#us middle class

[leftreviewonline]

(via US middle class faces stagnating, shrinking wealth - Left Review Online)

[newstfionline]

The erosion of the middle class

By Simon Black, Sovereign Man, June 4, 2018

We’ve all seen the headlines: the middle class in the United States (and much of Europe for that matter) has been in decline for years.

CNN May 18, 2018: “Almost half of US families can’t afford basics like rent and food”

Marketwatch June 2, 2018: “50 million American households can’t even afford basic living expenses”

Wall Street Journal February 13, 2018 : “US households shoulder record $13.15 trillion debt”

This is the opposite of what we’ve witnessed here in Asia--an astonishing, almost unprecedented rise in the middle class.

In China, just 4% of the population was middle class in 2000 according to consulting firm McKinsey. By 2012, China’s middle class had exploded to 68% of the population.

Vietnam’s middle class has nearly doubled just since 2013. And there are similar trends across the region.

This is a pretty big deal, signaling not only a game-changing shift in global wealth and power, but also trouble ahead for millions of households on the edge.

My team and I have spent time combing through Federal Reserve data trying to explain this trend. And it’s worth starting with an obvious question: what does it mean to be ‘middle class’?

This varies from country to country. To be middle class here in Thailand is something entirely different than to be middle class in Denmark.

But in general, being middle class means you’re neither rich nor poor.

You earn enough money to be able to pay the bills without want or worry, enjoy modern conveniences and recreation, and still have some funds left over for savings and investment.

This a very delicate balance. And maintaining it depends heavily on the rate of inflation.

If wages rise faster than prices, the middle class thrives. If prices rise faster than wages, the middle class perishes. And that’s what’s been happening in the west, especially in the US.

Here’s a great example: housing. For the vast majority of people it’s their biggest expense. Most of us spend more on rent or mortgage than anything else.

Housing prices have obviously increased over time. But what’s really interesting is how much more rapidly home prices have increased over wages.

In late 2011, for example, the average home cost around 3.56 times the average salary in the US, according to data published by the Federal Reserve Bank of St. Louis.

By the end of 2017, the average home cost 4.73 times the average salary, even though mortgage rates were essentially unchanged.

In other words, even when you adjust for the fact that people are earning more, housing became 33% more expensive in just six years--and that doesn’t account for increases in property taxes, home owners association dues, insurance premiums, etc.

It’s the same with rent: back in 2000, the average monthly rent in the United States was 7.38 times the average weekly wage.

By 2017, rents had risen to 8.66 times the average weekly wage, an increase of 17%.

So even though people are technically earning more money, their money buys them less and less house.

Medical care costs show the same trend: in 2000, average annual medical care spending in the United States accounted for 10.8% of the average salary.

By the end of 2016, medical care consumed 15.5% of income, a proportional increase of 43%.

So again, people are earning more. But despite those wage increases, they’re spending 43% more on medical care than they used to.

My team and I spent some time analyzing the Department of Commerce’s “Personal Consumption Expenditures” (PCE) data series; the PCE is an account of consumer spending, and it is the Federal Reserve’s primary metric in measuring inflation.

In an ideal world, inflation would be 0%, i.e. prices would be stable, and the PCE wouldn’t budge. But that’s rarely the case.

Inflation (as measured by PCE) has averaged 2.4% per year for the past decade, and 4.8% per year since 1980.

Now, one would hope that, as consumer prices increased, wages would at least keep up.

But that hasn’t happened.

According to the Commerce Department’s data, inflation has exceeded wage growth for 33 out of the past 38 years, averaging a loss of 1.35% per year.

This is crucial. One or two years of losing 1.35% of your income’s purchasing power would be no big deal… just a rounding error.

But decades of this sustained erosion can really take a toll on the middle class. And it did.

In aggregate, inflation has outpaced wage increases by 66% since 1980. This means that the average American salary buys 66% less than it used to four decades ago.

People have made up for it by going into debt.

Back in 1980, the average amount of debt per worker in the US was 1.96 times his/her monthly salary.

Today the average American worker’s debt is 5.00 times his/her monthly salary.

Same theme--yes, people are earning more. But the amount of debt that they owe relative to their wages is more than 2.5x greater.

Simply put, this isn’t the path to prosperity. There are precisely zero examples from history of a major power achieving long-term economic success by slowly degrading its middle class.

Just like the gargantuan size of the national debt, the major funding crisis plaguing US pension funds (including Social Security), and the steady debasement of the currency, this slow erosion of the middle class will take years and years to play out.

But the impact of all these trends cannot be understated, as they will truly shape the history of things to come, both in the United States, and across the world.

[johnmauldin]

Brace Yourself For The Coming Economic Transformation

If the average person in the US feels as though they are going nowhere fast, there is a real reason for it.

Federal Reserve data shows people are earning less than they did 17 years ago. But the real story is even worse than that.

The chart below shows that median income in the US is actually down over the last 17 years and is only 3% higher now than it was 30 years ago. Those are inflation-adjusted numbers.

But the reality is that, for the average person, inflation has been much higher than the average of 2% per year over that time. This is because the things that the average person actually buys—like housing and education and health care and all the other necessities of life—are rising at a much faster rate than 2%.

Source: FRED: St. Louis Federal Reserve

So this chart reflects the fact that life has gotten much more difficult for average Americans. If people’s incomes haven’t grown beyond what they were 30 years ago, they struggle just to make ends meet and to maintain the lifestyle they had.

Growth Is An Illusion For More Than Half Of Americans

The Census Bureau updates its income figures about once a year, and the last real update we had was last fall (taking us through 2015).

Doug Short did an analysis of those numbers. He breaks the country into quintiles, calculates the average household income for each quintile, and then also shows the top 5%. Notice that the average income for the top 5% is $350,000.

Source: Advisor Perspectives

It looks like everybody’s income is rising, especially those in the top 20% and 5%. But if we inflation-adjust those numbers, the illusion of growth goes away.

What we see now is that there has been almost no movement for the bottom 60%. The middle quintile has grown somewhat, and—this won’t surprise anyone—the top 20% and 5% have done very well.

Source: Advisor Perspectives

The next chart shows what that growth looks like in percentage terms. We find that the bottom quintile saw their income grow by only 25% over the last 49 years. That’s less than 0.5% per year.

Interestingly, the fourth quintile grew even less than the bottom one, at around 19%, mainly because of government programs that supported those in the lowest 20%.

Source: Advisor Perspectives

But what about the 1%, I hear you asking? Investopedia gives us that answer:

To be certified as a one-percenter, you needed to bring home an adjusted gross income of $465,626 or more for the 2014 tax year, according to data from the IRS. The Washington Center for Equitable Growth put the average household income for this group at $1,260,508 for 2014.

But as the saying goes, your mileage may vary. It turns out there is quite a lot of variation among counties around the US as to what it takes to qualify for the top 1%. The chart below illustrates this well.

Source: howmuch.net

People Worry About Sliding Down The Class Scale

Not only are people making less, more people are worried about staying where they are financially (or not sliding down) than are trying to figure out how to get up to the next level.

The possibility that we might slide down the class scale is the source of much angst. Upper-income people worry they will decline to mere upper-middle-class status, while the middle class doesn’t want to join the ranks of the lower class.

It’s not so much that those upper-income people are worried about being middle class. It’s that they have created expenses and lifestyles around a certain level of income. If that income falls, they will have to change the lifestyle they have become used to.

That is remarkably difficult for many of us to do. Our sense of self-esteem and emotional well-being are, it seems, tied to our lifestyle.

Whether your worries are groundless or real, those fears are greater if you know you’re at the lower end of your peer group. The wealthiest .001% don’t have to worry—they’ll be fine in just about any scenario. But people in the 85th–95th percentiles are in danger of taking a fall in the next big market and economic upheaval.

And of course, the lower middle in the 25th–50th percentiles are very vulnerable to downward mobility.

The Transformation Is Coming

Whatever our income or class, we all face challenges over which we have some influence, yet we may find ourselves subject to a fate that we can’t control. The challenge that we have today is to recognize that the political, economic, and investment forces that we have become used to dealing with over the last 70 years are getting ready to shift more radically than we can even imagine.

We will have to think more deeply and creatively than ever about how to prepare for the changes—the transformation—coming to our lives.

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[newstfionline]

Middle Class Contracted in U.S. Over 2 Decades, Study Finds

By Nelson D. Schwartz, NY Times, April 24, 2017

Mike McCabe’s neighbors in rural Gillespie, Ill., consider him lucky. After being out of work for a year, he landed a job in January making cardboard boxes at a nearby Georgia-Pacific plant for $19.60 an hour.

He would agree with them, were it not for the fact that his previous job in a steel mill near St. Louis paid $28 an hour. “I’ve had to rethink my whole life to make ends meet on what I’m now making,” Mr. McCabe said. “The middle class is struggling for sure, and almost anybody in my position will tell you that.”

Middle-class Americans have fared worse in many ways than their counterparts in economically advanced countries in Western Europe in recent decades, according to a study released Monday by the Pew Research Center.

What is more, as Mr. McCabe’s experience suggests, the authors of the Pew study found a broader contraction of the American middle class, even as the ranks of the poor and the rich have grown.

“Compared with the Western European experience, the adult population in the U.S. is more economically divided,” said Rakesh Kochhar, associate director for research at Pew. “It is more hollowed out in the middle. This speaks to the higher level of income inequality in the United States.”

For example, between 1991 and 2010, the proportion of adults in middle-income households fell to 59 percent from 62 percent, while it rose to 67 percent from 61 percent over the same period in Britain and to 74 percent from 72 percent in France.

Households that earned from two-thirds to double the national median income were defined as middle income in the Pew study; in the United States that translated into annual income of $35,294 to $105,881, after taxes, in 2010.

A shrinking middle class is not necessarily cause for alarm, if the reason for the contraction is that more people are moving up the income ladder, said David Autor, a professor of economics at the Massachusetts Institute of Technology.

The proportion at the top did rise, but so did the proportion at the bottom, rising to 26 percent from 25 percent. That is much more worrisome, said Mr. Autor, who was not involved with the Pew study.

Moreover, the middle-income group was smaller--and the groups at either extreme larger--in the United States than in any of the 11 Western European countries studied.

And incomes in the middle rose faster in Europe than they did in the United States, according to Pew. Median incomes in the middle tier grew by 9 percent in the United States between 1991 and 2010, compared with a 25 percent gain in Denmark and a 35 percent increase in Britain.

The United States, including the middle class, has a higher median income than nearly all of Europe, even if the Continent is catching up. The median household income in the United States was $52,941 after taxes in 2010, compared with $41,047 in Germany and $41,076 in France.

And while inequality may be widening, the proportion of households in the upper-income strata rose to 15 percent from 13 percent.

“Financially, the U.S. remains well ahead of the countries in Europe,” Mr. Kochhar said. “The difference is how incomes have evolved, and they are catching up.”

“It’s a clear trend that the middle class in the U.S. is shrinking and not keeping up financially with the upper-income group,” he said. “There is an aura of redistribution of income from middle income to upper income.”

On both sides of the Atlantic, the pressure on the middle class is translating into frustration with the political establishment and distrust of the elites.

Like his father and uncle, Mr. McCabe worked at the U.S. Steel mill in Granite City, Ill. But after the plant was idled in late 2015, he looked for a new job rather than waiting to be called back if the economy improved.

As a result, Mr. McCabe voted for Donald J. Trump in the presidential election last year, even though he grew up in what he calls a staunchly Democratic home. “My dad is probably rolling over in his grave,” he said.

“But I liked Trump’s message that he was going to help the middle class and get the jobs back,” Mr. McCabe said. “I was amazed that he won, and sat up all night watching.”

“You can only wait so long, and your unemployment runs out and you run out of choices,” he added. “I’m divorced with no kids. For people with kids, I can only imagine how tough they got it.”

[middle-of-the-middle]

[middle-of-the-middle]

The cognitive dissonance on display is painful to see. Clothing is totally not a big deal! Because we're cool like that! But it's plain that it biased the interviewers. The team's disappointment upon seeing the suit was immediate and unanimous. If you truly believe that suit == loser, you can't help it. Nevertheless, the fiction of objectivity has to be maintained, so he denies it to the candidate's face, to us, and himself.

Remember that the entire point of his article is to convince candidates to look and act differently: "it’s your responsibility to learn [our] cultural norms." Presumably that same account exec is supposed to take the hint, dress in mufti, and do better at his next startup interview. But of course, how you dress is totally not a factor in the scientific decision process.

[middle-of-the-middle]

It’s no secret by now that the recent spike in American inequality, and the gains rapidly accruing to those at the upper end of the income distribution ladder, are driven in large part by “financialization”—the growing scale and profitability of the financial sector relative to the rest of the economy, and the shrinking regulation of its rules and returns. The success or failure of the financial sector has a disproportionate impact on the rest of the economy, especially when the combination of too much speculation and too little regulation starts inflating and bursting bubbles. And its returns flow almost exclusively to high earners. An overcharged finance sector, in other words, breeds inequality when it succeeds and when it fails.