For the United States, the past century is an incredible story of economic growth and prosperity. The Post WW2 era especially witnessed a tsunami of growth and expansion.
In recent times the media and political rhetoric seem less optimistic. Economic anxiety is highlighted as motivation for everything from voting patterns to the opioid epidemic. Sources of anxiety vary… globalization, income inequality, job insecurity, student loan burden, the gender pay gap, cost of child care, The 1%, and the robot revolution are all cited.
Some even go so far as to predict The End of the Middle Class. Is it really so dire?
The End of the Middle Class
There is seemingly no shortage of fuel for economic anxiety.
NPR highlighted that 2015 was the first year since 1970 that the middle income bracket was no longer the majority.
The New York Times shared how all productivity gains are going to the 1%.
The Atlantic published a panel discussion titled Income Inequality and the End of the Middle Class.
Ain’t nuthin like a bunch of upper class people sittin’ around talking about how times be hard and gettin’ harder for the middle class.
Indeed, economic anxiety is real and justified. But I think there is much more to the story. But first…
What is Middle Class
Being middle class means different things to different people. A lot of math people define the middle class by income: “the middle class is the middle 3 quartiles of income range for a 4-person household.” Others define it by lifestyle: “a chicken in every pot and a car in every garage.” Others still define it as state of mind: a feeling of security from a stable income and a sense of autonomy.
This is probably why everybody thinks they are middle class. A family making $300k/year in San Francisco may say they are middle class just as confidently as a family earning $35k in rural Iowa. Perhaps they would disagree; people on the Internet certainly do.
In modern times a wide range of blue and white collar jobs are considered Middle Class, which encompass a wide range of education and income levels. If we sift through all of the disagreements and dissonance, there is a common trait which applies to all situations and fits with the historical perspective…
For most of Western history there were 2 classes of people, those who labored and those who benefited from said labor. Those who produced and those who controlled the means of production (land, factories, etc…) With the rise of mercantilism a 3rd class arose between the peasantry and the nobility, the middle class… a group with tremendous human capital, but still contributing labor rather than benefiting from it.
Case in point:
In the United States there is a lot of nostalgia for the 1950s. It is an era of white picket fences, simpler times, and economic prosperity. When asked to highlight the time when America was the greatest, many people referred to this era.
In the idealized memories, the 1950s were a time when a family could thrive on a single income. Labor unions were strong, and a man could come home from work at 5 pm to a home cooked meal with the wife and kids. Afterwards, they might toss the baseball around their spacious green lawn, chat with the friendly neighbors, and enjoy a slice of apple pie. The company health plan meant everybody got to see a Doctor when they needed it, and Social Security and the company pension ensured a comfortable future.
This was a time when the term Middle Class became widespread, and the population of middle income households exploded. It’s literally when the Baby Boomers were born. Another phrase became common usage during this era: retirement. The Middle Class was now living long enough to enjoy a few years of well earned leisure time.
The American Dream was real.
Connecting the dots
I know to many the 1950s sound like utopia. To me, it sounds like hell.
Punch the clock, work 30 or 40 years for the same company, and get a gold watch and a monthly stipend for life. It all sounds a bit too much like the life of a wagyu beef cow.
How many people were trapped in a job they hated, wth people they hated, because the loss of a pension made it too expensive to leave?
And of those who truly enjoyed their work and coworkers, how many could have had a more rewarding career if they had been able to move to a different company?
And at the end, how many people worked for the proverbial prize only to find that the pension wasn’t even properly funded?
Ultimately, the employer still owned the means of production and therefore owned the worker’s time. Even with 3 weeks of vacation per year, the employer still owns 95% of your time. And you need permission for when you get that other 5%.
I think the Wonder Year’s Jack Arnold sums this up perfectly. (Especially that last line.)
And forgive me for being pessimistic, I am skeptical that Mrs. Cleaver would have regularly invited my non-caucasian spouse over for tea and crumpets with the girls. (Which is all I’m going to say about the overtly sexist, patriarchal, classist, racist aspects of the idealized 1950s.)
Control of the Means of Production
People like to debate nuances in the definition of middle class based on income levels and lifestyle, an important dialog, but those are just differences in degrees. More important would be differences in kind; how people can transition from middle class to upper class. It isn’t so much how much you earn or spend, but who owns your time.
This transition is always done by gaining ownership of means of production (aka capital), both by definition and in practice.
The ideologists who gave the world communism dreamed that one day the working class would rise up and claim the world’s capital for themselves. Of course this has failed miserably whenever it has been tried. (And always will.)
However, ironically, capitalism has provided this very mechanism. Securitization (stocks/equities) made it possible to become a fractional owner of businesses. And then Vanguard enabled even the Proletariat to own land and factories, which is ultimately what stock ownership is.
While many lament the fall of the private-sector pension and defined benefit retirement plans, I welcome the rise of the defined contribution plans that replaced them (e.g. 401k / IRA.) You own the businesses, and aren’t dependent on a pension. You have control of the funds, and aren’t dependent on loyalty to an employer (or vice versa.) The result is economic mobility and control over your own economic destiny. Own enough stocks, and you now own 100% of your own time…
Upward mobility has been democratized.
The End of the Middle Class?
Today’s economic anxiety is real and justifiable, just as it has been real and justifiable at every major economic transition point in history. Very few felt economically secure during the transitions from an agrarian society through the Industrial Revolution, but with the power of hindsight almost nobody would wish to return to that earlier era.
Change is never easy, but society advances 2 steps forward one step back. This general upward trend is why we have the phrase “the right side of history.”
There are systemic societal issues that will slowly be overcome at the ballot box.
There are personal economic issues for the middle class that will be overcome by accumulating capital.
Through a combination of the two, I am confident that we could indeed see an end to the middle class… not because more people fall out of it, but because more and more people rise above it. At the birth of the middle class, the most successful merchants were able to accumulate enough capital to rival the aristocracy themselves. So perhaps it shouldn’t be thought of as the end of the middle class, but the rise.