Inquiring minds are nodding while reading a great post by Charles Hugh Smith entitled “Imagining A Middle Class Does Not Create One“. Mr. Smith makes some salient points discussing an article by Barry Ritholtz. Mr. Smith begins by setting a very basic standard for what makes a person middle class:
Americans have been trained to believe that membership in the “middle class” is their birthright if they “work hard” in the status quo. What income defines “middle class” is a function of locale and prevailing wages/costs ($100,000 in Manhattan or San Francisco isn’t much because costs are so high), but in terms of purchasing power we can probably agree that middle class membership includes:
1. reliable private transport
2. a home with meaningful equity
3. healthcare insurance/coverage
4. a retirement fund of some sort
5. a college education/higher education or training
How many people “own” all of the above minimum standards has been drastically reduced by various factors.
Another measure of “middle class” is even simpler: a middle class household owns some wealth. It could be a retirement fund, a free-and-clear home, a business, income property or gold/cash/investments.
See the rest of the article for the exact numbers/percentages of the middle class. For this discussion, it is not what is important. It is his next point:
Sadly, it’s all delusory. Debt-serfdom and zero assets does not equate to middle class. When “membership” in the middle class ceases to mean owning meaningful wealth, it is no longer a middle class. It is instead a superficial consumption pattern of “aspirants” to what was once a true middle class.
When the average “middle class” American looks at this chart, they probably reckon this enormous rise in net wealth includes them. But as we have seen above, it doesn’t; their “ownership” of this vastly increased wealth is a meager 6%. In other words, the vast majority of this increase flowed to the top 20%.
The true problem that people like Smith and Ritholtz is that they separate out virtue from the statistics. It is the same issue that certain economists have when they are look at the world in static paradigms instead of dynamic. The true problem for our economy, for our country, is that we have a generation of posers. People who want to look ‘wealthy’ even though they aren’t.
In about 1990 or 1991, Barron’s ran an article interviewing somebody who was explaining a basic change in new college graduates. He mentioned that Baby Boomers, instead of driving to their first career ‘job’ in a used car or basic new car, drove to theirs in a new, upgraded Honda. And that the new generation (college graduates of the late 80s), later to be known as Gen X were driving to theirs in a brand new BMW or Mercedes. He also noted that these people were breaking another ‘tradition’…where they lived. Up to the 80’s, people pretty much lived in neighborhoods where their neighbors actually made about the same. Hence, the picture of 50’s, 60’s, and 70’s neighborhoods where the cars all looked the same. When was the last time you heard the term, “A Chevy neighborhood”?
What these young lions decided to do was to live in neighborhoods where people made much more than them. Think Yuppies “rehabbing” an old home to get into the ‘right’ neighborhood. This produced a ‘hiding’ of the true wealth of these new adults. And they have been living the illusion ever since…getting deeper and deeper into debt. But they have always driven nice cars, known where the best restaurants are, and the newest nightclub. It is a strong bet that these are the same folks who are DINKS; dual income, no kids.
The real problem for this country, as it is for the entire world throughout history is: pride, avarice, greed, envy, etc.
You know, the same vices that brought down every civilization throughout history. One can pour over statistics but people are still people.
Read “The Confessions” by St. Augustine. Although 1600 years old, it is remarkably easy reading. It describes a wealthy society in a mediterrean climate with a great beach and excellent entertainment. A very ‘laid back’ attitude. It is truly amazing how much Carthage and Southern California have in common.
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