Shrinking middle class

Investment Analysis Clubs Macro Economic Trends and Risks
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The economy is 70% consumer spending. The balance of lower, middle and upper class is one of the most important Macroeconomic trends.

You can’t get blood out of a stone, so lower class people spend less. Upper class people spend less proportionately since they invest a lot. The bulk of consumer spending is in the middle class.

https://www.pewresearch.org/fact-tank/2022/04/20/how-the-ame…

**April 20, 2022, Pew Research**
**How the American middle class has changed in the past five decades**
**By Rakesh Kochhar and Stella Sechopoulos**

**The middle class, once the economic stratum of a clear majority of American adults, has steadily contracted in the past five decades. The share of adults who live in middle-class households fell from 61% in 1971 to 50% in 2021, according to a new Pew Research Center analysis of government data...**

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Percent of population
Year        1971        2021
Lower        25%         29%
Middle       61%         50%
Upper        14%         21%

Income growth between 1971 - 2021, median in 2020 dollars
Lower        45%
Middle       50%
Upper        69%

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**The share of aggregate U.S. household income held by the middle class has fallen steadily since 1970. In 1970, adults in middle-income households accounted for 62% of aggregate income, a share that fell to 42% in 2020. Meanwhile, the share of aggregate income accounted for by upper-income households has increased steadily, from 29% in 1970 to 50% in 2020. Part of this increase reflects the rising share of adults who are in the upper-income tier.**

**Older Americans and Black adults made the greatest progress up the income ladder from 1971 to 2021. Despite progress, Black and Hispanic adults trail behind other groups in their economic status. Adults 65 and older continue to lag economically, despite decades of progress.**

**Married adults and those in multi-earner households made more progress up the income ladder from 1971 to 2021 than their immediate counterparts. Unmarried men and women were much more likely than their married counterparts to be in the lower-income tier in 2021.** [end quote]

A Macro trend of a shrinking middle class harms the U.S. economy. Part of this may be due to demographic trends, such as the relative growth in the proportion of senior citizens and low-earning minorities. A growing economy depends upon a strong, growing middle class.

Wendy

6 Likes
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A growing economy depends upon a strong, growing middle class.

Or, at least theoretically, on smart, forward looking, massive fiscal investment bringing hig long term returns, paid for with enough taxation to keep inflation controlled.

Almost never happens. Why is that?

david fb

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<Almost never happens. Why is that?>

Any answer to this will inevitably be political.
Wendy

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Any answer to this will inevitably be political.

Yes, but if the answers given are “political economy” rather than “partisan politics” they will be

  1. useful
  2. allowable
  3. and to my point in posting the question.

Since I have created the danger let me give what I think is an acceptable response and potentially the beginning of a useful conversation:

The Amercian Whigs and their descendants in both parties made a major point of supporting sane, well thought out infrastructural investments. The first major projects were put forward by the Whig Party: The National or Cumberland Road. In the same time period the De Witt Clinton built “Clinton’s Folly”, AKA as the Eire Canal. Both had hugely beneficial effects for the economy. Lincoln carried on by pushing heavily for the Transcontinental Railroad. Another home run. The last almost universally agreed success was the Interstate Highway System. These transportation nets often made possible lesser noted but cruial communication nets – the railroads provided the rights of ways and means of servicing everything from telegraphs to fiber optics.

Why cannot we do this anymore? I do not think the answer can be found in the jabber of partisan politics, but rather in structural changes in the interconnections between politics and large private economic entities. But the failure to think through and do large scale innovative infrastructure has thrown the USA into the idiocy of stimulation only by means of “pump priming” (load up Bernankes helicopters) and very dangerous monetary policy carried out by a Fed that keeps screaming for a sane fisal policy.

david fb

7 Likes
5

Percent of population
Year 1971 2021
Lower 25% 29%
Middle 61% 50%
Upper 14% 21%

Couldn’t the data be tweaked to move a few percent of the bottom of the upper class into the middle class and the numbers would say a different thing?
I checked their methodology and they defined “middle” class as being between 2/3 and 2x the median income. But why would we think this is the “correct” definition?
In 1971 there were far fewer two career households to start with.
I also think that different geographical regions skew the data as well – i.e. places like Silicon Valley, where I live, large numbers of common households would be classified as upper class, but they are house poor due to high mortgages.
In 1971 a middle class family had a 17 or 19 inch CRT TV with a rooftop antenna; today many lower class families have large flat panel TVs, multiple streaming services, laptops, cell phones, home security systems (ring doorbell) and other things that even most upper class did not have back then.

Mike

1 Like
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“lies, damn lies, and statistics…”

how do you define middle/lower class? what about the total increase in population and therefore total increase in spending, what about increased business/govt spending?

7

Percent of population
Year 1971 2021
Lower 25% 29%
Middle 61% 50%
Upper 14% 21%

As I read those numbers, more middies became upper than fell into lower. Some 7% are now relatively wealthier than they were 50 years ago, and 4% fell.

We have seen the homebuilding industry adjust to this shift, building 3-5,000 sqft mcmansions, rather than the sub 2,000sq ft houses that were middle class housing 50 years ago.

Recently, the auto industry has been making the same adjustment, dropping lower priced models, while introducing bigger, and much more expensive, models instead. Auto industry management now says it doesn’t care how many cars it sells, only how much they get for each one.

A growing economy depends upon a strong, growing middle class.

Why? Would a strong, growing, upper class not serve as well?

The problem I see with most people in the middle moving to the upper class, is a sharper stratification of society. As more people become wealthier, they will have less interest in public health programs they don’t benefit from, less interest in public housing programs they don’t benefit from, and, in particular, less interest in public education programs that they don’t benefit from.

As noted before, USian ideology dictates everything be rationed by ability to pay. With more people being upper class, there will be more votes to increase the rationing by ability to pay, so they are well supplied with housing, health care and education. The poor will fall farther into poverty, ill-housed, ill-fed, and, particularly, poorly educated and dying younger from treatable condistons. Comments have been made on the Quagmire about the USian equivalent of “Bantu education”.

This appears to be the intended outcome. I have commented before, hearing “supply side” advocate Jack Kemp, years ago, clearly state words to the effect “the rich do all the saving and investing, so they should have all the money”.

So, would it really matter if Shinyland was 40% poor, 20% middle class and 40% rich? The rich can pay several times what the middle class can for goods and services. As much or more money will be circulating in the economy. The only difference is more of the money will be passing through fewer hands.
(removing social Darwin hat)

Steve

1 Like
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I checked their methodology and they defined “middle” class as being between 2/3 and 2x the median income. But why would we think this is the “correct” definition?

I still like the classical definitions:

  • The lower class’s primary income is wages, or after-paying-the-rent profits from farming.

  • The middle class’s primary income is profits from their own businesses that they work in

  • The upper class’s primary income is rents, taxes, and the profits from businesses that they own but don’t work in.

1 Like
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I still like the classical definitions:

* The lower class’s primary income is wages, or after-paying-the-rent profits from farming.

* The middle class’s primary income is profits from their own businesses that they work in

* The upper class’s primary income is rents, taxes, and the profits from businesses that they own but don’t work in.

Why do you like those definitions? They don’t seem to work all that well.

PSU

4 Likes
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What about the impact of declining birth rates? The poor tend to have more children. Middle and upper classes have resources to better educate their children giving them better income potential.

Markownikoffs Rule (from chemistry) also applies in economics. The haves get.

Breaking the poverty cycle remains a problem. Progress has been slow.

11

“Why do you like those definitions? They don’t seem to work all that well.”

Other than reminding a lot of people that although they think they are middle class, they are just laborers (not all labor is physical).

It’s a definition based on traditional class hierarchy rather than a monetary one. So yes, they don’t really work for modern economics.
But for those who wish we still lived in the 19th century; they express the idea of class based on position in society.
That latter group is a big problem…

1 Like
12

I still like the classical definitions:

  • The lower class’s primary income is wages, or after-paying-the-rent profits from farming.

  • The middle class’s primary income is profits from their own businesses that they work in

  • The upper class’s primary income is rents, taxes, and the profits from businesses that they own but don’t work in.

=========================================================

They are totally wrong since the 19th century.

Jaak

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The old “classical definitions” can actually be compressed and look more like:

  • The lower class’s and middle class’s primary income is wages, or after-paying-the-rent profits from farming.

  • The upper class’s primary income is profits from their own businesses, rents, taxes, and the profits from businesses that they own but don’t work in.

Not perfect, of course, but more like 21st c. reality.

Pete

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These definitions of lower middle and upper are way off the mark because we have our economic “How Rich or Poor Are You?” blinders on.

Throughout history economically “lower middle class” people can be quite “upper class” socially and culturally. My family via my father, brother, and myself only finally hit “Upper middle class” economically after three centuries, but culturally have always been solidly upper middle class due to worshipping books and knowledge and exploration and liberty while constantly trekking West.

david fb

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As I read those numbers, more middies became upper than fell into lower. Some 7% are now relatively wealthier than they were 50 years ago, and 4% fell.

We’ve had a very active stock market, probably making the middle class 401K rich. I wonder what the numbers would be even today given how much the market has come down in 2022.

IP