Death Throes of the Middle Class 1
Even the still-employed middle-classes have lost their security.
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One of the few remaining Democratic arguments with any real resonance is complaining about the death of the middle class. Nobody much cares about the plaints of the welfare poor because we've learned that throwing money at that problem only makes it worse. But it's a simple fact that, while working and middle-class wages have stagnated or decreased significantly over the last few decades, the wealthy have done quite well.
If you're a normal middle-class person, odds are that most things seem far more stressful now than you remember them being for your dad when you were a kid, or even his dad depending on your age. Yet people seem wealthier, and we definitely have more toys than we had in the 50s. How can this be?
The reason is based on a misunderstanding of what it means to be middle-class. Middle-classness is not defined by a paycheck's size, or precise requirements of a way of life. There are people with large paychecks who are not middle class, and people with smaller ones who are.
Being middle-class is not defined by the size of your bank account. It's defined by security - or to be more precise, the probability of an unforeseen catastrophe booting you down into the underclass.
On that measure, as it turns out, the middle class is indeed dying, just as the Democrats claim.
Jobs, Confidence, Security, and Prosperity
Another defining hallmark of the middle class is consumer debt, and there's good reason for this. No normal middle-class person has a big pile of cash available to just write a check for a house or a car; if you do, you're probably upper-class, not middle.
Over time, though, a middle-class family rationally expects to acquire both a house and a car or two. That's why, for most people, the important figure is not the total amount but the monthly payment. Can my budget handle a mortgage payment of $2,000 per month pus utilities, taxes, and maintenance? Can my salary cover a car payment of $500? Lowering or raising the total cost of the house or car is mostly irrelevant if the monthly payment stays the same.
Widespread availability of consumer credit has led directly to modern American prosperity. No, I don't have $30,000 for a new car and never will; but I can afford $500 a month. So I buy the car - and other Americans are paid to build, sell, and maintain it. Thus our economy grows, national prosperity increases, and I get the use of the car.
All this is dependent upon my continued ability to pay $500 a month - and for the middle class, this applies only so long as I have a job.
Of course there have always been layoffs and firings, though in the 50s and 60s many middle-class people rationally expected to stay with the same employer until they retired. Now that's security!
In the unlikely event of a pink slip, however, middle class workers had confidence that their skills - their trade, their college degree - would quickly find them a new paycheck as good or maybe even better than the last. It might take a couple months, hence the "rainy day fund" and unemployment insurance, but a return to normalcy was always just around the corner.
Not anymore. Today, the average time to find a new job is nearly 9 months which means that half of the unemployed take longer than that to find another job.
Some never do - the rate of applications for early Social Security is through the roof, indicating a person who believes that they are so old and unappealing to employers that they'll never work again. Early Social Security payments are intentionally paltry to encourage people to stay in the workforce; these people are almost certainly doomed to a highly straitened old age that they did not expect to suffer, but it's better than no income at all.
Do you have the ability to survive without income for a month? Any middle-class person does, via credit cards and late payments on other bills, even if they don't have any significant savings.
How about two months? Now you might be getting into problems and calls from bill collectors, but the lights are probably still on.
What about nine months? By then almost everyone's life savings are totally gone, the car has been repossessed, the house is in foreclosure, and credit rating is utterly destroyed for years to come. And nine months is only the average unemployment length.
Yes, you are well advised to save nine months of salary for a rainy day, preferably a year's worth. Raise your hand if you've been able to do that! Anyone? Anyone? Bueller?
Is it any wonder that the middle class, even people who have held onto their job throughout the Great Recession and have not been unemployed a single day, still have zero confidence in the future and are not embarking upon new loans? And they won't, until they can believe that there are other jobs out there for them if this one goes bad.
Three Key Issues: Jobs, Jobs, Jobs
That is why the voters are so angry: the middle classes, even those unaffected by layoffs as of yet, have already lost what it means to be middle class. Psychologically, their way of life is not under threat, it's already dead. I have a job today; I can't be assured of having one tomorrow no matter what my job is, and I certainly can't have any confidence of finding a new one anytime soon.
The jobs situation must be fixed, obviously, before there will be any voter contentment, and it also must be fixed in order for the economy to grow. This isn't just a tautology, as we'll see in the next article in this series.
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What does Chinese history have to teach America that Joe Biden doesn't know?
Sorry, this article is just wrong on so many levels.
First, the end cost DOES matter more than the payment. If you buy a $15,000 Mitsubishi Lancer instead of a $30,000 high-end car, your payments end a lot sooner (especially at $500 a month). All that extra cash you were pouring into payments can then go into your bank account or investments or a down payment for a house or an emergency fund or whatever.
The idea that one should be able to afford endless debt payments forever and ever in the same amount is called "debt slavery."
The solution isn't yearning for some old-fashioned reality where people could borrow -- it's to switch to cash-and-carry living and saving.
If you bought a $1,000 clunker or took the bus/train/subway and put that $500 a month into a savings account, after a little over two years, you could do that "impossible" thing and write a check for that car you need/want -- a reasonable nice little car like a Mitsubishi Lancer or Mazda3. You might even find, after saving up that money, that you don't want a new car after all because you value having the cash more.
Congratulations, you're not a debt slave there.
Meanwhile, if you rent a $650 a month apartment rather than rushing into some $2,000 a month mortgage that consumes all your disposable income, you can save $1,350 a month. After two years of that, you'll have $32,400 -- a very fat down payment on a nice home.
Head down to Atlanta or Houston or one of the lower-cost, booming sun-belt cities, and you can pick up a perfectly livable house for about $80,000. That $32K is a fat down payment, leaving you with a mortgage of about $48,000.
A ten year $48,000 mortgage has a payment and maintenance costs of around $480 a month. You've just CUT the amount you were paying for living costs in rent and after ten years, you'll own the place.
Then you have your own car, and your own house, and savings, and you don't have to lament that you're not a corporate slave and thus unable to lock yourself into $2,000 a month payments for a car and $500 payments for a house per month for all eternity.
Economic literacy. Time value of money. Savings. Avoiding debt. Not paying too much for something (like an insane $30,000 for a new car). These are the keys to survival and thriving.
Our parents and grandparents in the middle class did these things. They saved and did without. We are spoiled because our entitled philosophy and addiction to debt has made us into easily manipulated and scammed idiots. Put your own money to work for YOU, not the big banks and lenders. Think for yourself. Stop demanding a return to some paradise that never existed.
Brian Miller I could not agree any more with your astute analysis.
If you're 20 and don't have enough money to survive 9 months without employment it is understandable. After all you haven't had much time to save that much money. If you're 50 and don't have enough money to survive 9 months without employment I have no sympathy. A 50 year old should be getting close to having enough money to retire ad infinitum.
Most people that this point argue that long term savings go into a 401(k) which can't be accessed until retirement age. However this is not a valid point. A 401(k) should be a small part of your long term savings at most. Its lack of liquidity makes it a very poor choice for the bulk of savings as one must plan for unforeseen expenses like major surgery or unemployment. A 401(k) is also useless without the employer match. Since you really should be saving far more than the 6% of your income that the average employer will match there should be other savings that you have.
Another argument that I hear is that the stock market crashed and destroyed your savings and that 'isn't your fault.' Well its the stock market; did you not know that its value could go down? For a young guy like me in his late 20s experts will tell you that most but not all of your savings should be in the stock market since it will average given a long enough period 8% interest. However by the time you're 50 almost none of your money should be in the stock market. If you failed to put your money some where safer that is your fault.
For most of my life I lived below the official poverty line but I have never been poor. The reason is simple, I don't spend money I don't have.
@Brian Miller, @jonyfries:
+1
Please forgive the late date, but I didn't discover scragged until a year or so ago. In any case, I, too, agree with Brian Miller and jonyfries that the total cost *does* matter, but what they seem to be forgetting is that Petrarch is saying that the *average American* believes that it doesn't matter. he is saying that people who consider themselves middle-class actually believe that the payments they can afford determine what they can buy. How many of your friends and acquaintances understand how much money they will lose by buying things with a credit card and a revolving balance? How many of them actually put off buying something until they have saved enough money to purchase it outright? For that matter, how many actually have any non-tax-advantaged savings readily at hand?
A large part of the problem here is that the U.S. dollar is fiat money, and since its value is 100% based upon the world's opinion of the stability of the U.S. government rather than being based upon some relatively rare and hard-to-obtain commodity, such as gold, the Federal Reserve can play games with interest rates, keeping inflation at some desired target, and putting off paying the piper until the current governors are long dead and unassailable. There has *never* been a government that did not desire to coin money at no cost, and that did not fail when given the ability to do so. The only difference between us and Holland, or us and pre-Republican France, is that we haven't crashed yet. Just wait until *we* experience 80 000% inflation!