Guess What's Destroying the Middle Class?

[Pointedstick]

It's true that the standard of living has drastically improved, as measured by people's access to air conditioning, mobile telecommunications, personal motor vehicles, you name it. But are these really the things that provide a "middle-class" life? It seems like most people generally consume an "average" amount relative to their peers, so people of today would have more in an absolute sense but about as much in a relative sense.

50 years ago, an average middle-class family could consume their average amount of stuff on one average income. Today, an average middle class family--a family with much more absolute material luxury, but about as much relative material luxury--needs two average incomes to sustain the same average lifestyle.

There are many ways to interpret this. We could say that hedonic adaptation is keeping people on a treadmill, and if they simply checked their materialistic appetites, they could go back to one income earner, and that would probably be true. But we could also say that wages have stagnated, such that the average income has fallen relative to the average cost of goods, and that's what's preventing this family from "keeping up with the Joneses" without having to have multiple incomes, and that would probably be true too.

[moda0306]

I tend to be sort of a minimalist (and I have no kids), so my "moda-measure" of middle-class success would be looking at costs such as:

Apartment in a safe neighborhood (or mortgage + maint/util/etc in a single family home)
A healthy mix of groceries
A mix of casual and dress clothing
Transportation costs
Medical care

(perhaps add child care for kids to capture that cost, even though I think kids are an OPTION... not a given in life)

And then compare all that to the wages a reasonably hard worker but with low education skills can earn working 40 hours per week.

If that ratio has changed considerably over time, which I'd imagine that it has, I'd say there probably is SOME problem going on.  What its cause is, and what we should do about it (if anything) is another question entirely.

[Pointedstick]

My own personal answer is the following:

Americans in general--not just "the middle class"--have been negatively affected by the interconnected trends of stagnating real wages, rising real costs of housing, health care, and higher education, and a rise in availability of consumer credit. Everybody needs housing and health care, and increasingly one's children need higher education to even have a chance. To the extent that these things have on average, risen faster than the rate of inflation, and that wages have, on average, keep up with or even fallen short of inflation, we should expect that housing, health care, and higher education costs should come to dominate budgets, which they have. However, instead of giving up other material comforts to be able to afford the aforementioned rising costs in light of declining real incomes, people have used credit to borrow their way into having it all, at the cost of debt slavery and the necessity of dual-earner households. But credit is just an enabling mechanism; the real problems are stagnating wages and rising costs for housing, health care, and higher education. Those are where the investigations should start. And the article I linked to makes the case that globalization is the major cause of the wage issue, which seems eminently plausible to me. As for what could be done to stop it, I struggle to come up with a feasible answer.

[Mountaineer]

(perhaps add child care for kids to capture that cost, even though I think kids are an OPTION... not a given in life)

Good grief, moda, do you want thousands of years of refined DNA to disapear when you croak?  Get to the bedroom quick, man! 

... Mountaineer

[Mountaineer]

My own personal answer is the following:

Americans in general--not just "the middle class"--have been negatively affected by the interconnected trends of stagnating real wages, rising real costs of housing, health care, and higher education, and a rise in availability of consumer credit. Everybody needs housing and health care, and increasingly one's children need higher education to even have a chance. To the extent that these things have on average, risen faster than the rate of inflation, and that wages have, on average, keep up with or even fallen short of inflation, we should expect that housing, health care, and higher education costs should come to dominate budgets, which they have. However, instead of giving up other material comforts to be able to afford the aforementioned rising costs in light of declining real incomes, people have used credit to borrow their way into having it all, at the cost of debt slavery and the necessity of dual-earner households. But credit is just an enabling mechanism; the real problems are stagnating wages and rising costs for housing, health care, and higher education. Those are where the investigations should start. And the article I linked to makes the case that globalization is the major cause of the wage issue, which seems eminently plausible to me. As for what could be done to stop it, I struggle to come up with a feasible answer.

Off topic, but I wonder why Africa has seemingly mostly been bypassed in the "increasing quality of life" or "globalization" or "increased standard of living" categories?  It seems Europe, the Americas, most of Asia, Australia have all had their big moment in the sun but what the heck has happened with Africa?  I guess you could make the argument that much of the middle-east would also be like Africa if oil disappeared.  Any thoughts?

... Mountaineer

[Pointedstick]

Un-PC answer: most of Africa is not culturally ready for modernity. For reasons of geography (e.g. north-south oriented continents are worse for intensive agriculture and tropical jungles are worse for health and hard to build cities in), far fewer great civilizations arose in Africa than elsewhere, and Africa had much less contact with the civilizations of Europe, Asia, and the Middle East for most of its history. The net result is that most of Africa was very underdeveloped compared to Europe, Asia, and the Middle East.

Now, much of South America was similarly underdeveloped due to similar geographical reasons, but hundreds of years of Spanish and Portuguese colonial rule and interbreeding resulted in large populations of South Americans that more or less get modernity. Africa never had that; African colonialism was much shorter, much more brutal and exploitative, and there was very little interbreeding. As a result, modernity is more foreign and seems more hostile to Africa than it is and seems to most of the rest of the world.

And of course North America, Australia, and New Zealand were more or less conquered and the native populations mostly wiped out.

[WiseOne]

OK point taken - savings rates in the 1970s-1980's were 8-10%, whereas now there's hovering around 5%.

But I stand by the rest of my post.  Standard of living has increased, but apparently not fast enough.  Otherwise, how can you say wages are too low?  The measurement of wages against, say, CPI, is not a good indicator of the quality of life that those wages can buy.
 
I'm just questioning the basic nihilistic premise that the middle class is doomed/has no chance to get ahead/has deteriorating quality of life etc.  I'm arguing that the problem arises because it is beyond the ability of many people to develop a financially efficient lifestyle in a world where it's way easier to consume on a large scale than it was 30 years ago.  I grew up in the 1970s and there just weren't as many consumer options then as now.  So I guess you could blame globalization in a way, but I tend to think that the development of suburbs with oversized houses and built-in need to use cars to get everywhere is at least as much to blame.

[Benko]

How about a simple question:  what is the percent of US population employed now i.e.  real employment vs unemployment vs last 50 years?  Why is that?

[moda0306]

WiseOne,

Certain standards have increased, but at what opportunity cost in our budget?  I think the ultimate standard is the ratio of basic needs of life (shelter, healthy food, medical care, transportation, and putting clothes on your back) divided by the average income someone can earn by doing 40 hours of low-skill labor.

Adding in iPhones and high-tech jobs would be grossly moving from what at least the INITIAL "standard" should be.  I realize those things can be valuable, either in leisure or business, and I know someone with certain medical conditions might be far better off now.

But I think I would be wanting to see a society where it takes fewer and fewer weekly hours of unskilled work to pay for a 1BR apartment and the necessities of life if I was going to say that our "standard of living" has TRULY increased.  I think the rest is just noise until we measure that base ratio.

[moda0306]

How about a simple question:  what is the percent of US population employed now i.e.  real employment vs unemployment vs last 50 years?  Why is that?

I think there are too many factors here.  First off, if the number is lower, it could indicate people have the ability to retire sooner, or simply that we are in the middle of a recession... the latter of which is cyclical and could be a bad indicator of structural changes in the economy.

I don't mean to shoot down your question, but I don't think it gets to the core of the issue.

And the "why" of a lot of this is sure to get into political debates we've had a dozen times!

[Pointedstick]

WiseOne,

Certain standards have increased, but at what opportunity cost in our budget?  I think the ultimate standard is the ratio of basic needs of life (shelter, healthy food, medical care, transportation, and putting clothes on your back) divided by the average income someone can earn by doing 40 hours of low-skill labor.

Adding in iPhones and high-tech jobs would be grossly moving from what at least the INITIAL "standard" should be.  I realize those things can be valuable, either in leisure or business, and I know someone with certain medical conditions might be far better off now.

If you didn't have a computer or a cell phone in 1960, you were in the same boat as everyone else. If you don't have a computer or a cell phone in 2014, you're crippled in many ways, unable to participate in large parts of modern society. That's what I'm talking about. "Average" now means that you have a cell phone and a computer. It means that every family has a car, and it means that to be employable in most anything with decent pay and upward mobility, you have to have a college degree. The standards of "average" ratchet up if you follow that "average" path. Obviously there are ways to win at this game by not being average; better job, lower expenses, savvier purchasing habits, less debt, more savings, cleverer school selections, etc. But we're talking about averages. I think it's pretty obvious that average is harder now that it was before. What does this mean? I don't know. But it doesn't seem like a positive development for society in general.

[Tyler]

"Average" now means that you have a cell phone and a computer. It means that every family has a car, and it means that to be employable in most anything with decent pay and upward mobility, you have to have a college degree. The standards of "average" ratchet up if you follow that "average" path. ... I think it's pretty obvious that average is harder now that it was before. What does this mean? I don't know. But it doesn't seem like a positive development for society in general.

One thing I've observed is that a good deal of middle-class debt goes to purchase the signals of the upper-class -- expensive homes, cars, college degrees, fancy clothes, smart watches, etc.  Well-meaning government has even exacerbated this problem by explicitly expanding credit for homes and degrees to "help" middle-class families.  But people have (once again) confused correlation and causation.  A large home, three cars, and a college degree does not make one upper-class.  In fact, the debt used to acquire them is an anchor against upward-mobility.  Social facades are expensive and unsustainable, and we're starting to see the cracks.

[moda0306]

PS,

I realize "the average" is probably harder now than it used to be. This probably corresponds well that even "the basics" are harder now than they used to be. 

40 hours per week at a low-skill-requirement job just simply doesn't buy as much rent, transportation, medical care, healthy food, and clothing as I believe it probably used to be.

Just as it probably takes more work to afford "average" today. I don't think we're disagreeing with each other.  I think we're just measuring different inputs for comparison.

The reason I stick to those basic items is because I think we can get lost in all the non-essentials, and how great they are, and all that other bs, that the argument has no grounding because we can't all come to full agreement on how awesome the internet is or how great making calls while walking down the street is.

40 hours a week of dumb labor (pardon the term) and certain basic essentials of life are a lot more objective (though not perfect).  That's why I concentrate on them. 

[moda0306]

"Average" now means that you have a cell phone and a computer. It means that every family has a car, and it means that to be employable in most anything with decent pay and upward mobility, you have to have a college degree. The standards of "average" ratchet up if you follow that "average" path. ... I think it's pretty obvious that average is harder now that it was before. What does this mean? I don't know. But it doesn't seem like a positive development for society in general.

One thing I've observed is that a good deal of middle-class debt goes to purchase the signals of the upper-class -- expensive homes, cars, college degrees, fancy clothes, smart watches, etc.  Well-meaning government has even exacerbated this problem by explicitly expanding credit for homes and degrees to "help" middle-class families.  But people have (once again) confused correlation and causation.  A large home, three cars, and a college degree does not make one upper-class.  In fact, the debt used to acquire them is an anchor against upward-mobility.  Social facades are expensive and unsustainable, and we're starting to see the cracks.

I totally agree with all this.  Too many people are trying to "keep up" to be happy.

But I still think I have to ask... take a 40-hour per week unskilled worker in 1965 and ask him to pay for rent in a modest apartment, get healthy food at the grocery store, pay for medical care, buy clothes, and get himself around town...

Is he better off, or is a guy doing the EXACT same thing in 2015 better off?

I honestly don't know for sure.  But if I had to put money on it, I'd say the guy in 1965.

Don't get me wrong, there's so much more nuance to throw on top of all this, including if you give him a family of 5 to support, but I have to wonder...

[ochotona]

But I still think I have to ask... take a 40-hour per week unskilled worker in 1965 and ask him to pay for rent in a modest apartment, get healthy food at the grocery store, pay for medical care, buy clothes, and get himself around town...

Is he better off, or is a guy doing the EXACT same thing in 2015 better off?

I honestly don't know for sure.  But if I had to put money on it, I'd say the guy in 1965.

Don't get me wrong, there's so much more nuance to throw on top of all this, including if you give him a family of 5 to support, but I have to wonder...

The 1965 guy was not competing against China and India on the one hand, and the automation of work on the other.

[moda0306]

Yeah but isn't this whether that American had it better than a modern-day American?  Isn't this a question, first and foremost, of whether there is even a weight being placed upon the middle class that is worse than it used to be (on a "needs-base" at least)?

I agree with your REASONS... but some don't even think it's happening... and I'm torn but tend to not want to agree with them.

[bedraggled]

Wouldn't check of the total credit card balances of the 1965 guy and the 2015 guy be an indicator?  Or maybe THE indicator?

[barrett]

But I still think I have to ask... take a 40-hour per week unskilled worker in 1965 and ask him to pay for rent in a modest apartment, get healthy food at the grocery store, pay for medical care, buy clothes, and get himself around town...

Is he better off, or is a guy doing the EXACT same thing in 2015 better off?

I honestly don't know for sure.  But if I had to put money on it, I'd say the guy in 1965.

I think the guy in 1965 is WAY better off because he probably has a job that is unionized, the economy is generally good, he has the likelihood of keeping that job for 40 years AND getting a pension that lasts until he kicks. All those layers of security are awfully important over time because they allow one to plan.

Wouldn't check of the total credit card balances of the 1965 guy and the 2015 guy be an indicator?  Or maybe THE indicator?

Yes. Much of what we think people own today is just a facade. They have cars, homes and gadgets galore but most of it is not paid for. The only debt my parents ever had was for the $15,000 house they bought in 1955 (My dad got a special GI rate of 3%).

I think my dad's working life was a good illustration of what someone with average talent could accomplish before so many things could be done with a click of a mouse. He sold school books for 25 years, going around meeting with folks and pitching his products. He was good at his job but had no previous background in sales. When he retired in 1983 he was eligible for a pension. This is an example of a job that just doesn't exist anymore. And he and my mom had enough money saved (and enough income through various pensions) to be able to travel the world for 20 years.

True that our "stuff" lasted for ages and we really only got new toys at Christmas and new clothes a week before school started. The middle class gadget baseline was extremely low in the 60s and 70s.

[WiseOne]

That's a decent measure.

Without doing a lot of research (due to part intellectual laziness and a larger measure of lack of time), I can draw an analogy to my own family's experience in the late 60's/early 70's.  My experience closely parallels TennPaGa's btw.  My father was an engineer earning what was considered in the late 1960s a decent salary:  $8K/year.  The house my 3 siblings and I grew up in cost $45K at the time - that's almost 6x income.  Today, my crazy expensive apartment is selling for about 4.5x my income.

College has certainly changed.  My parents managed to pay for all of us to go to college with a minimum of student loan borrowing.  But in order to accomplish that they held their spending to a bare minimum.  My mother kept a strict weekly cash budget, we had just one TV in the house, and my father was the DIY master with a garage full of tools that the neighbors all came to borrow.  Also I had a big tuition scholarship.  That would be hard to pull off today unless all of us stuck with the state colleges.

One thing for sure, the guy in 1965 didn't have a credit card balance.  People bought most things with cash & checks then.  I still think easy credit is one of the reasons the middle class is finding it hard to stay above water.

[goodasgold]

Yes, decent paying jobs, lifelong positions and privately-funded pensions were common when I was growing up.

But I still think overspending is a major cause of financial problems today, even for moderate income people. Credit card balances are enormous (most people don't have a clue regarding the staggering sums they pay in credit card interest), and people don't realize how expensive it is to own, insure and operate a car (or even worse, multiple cars, which is common today.)

And think how much the average family spends on fast food! When I was growing up, eating at a drive-in was a rare occasion, and we only drank soda once a week, when my parents bought a six-pack of Coca-Cola after church on Sunday.

And speaking of soft drinks, Cokes in those days were consumed from those small, iconic Coke bottles made of greenish glass (maybe 12 ounces?) The size of drinks today in fast food places is a horror, in my opinion. And then we wonder why diabetes, excessive weight and other common ailments are so prevalent now. Please don't get me started! 

[barrett]

But I still think overspending is a major cause of financial problems today, even for moderate income people. Credit card balances are enormous (most people don't have a clue regarding the staggering sums they pay in credit card interest), and people don't realize how expensive it is to own, insure and operate a car (or even worse, multiple cars, which is common today.)

I think that keeping up with the Jones's in the 60s and 70s wasn't that hard because the Jones's were pretty happy just leading a simple middle-class life themselves. At least that is how it was for our family growing up in the Philly suburbs. We were surrounded by neighbors who basically lived as we did. I don't think there was a lot of angst about not having stuff. Here in CT where I spend most of my time now, many homes have four cars in the driveway... none of them paid for. But creating consumer demand out of thin air is much of what drives an economy, at least the way everything is set up now. A lot of those stock returns in the 80s and 90s came about from people spending like mofos, right?

[bedraggled]

If you read some of Micael Moore's stuff, he talks of growing up in Flint, MI, where everyone had about the same- even the attorney down the street.

[Tyler]

it may be an argument about semantics that could circle without end.. but to my mind part of the very definition of middle-class was fiscal responsibility and financial planing, if you have the trappings of wealth bought with debt you are not the true (old-fashion?) definition of middle class... you are a debtor and you are in reality. either poor, or at very high risk for being bankrupt if you get hit by one bad event or have one unexpected turn...  in my mind the 1960/70s middle class was in part defined by its stability, planning and frugality, it had stuff.. but it had stuff it could afford.. 

I think that's mostly true, except for the part about the middle class as a whole being smart with money. At least not anymore.

Expanding my previous point, I agree that many complaints about the plight of the middle class today may be because we're really talking about lower-class folks who have simply purchased a middle-class facade on credit.  Then there's the slice of the solidly middle class who also tries to "buy up" a lifestyle they can't afford. In general, easy credit has done a lot of harm to the modern concept of fiscal responsibility and has mixed up our signals on what differentiates people financially.

FWIW, I still believe that the middle class is not harmed universally today. They are much better off in some places than in others. So it's not just about credit -- there's more to the story. For example, the middle class is virtually extinct in San Francisco. They didn't spend themselves out of existence. Real estate, taxes, and culture are likely much more significant factors.  They left because they had no future there.

[dragoncar]

When I was growing up, eating at a drive-in was a rare occasion, and we only drank soda once a week, when my parents bought a six-pack of Coca-Cola after church on Sunday.

You 1 percenter, you! My brother, sister and I only got to split a 16 oz bottle of coke on Sunday. 5 2/3 oz each, and we had to use a measuring cup to ensure no one ended up with more than anyone else.

By contrast, my GF and ex-wife both drink a 2L bottle of diet pepsi about every 3 days. I keep telling them how unhealthy it is, but neither will listen.

You had measuring cups?? Luxury!  We had to drink out of broken rocks from the side of the road

[barrett]

You had measuring cups?? Luxury!  We had to drink out of broken rocks from the side of the road

Your town had a road?? Here is the link to the clip:

https://www.youtube.com/watch?v=Xe1a1wHxTyo