What's Killing the Middle Class

We all know the middle class that actually owns capital and wields political influence is shrinking. As I noted last week in Redefining the Middle Class: It Isn't What You Earn and Owe, It's What You Own That Generates Income, defining the middle class by household income alone is a misleading metric, as it leaves out the critical factors of debt and ownership of productive assets.

DYI:  We’ve all heard the saying “it’s not what you earn but what you keep!”  To be successful it is the conversion of your earned income into business’, stocks, bonds, precious metals, and real estate.

A household may have an income of $150,000 and appear well-off by that metric, but if they are mired in debt and own virtually no productive assets or wealth that can be passed on to future generations, they aren't middle class--they're well-paid proletariats.

Definition of proletariat

1. 1:  the laboring class; especially :  the class of industrial workers who lack their own means of production and hence sell their labor to live
2. 2:  the lowest social or economic class of a community

So what's killing the middle class? If you read the dozens of articles on the decline of the middle class in the mainstream (corporate) media, you soon discover there's a short list of the usual suspects:

1. Globalization / outsourcing

2. Technological changes / automation

3. "Winner take all" asymmetry in rewards for specialized skills

A worker at a steel mill who earned $28/hour plus benefits could, with frugality and long-term planning, eventually own a home free and clear and acquire a nest-egg of assets.

When that worker's job was outsourced, and his next job paid $9.25/hour, the opportunities to amass capital fell precipitously. 

A middle-skill worker replaced by automation had the same life-changing experience if he didn't acquire much higher level skills and move to a stronger job market--both difficult tasks with highly uncertain outcomes. (No wonder secure government jobs from which jobholders can't be fired are so sought after.)

DYI:  Years ago I went to a party with folks from all walks of life; one individual relatively high up (GS-15) in government working for one of its many agencies – Department of Education.  After plying him with numerous shots of whisky - 5 plus - he admitted that his job was total BS that could be easily be eliminated (along with the entire agency) and what little benefit there was could easily accomplished in the private sector.  What drove him to his government job?  FEAR!  Fear of going through bouts of unemployment and fear of not achieving middle to upper middle class lifestyle.  The path of least resistance!

This is the biggest reason for the drop off in our birth rate parents who hope that their children will achieve a middle class lifestyle requires a ton of education along with a ton of money; hence smaller families on average of two children.  Many don’t leave the nest until age 25 for their first “real” career job.  Mom and Dad are spending for 25 years and if the younger sibling is 5 years younger a total of 30 years!  Ouch!  This stat is before the great recession many due to the downturn are still at home at the age of 30 plus.   

DYI