March 28, 2013

The Middle Class Has Been Hollowed Out

The middle class has been hollowed-out over the past 30 years. Sure, middle class families still exist, but they’re undoubtedly worse off because of eroding real incomes and compounding personal debts. Because of the relentless march of inflation wage-earners must see 1-3% annual wage-increases simply to remain above water – something many middle class families simply have not experienced. In fact, many would argue that ‘real’ inflation is much higher than that reported by the BLS, suggesting wage-earners have actually fared worse than typically reported.

In a capitalist society, there’s a natural tendency to suppress wages while increasing prices. It’s a classic proletariat vs. bourgeoisie faceoff, in which wages and capitalist profits are treated as a zero-sum game – every extra dollar gained by labor is a dollar that is lost by the capitalist.

There’s also a tendency for discretionary lifetime wages to net out to zero. This happens in two ways: 1) savings accumulated during the wage-earning years are drawn down in retirement years; 2) potential savings/discretionary income earned is targeted by businesses that wish to sell you ‘stuff’ (ever notice that as you earn more, you don’t necessarily save more?).

Some might call #2 the trappings of a ‘consumption-based economy’.

The amount of ‘stuff’ it takes to be considered middle class today is certainly more than what it took 30 years ago, despite the increase in dual-income families. While dual-income households bring in greater household revenue, over the past 30 years we’ve been taught that we’re entitled to larger homes, fancier vacations and an extra car, all of which cost a lot of money and erode the net benefits of an extra wage-earner. While the decline in real wages has hurt the middle class, the true cause of its demise is its inability to maintain family revenues above spending levels (i.e. inability to save).

To entirely blame the capitalists would be wrong. We have the freedom of choice, and, as a society, we’ve chosen to live in mcmansions, located in sprawling suburbs with no economically-viable way to build public transport infrastructure, thus thrusting us into automobile dependence. We’ve also chosen to elect politicians and patron businesses that support policies that reinforce an increasingly expensive and indebted lifestyle.

This raises my question: is middle class a state of being or a state of mind?