earner, a "prole" as Marx would have it or a "middle class"
person as the mainstream media, pays the highest tax rate of anyone. 
Even a minimum wage earner pays 15% in payroll taxes, just as the
wealthy investor Warren Buffett pays 15% on his capital gains
earnings.  A well-off wage earner really pays a lot, more than anyone
else.

Furthermore, probably as a legacy of the anti-Communist McCarthyism of
the 50's, the phrase "proletariat" or even "working class" or "working
people" has pretty much been excised from use in mainstream media. 
The term "lower middle class" is often used instead, which has a
notably perjorative aspect, why not call people "lowly" while they're
at it?  But at least we're all middle class, all one big happy family,
aren't we?  Except the true "lower class" consisting entirely of those
unemployable by life circumstances and deprived upbringing and lack of
education, or by disability, or by criminal record, or by utter
laziness.  We're all "middle class" otherwise.  Just some of us are
"lower middle" or "upper middle".  There is no class struggle in
America.

So you have to pick your definition of "middle class" carefully.  If
you follow the strict Marxist/Republican line, it is not clear whether
this class is in fact shrinking.  Perhaps small businessmen and
doctors and lawyers are being squeezed, I'm sure that some are, but
this isn't really what people usually mean.  But if you simply define
these classes by income, then yes, the middle class is shrinking.  It
is getting harder and harder to find work at a good wage.

Reasons?  Depends who you ask.  The only thing that all economists
agree on is that nothing can be done without making things worse for
everyone.  But it could be free trade equalizing American wages with
those of Mexico or Sri Lanka or Fernando Poo.  It could be an
increasing mechanization of the American economy that reduces demand
for workers. Or it could be a general downturn in productive industry
in the USA.  Or a transfer of power in corporations from the investors
who actually own the company to the top managers who are privileged to
pay themselves whatever they please out of company funds.  Or it could
be the weakening of the political power of labor, due to a decades-old
campaign that has successfully convinced most people to vote against
their own economic interests as wage earners.

Or it could be the stifling of industry by laws against polluting the
air and water, requiring them not to discriminate against people on
account of race or religion or age or non-job related disability or
national origin or military veteran status, by courts that award large
judgements against them if they are judged to have harmed someone in
an illegal way, things like that.

Or it could be an unavoidable consequence of the depletion of the
USA's nonrenewable resources, and of competition for the purchase of
the limited supply remaining by newly developing economies, and by the
lack of new technologies sufficient to replace these resources.

Take your pick.  Even if a real researcher picks this one up, I doubt
they'll solve the major problems of the USA for $5.  But I'm sure
it'll be fun for them to try.

Good comment, Broken_form.

Very good comment, thank you for taking the time to post that broken_form.

Thanks for that great comment. I agree, "Middle class" is a
politically loaded term. Perhaps are more clearly defined question
would have centred around income disparity, i.e. the widening gap
between the top 10-15% of income earners and the lowest 10-15% since
the 1980s?

Some of the material in this answer may be of interest to you:

http://www.answers.google.com/answers/threadview?id=189785

Here is another question on the subject:
http://answers.google.com/answers/threadview?id=714880

A large factor that keeps many would be middle classers in the lower
class state of mind these days is a sense of entitlement.  People
graduating college today (and for about 20 years now) have this idea
that they should have everything they want, or at least everything
their parents have and they should have it NOW.  So these people save
little, borrow much and spend 20 to 40 years trying to catch up
financially with their extravogant lifestyle.

If these same college grads live well within their means (lower middle
to middle class for at least a few years then gradually increasing
their standard of living), save a reasonable amount of money and don't
go far into debt then they could easily be in the upper middle class
most of their life.

I agree with "jack of a few trades", recent college grads do have a
sense of entitlement that generations before them may not have had.
Perhaps this is a result of them growing up in an era of
hyper-consumption, where companies can make billions of dollars by
selling them unnecessary status items a-la ipod. Maybe it's the
mass-marketing to which they are subjected where they are constantly
being told in the media that their every desire ought to be met
instantaneously. Or perhaps it is a school system that until very
recently held trades in disregard and held up university as the holy
grail of personal and financial success, while in reality many trades
people can earn significantly more than your average humanities
undergrad. The easy availability of credit, increased competition for
quality jobs, and decreased job security are other possible reasons
that some may feel betrayed by the promises of the current social and
economic system.

There is no true education anymore. Universities serve three primary
functions: to make sure everyone is "credentialed", to regulate the
flow of young adults into the workplace, and to ensure that as many
people as possible get a big dose of institutionalism. For the
majority of all recent liberal arts grads, unless they attend graduate
school, they've just paid (or borrowed) some big money to READ for
four years. Now they work at Starbucks or on a cruise ship somewhere
slowy forgetting all they learned about post-modern lit or eastern
philosophy. Of course they feel entitled to the good life! Who
wouldn't? Most young adults spent the first 18 years of their lives
competing for seats in universities and listening to guidance
counsellors and parents constantly asking them what they are going to
do with their lives. Add to these pressures the fact that from birth
we are brainwashed into wanting to live the "American Dream": get a
job, get married, buy a house, ect.
So young grads finish school, thinking "okay, I've got my degree,
where is my high-paying job?" But there are none. "But hey! We were
promised! Let's buy a ton of crap despite our not having good jobs!"
So now you have grads who are in crazy amounts of debt, who can't find
the jobs they were virtually promised their whole lives, and voila,
everybody moves back home with their parents until they are thirty.
That's where the north american middle class is: in their parent's
basements.

Sadie, you paint a gloom yet unrealistic picture.  Current stats are
that about 20% of people in their 20s live with their parents.
"The percentage of 26-year-olds living with their parents has nearly
doubled since 1970, from 11% to 20%, according to a professor of
economics and public policy at the University of Michigan.
-University of Michigan"
 --http://www.apartments.com/partner/rtm/fun_facts.html

Also, people who graduate college make significantly more than people
without a degree.  Perhaps college isn't as educational as it should
be, but it still greatly increases average earnings.

"Unemployment rate for bachelor-degree holders, 2001: 2.2%
Average income for full-time year-round workers with a bachelor's
degree, 1997 to 1999: $52,200"
"Unemployment rate for high-school graduates, 2001: 4.2%
Average income for full-time year-round workers with high-school
degree, 1997 to 1999: $30,400"
  --http://www.forbes.com/2003/07/28/cx_dd_0728mondaymatch.html

Of course there are stories about college grads who can't get a good
job.  I was 1 for several years (I graduated in 2000 just as the job
market crashed).  And there are many college grads who don't want to
get a good job.  But almost anyone now with a college degree and any
motivation at all can go get a reasonable job in today's market within
a couple years and support themselves if they want to.  And of course
some people without a degree will outearn these degree holders, but on
average the degree is worth a lot of money in the long run.