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Back to Subjects - Economics

Shrinking Middle class

Shrinking Middle class The Incredibly Shrinking Middle Class I never thought I would find so much information on the incredibly shrinking middle class until I searched around for it on the Internet. In the United States, the middle class is put into a strange socioeconomic category. Although it is not easily defined everyone believes they belong in that class. I guess what you can do is look at it in two different ways. First ask the question “What percent of all income is distributed to the middle class at any time,” then think about “How many families obtain enough income to achieve a middle class standard of living at any point of time.” Basically these are two ways of approaching the middle class called either the percentile approach or the class share approach. What comes into my mind when thinking on how to categorize those people that belong in the middle class, I look at such things as education, race, family, income, gender and how many people are in your household. I look at it as those people who are making between $40,000 and about $85,000 to be in the middle class while the next step would be the upper middle class and then to the upper class. Maybe I am wrong here, but like I said before, everyone wants to have that “I am middle class” attitude. The most recent Census Bureau survey data shows that the share of households with incomes of $75,000 or more has doubled in the past 24 years. Other studies, however, discover that more people who depart the middle class move down than up, at least temporarily. The most often cited cause of the decline of the middle class in the United States is stagnant wages. Between 1955 and 1970, real wages adjusted and inflation rose by an average of 2.5 percent per year. Between 1971 and 1994, the average growth of real wages was 0.3 percent a year. The stagnation of wages has been especially noticeable to middle-class people, who rely very much on the money they make at their jobs. Recessions seem to hit higher income households much harder, which sends them down to the middle class. Middle-income households may or may not be more likely than higher-income households to qualify for unemployment compensation when jobs are scarce. But those who do are more likely than high-income households to receive benefits that replace a greater share of their regular wages, which helps them maintain their standard of living. About 75% of all American’s make $50,000 or less and after using that to take care of there children, make house and car payments, and other expenses they have little money left over to put that to savings. The real problems started in the 1980’s, as an economic shift sent shock through the nation’s consumer mentality. Competitive spending intensified. In a very big way. Throughout the 1980s and 1990s, most middle class Americans were purchasing at a greater rate than any previous generation of the middle class. And their buying was much more upscale. The familiar elements of the American dream, such as the perfect house with the white picket fence, one dog and two kids, had greatly expanded. The size of houses had doubled in less than 50 years, there are more second homes, ownership of increasingly option-packed cars continues to rise, and people travel farther and spend more on their holidays. New items entered the middle class lifestyle: a personal computer, education for the children at a private college, maybe even a private school, designer clothes, a microwave, restaurant meals, home and automobile air conditioning, and of course many others. At a minimum, the average household’s spending increased by 30% between 1979 and 1995. At a maximum, calculated by taking into account a possible bias in the consumer price index, the increase was more than twice that, or about 70%. The middle class was shrinking, companies were downsizing rapidly, economic pessimism and job anxiety abounded. Per capita consumption was rising. But consumers’ expectations were rising even faster. In The Wealth of Nations Adam Smith observed that even a “creditable day-laborer would be ashamed to appear in public without a linen shirt” and that leather shoes had become a “necessary of life” in 18th century England. The most influential work on the subject, however, has been Thorstein Veblen’s “Theory of the Leisure Class.” Veblen argued that in affluent societies, spending becomes the vehicle through which people establish social position. The conspicuous display of wealth and leisure are the markers that reveal a man’s income to the outside world. The rich spent clearly as a kind of personal advertisement, to secure a place in the social hierarchy. Everyone below stood watching, and to the extent possible, emulating those one-step higher. Consumption was a trickle down process. Data generated by the Census Bureau, the Bureau of Labor Statistics, the Federal Reserve and other nonpartisan sources oppose claims commonly made. For example, data from such agencies show that differences in family income largely reflect differences in how many members of a family actually work and how hard they work. Americans in all income groups have prospered, or have failed to prosper, together. Gains by upper-income Americans have not come at the expense of middle or lower-income Americans. Nor has anyone else gained in those periods when higher-income families have lost ground. The best era in recent history for middle-income and lower-income American families was the Reagan era, which lasted from 1982 to 1989. During that period, middle-class families saw their real incomes grow by an average of 12.6 percent, while lower income families saw an average increase in real earnings of 12.9 percent. The wealth inequality debate should focus on what public policies will aid the accumulation of wealth by more, not fewer, American families. The first step American’s need to make toward transforming our consumer culture is to understand it better. Bibliography:

Word Count: 983