Never Mind Bogus Measures of Inflation--Purchasing Power Is What Counts, and It's Decaying

If your earnings rose by 34% from January 2020 to October 2023, congratulations, the purchasing power of your labor kept pace with higher costs.

Official measures of inflation are a long-running tragi-comedy: comedic in the transparency of the distortions, and tragic in the consequences: what will you believe is true--the statistics or your lying eyes?

The basic gimmick of distortion is to underweight whatever is eating away at the purchasing power of earnings and highlight the trivial items that are getting cheaper due to declines in quality and globalization. So your rent went up by $200 a month, or $2,400 a year, but since TVs dropped $40 and toys dropped $20, inflation is only 3%. So stop feeling poorer, everything's great! Inflation is dropping!

You see the problem: the scale of spending on essentials such as shelter, healthcare, childcare, etc. is far greater than the trivial "lower in price" items. If 95% of your essential spending is rising in cost, trivial declines in the 5% of discretionary spending do not offset the gargantuan declines in purchasing power.

The chart below reflects this distortion. Essential expenses that cost thousands of dollars annually consume far more of our earnings now, and these vast declines in the purchasing power of earnings are not offset by the occasional purchase of cheaper TVs.

The only accurate measure of increasing or decreasing costs is purchasing power: how many hours of work does it take to pay housing, taxes, college tuition, healthcare, childcare, etc., then and now. The official measures of inflation use gimmicks to distort the staggering drop in purchasing power by claiming the quality of stuff has increased by extraordinary leaps and bounds. So the fact that cars have rear cameras offsets the fact that it takes far more hours of labor to buy a car now than it did a few decades ago.



Measuring purchasing power eliminates these distortions, which is why nobody measures purchasing power: once we calculate costs in terms of hours worked, we recognize that a much larger percentage of our labor / earnings is devoted to paying for essentials. Simply put, we're getting less value for our labor.

Pundits tend to overlook the fundamental sources of declining purchasing power. These include:

1. Decay of gains reaped from globalization. Stripped of corporate PR, globalization is the ruthless exploitation of as-yet unexploited pools of cheap labor and resources. This exploitation yields enormous gains at first and then these gains decay as wages rise and the easy-to-get resources are depleted.

The dependence on foreign sources for essentials has also been revealed as a national security threat, and so the catch-phrase is "de-risking," which means developing multiple sources of essentials.

2. Capital demanding higher returns due to soaring global risks. In the conventional view, the Federal Reserve chair waves a magic wand and lowers interest rates at will. It's not quite that simple. All new debt--for example, Treasury bonds--must be purchased by capital, and if risks are rising, capital demands a risk premium to offset the known unknowns and the unknown unknowns, both of which are proliferating rapidly.

If capital is no longer willing to accept low yields, yields have to rise regardless of central bank policy, and this drags interest rates higher. Yes, central banks can create currency out of thin air and use this free money to buy Treasury bonds, but ballooning the money supply has its own consequences:

3. Increasing the money supply to maintain a sclerotic, unproductive status quo generates a decline in the purchasing power of currency. Throwing trillions of new units of currency around doesn't magically mean production of goods and services increase, or the quality and quantity of items increase. It just diminishes the value of existing units of currency.

4. Global scarcities crimp supply, pushing up costs. Humans have a very high opinion of themselves, but fundamentally we're like rabbits (or rats, if you prefer) let loose on an island without predators. Like rabbits, we proliferate and consume more per rabbit until the resources have been consumed. Then we wonder why scarcities arise. But AI, blah-blah-blah. AI can't restore depleted soil or reverse droughts.

5. Soaring entitlements must be paid for with higher taxes. Promises made decades ago in different conditions require ever greater resources must be skimmed by governments. Creating money out of thin air isn't a solution (see #3 above) and so the government must collect a greater share of income and wealth. The more taxes we pay, the less we have left to spend on essentials and discretionary purchases.

This is a global dynamic. Global entitlements and debt are both soaring.



If your earnings rose by 34% from January 2020 to October 2023, congratulations, the purchasing power of your labor kept pace with higher costs. All of us who aren't earning 34% more since January 2020 have lost ground, i.e. purchasing power: it now takes more hours of work to buy groceries and everything else we need.



The official measure of inflation since January 2020 is up 19%. Whether that actually maps the decline in our purchasing power can be massaged--stop believing your lying eyes!--but what can't be massaged away is the reality that costs are rising for structural reasons that aren't going away.

---

My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

Read the first chapter for free (PDF)

Read excerpts of all three chapters

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My recent books:

Disclosure: As an Amazon Associate I earn from qualifying purchases originated via links to Amazon products on this site.

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print) Read the first section for free


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What Happens When Millions of Renters Can No Longer Afford High Rents and Move Back Home?

What's no longer affordable is eventually jettisoned, including high-rent homes and apartments.

Recency bias can stretch back 40 years. It's been over 40 years since the U.S. experienced a deep recession (what I call a "real recession") which is characterized by elevated inflation, interest rates, yields, unemployment, defaults and bankruptcies, none of which can be reversed with air-drops of "free money" because higher inflation, rates and yields all limit central bank money-printing and fiscal "free money" via deficit spending.

Without air-drops of trillions of dollars in "free money", the accumulated excesses of the economy have to sort themselves out the hard way via defaults, bankruptcies, insolvencies, layoffs, tightening credit and reduced spending / consumption.

The last time this burn-off of excesses could no longer be pushed forward occurred in 1980-82, the deepest downturn since the Great Depression in the 1930s.

Few remember the 1980-82 recession and even fewer think a recurrence is even possible. The dead-wood of excesses never get burned off, they just pile higher with each central bank-fiscal bailout / "free money" air-drop.

Recessions which burn off excesses act as catalysts for profound social, financial and economic shifts. Up until the recession, everyone assumes the current situation is permanent and forever. This is the equivalent of assuming a forest piled high with deadwood will never catch fire.

By way of example, consider that the relatively mild dot-com implosion recession of 2000-02 led to 100,000 residents of the San Francisco Bay Area moving away to lower-cost climes because once the layoffs swept through the dot-com bloat, people could not longer afford the high rents and cost of living.

The situation now is far more precarious due to the spread of high rents from a few urban areas to virtually the entire nation. As a percentage of net income, the cost of living is far higher than it was in 2000. Given the nonsensical manner that official inflation is calculated (owners equivalent rent, etc.), statistics are untrustworthy measures. An apples-to-apples comparison of purchasing power of wages (i.e. what percentage of wages are required to pay rent, taxes, insurance, transportation, childcare, food, etc.) is the only accurate measure of the true impact of the soaring cost of living.

The consensus holds that soaring rents are the result of housing shortages. In other words, the demand for housing is so strong that landlords can charge a premium.

So what happens to the strong demand for rentals and the resulting high rents if millions of renters vacate their apartments and move in with other single households? This is precisely what happens in a recession in which millions lose their jobs (or have to take lower income work) and can no longer afford stratospheric rents.

The facts suggest that instead of a housing shortage, we have an enormous quantity of housing that is currently occupied by a single person--housing that could easily accommodate more occupants per unit.

To sketch out how this scenario could play out, let's start with some basic facts about America's housing stock, the age of the occupants and the number of single-person households. As shown on this chart courtesy of the Federal Reserve, there are 145 million housing units in the U.S.--85 million owner-occupied homes and condos, 44 million rented houses and apartments, and 16 million unoccupied dwellings, of which 7+ million are 2nd homes / vacation homes. The remaining 9 million unoccupied homes may be in the process of being sold or held off the market for various reasons, or they're abandoned or no longer livable due to obsolescence / decay.

Some might be in areas with poor employment options and so the demand is so low that vacancies abound.



Next, let's look at home ownership and one-person households. According to the Census Bureau, "There were 37.9 million one-person households, 29% of all U.S. households in 2022. In 1960, single-person households represented only 13% of all households." (There are about 132 million households in the U.S.)

The Census Bureau also reported that 46.4% of U.S. adults are single--that's 117.6 million unmarried Americans, "nearly every other adult aged 18 and over. This includes those who are divorced or widowed as well as those who have never married."

About 11% of these one-person households are 65 years of age or older, or about 14.65 million people.



As you might imagine, homeownership is skewed to the older population, as is ownership of homes without mortgages, i.e. homes owned free and clear.

According to How the Demographics Are Shaping the Housing Market, older Americans own almost 90% of all housing: The Silent Generation (78 and older) own 11.3%, Boomers (ages 59 to 77) own 43.5% and Gen X (ages 43 to 58) owns 32.5%. Some break the Boomers into Boomers I (ages 69-77) and Boomers II (ages 59-68).

We can thus project that a substantial percentage of individuals age 65 and older who are living alone own their own homes. It required a much more modest down payment and percentage of net income two or three generations ago to buy a home, and so it's to be expected that home ownership is heavily skewed to older cohorts who were able to buy homes with median incomes--something that is no longer possible for younger generations.

There are also millions of renters who live alone, some percentage of which might be persuaded to accept a roommate if their income/finances deteriorate. Of the 38 million single-person households, how many would welcome another occupant? Retirees with limited income might welcome paying boarders, and single elderly might offer free housing to younger family members in exchange for help around the house.

How many Boomers and Gen X homeowners would accept an adult child or grandchild moving home if financial conditions preclude any other option? Anecdotally, I see grandparents hosting a grandchild and her daughter, and I hear accounts of an elderly parent deeding their home to the adult child who moves back home and cares for the parent.

It is well within the realm of possibility that 10% of the roughly 40 million single-person households could vacate their rentals and move in with another single or into a large empty-nest home owned by parents are grandparents should conditions change and high rents are no longer affordable. That would leave about 10% of the rental housing unoccupied.

Although few believe it is even in the realm of possibility, in an extended downturn, 8 million renters could vacate now-unaffordable rentals for far more affordable living spaces in other dwellings. As the saying goes, necessity is the mother of invention, which in the case of unaffordable rents in a recession, we can modify to necessity is the mother of radically downsizing expenses by any means available.

Rents tend to be as stubborn as human nature. Landlords tend to believe the highest rent ever received is the "fair price," and the majority will cling to this fantasy long past the point at which a rational assessment of market conditions would suggest a 25% reduction in asking rent would be the bare minimum to snare a tenant for the vacant flat.

If the 2000-02 recession is any guide, tenants will cling on to their over-priced flats as long as possible, hoping for a job offer that never transpires. The unemployment checks aren't enough, temp gigs dry up, savings run out and the inability to continue paying sky-high rent finally forces a move.

No one remembers what happens in a deep, prolonged recession, and we're long overdue to find out what happens. What's no longer affordable is eventually jettisoned, including high-rent homes and apartments.

---

My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

Read the first chapter for free (PDF)

Read excerpts of all three chapters

Podcast with Richard Bonugli: Self Reliance in the 21st Century (43 min)


My recent books:

Disclosure: As an Amazon Associate I earn from qualifying purchases originated via links to Amazon products on this site.

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print) Read the first section for free


Become a $1/month patron of my work via patreon.com.

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Black Flag Friday: Could Black Friday Be a Harbinger of a Tapped-Out Consumer?

If Black Friday is a bust, it may be a harbinger of what the mainstream has long considered impossible: the American consumer is well and truly tapped out.

Could Black Friday be a complete bust this year? Let's explore the potential sources of a Black Flag Friday. Black flags are used to denote mourning, as in state funerals, and to warn of danger, for example, black flags posted at beaches mean "don't go in the water."

Drivers in auto races who receive a Black Flag must return to their pit--their race is over.

Exhibit One is the Federal Reserve report which stated the bottom 80% of American households have fewer financial resources than they did pre-pandemic. The authors project that the cash reserves of this vast cohort would be depleted in the third quarter of 2023, i.e. right now.

Exhibit Two is a report that indicates half of employed consumers have side gigs to earn extra money. Side Gigs Help Ease Paycheck-to-Paycheck Consumers' Financial Stress This Holiday:

According to findings detailed in The Supplemental Income Edition of 'New Reality Check: The Paycheck-to-Paycheck Report' by PYMNTS Intelligence and LendingClub, half of employed consumers now have supplemental income sources in addition to their regular paychecks. This includes side jobs, other types of supplemental income and active side incomes.

This is critical because the holiday season has emerged as the most financially challenging period for a significant number of individuals, according to separate research from PYMNTS Intelligence, with over 20% pointing to vacation costs as a key contributor to their financial stress.

Exhibit Three is the "revenge spending splurges" on vacations and other luxuries have already depleted savings and boosted credit card balances. Vacations are prime examples of "greedflation" in action, as resorts, AirBNB hosts, et al. jacked prices to the moon knowing that households desperate for a splurge vacation would pay any price without question.

In street parlance, consumers have already shot their wad. There's not much left to blow on Black Friday.

Exhibit Four is the long-term deterioration of the bottom 80%'s share of financial wealth as indicated by the charts below, courtesy of the Federal Reserve. These charts reflect the reality that the vast majority of financial gains have flowed to the top 20%.

The bottom 50% of America's 132 million households, representing 165.5 million of the nation's 331 million residents, owns a meager 2.3% of the nation's financial assets. There simply isn't much wealth to tap for splurge spending.



The share of total assets owned by the middle class--those between the 50% and 90% percentiles--has been in decline for 30+ years. No wonder half of all employed consumers are working extra hours on side gigs.



Exhibit Five is the devaluation of Black Friday by "front-running" pre-Black Friday sales. Which one offers the best deals--pre-Black Friday sales, pre-pre-Black Friday sales, or post-Black Friday sales?

Like many other aspects of American life, whatever is modestly successful is ground to dust via crapification and "Calculated Misery" in which the consumer experience is intentionally degraded so consumers are forced to pony up for "premium" or "elite" service--that is, the same mediocre service that was once standard but now requires a hefty fee if you wish to avoid immiseration.

The "Crapification" of the U.S. Economy Is Now Complete (February 9, 2022)

Stainless Steal (February 26, 2023)
The decay in quality reveals that the collapse of the neoliberal-hyper-financialization-hyper-globalization model has already occurred.

If Black Friday is a bust, it may be a harbinger of what the mainstream has long considered impossible: the American consumer is well and truly tapped out, eviscerated by inflation and disgusted by rampant greedflation. It may also reflect a growing awareness of some of the populace that splurging with zero savings is not a stress-free strategy, and not worth the financial anxiety.

---

My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

Read the first chapter for free (PDF)

Read excerpts of all three chapters

Podcast with Richard Bonugli: Self Reliance in the 21st Century (43 min)


My recent books:

Disclosure: As an Amazon Associate I earn from qualifying purchases originated via links to Amazon products on this site.

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print) Read the first section for free


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Thanksgiving: When Gratitude Is In Short Supply

There are times when the only triumph within reach is survival.

Public expressions of gratitude are de rigueur in America: "I'm grateful for the opportunity to..." is one of the first lines of any public pronouncement: to serve the public, to play on this professional sports team, and so on.

In other words, giving thanks, as with many other virtues, has been depreciated by media-driven over-exposure and virtue-signaling.

Sincere gratitude is a good thing. Marcus Aurelius devoted the entire first chapter of his Meditations to expressing his heartfelt gratitude to everyone who taught him core values and shared their experiential wisdom with him.

But if you happen to awaken and discover you've been transmogrified into a six-foot cockroach, gratitude doesn't flow very freely. This is the plot of Franz Kafka's famous story The Metamorphosis.

Glamorous Hardship--that experienced by extreme nature photographers, celebrities, etc.--offers opportunities for expressions of gratitude: I want to thank my fans for their support during this time, it was dicey outrunning the avalanche, but I'm grateful I got the images, and so on.

Unglamorous Hardship--the kind most of us experience--is less conducive to gratitude: I'm grateful that my business collapsed, I'm grateful I had to quit my job to take care of aging parents /in-laws, etc.

I'm grateful for the opportunity to be a repulsive, grotesque six-foot cockroach--well, actually, not so much. I'd rather have the run-of-the-mill Unglamorous Hardships of chronic illness, having to drop everything to help an injured loved one, bankruptcy, burnout, and so on.

There are times when the only triumph within reach is survival-- the Triumph of Survival. To have dodged an endless volley of the slings and arrows of outrageous fortune, to have endured an endless full-court press of misfortune and survive--this is a triumph worthy of gratitude.

In my own life, these periods tend to last a biblical seven years each--seven years in which the hits keep coming, respite is brief before yet another life crisis comes ashore and life shrinks down to the day-by-day goal of survival. Everything is a struggle, and virtually every project disappoints or fails. Success boils down to surviving this hit and picking oneself up to absorb the next one.

This is why the Stoics valued gratitude so highly. There are eras of misfortune and failure in which maintaining high expectations only increase our suffering and self-pity. Better to need little and expect the exhaustion of good fortune to continue, and to understand that gratitude is best savored in very small portions.

"Do not indulge in dreams of having what you have not, but reckon up the chief of the blessings you do possess, and then thankfully remember how you would crave for them if they were not yours." Marcus Aurelius



"The whole universe is change and life itself is but what you deem it - either gratefully better than or bitterly worse than something else that you alone choose." Marcus Aurelius

The best of Thanksgiving wishes to you and your loved ones.

---

My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

Read the first chapter for free (PDF)

Read excerpts of all three chapters

Podcast with Richard Bonugli: Self Reliance in the 21st Century (43 min)


My recent books:

Disclosure: As an Amazon Associate I earn from qualifying purchases originated via links to Amazon products on this site.

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print) Read the first section for free


Become a $1/month patron of my work via patreon.com.

Subscribe to my Substack for free

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This Holiday Season, Give the Wonderful Gift of Nothing

There's actually something refreshingly wonderful about enjoying all the traditions without the obligation to buy or make gifts.

This holiday season, the most wonderful gift is the gift of ending the obligation to exchange gifts. Yes, I understand this is so appalling and monstrous that even Scrooge would hesitate to approve, but can we confess that overconsumption has limits, and we're overdue for a recalibration?

Gift-giving is a wonderful tradition, but perhaps it's time to give only ephemeral gifts of experiences and time spent together. Aren't the nation's self-storage units already stuffed with stuff? As for downshifting to homemade cookies and sweets, that's a step in the right direction to be sure--consumable, made and given with love--but with every other advert being a Big Pharma pitch for a med that "lowers your A1C," maybe sweets are the ideal gift now either.

The obligation to give gifts to loved ones who already have everything is--can we be honest?--odiously crazy-making. When someone steps up and takes the plunge and suggests we let go of exchanging gifts, the sigh of relief is palpable.

Sure, there are the kids, but is there ever a point when they have enough stuff already? Now that it's painfully obvious that digital addictions lower IQs and the ability to focus, perhaps giving kids more digital games and devices isn't much of a gift after all.

Here's an idea: give the kids the weird, wonderful exotic gift of a physical book, which activates parts of the mind that don't need sound prompts and scores to engage focus and learning.

Like so many aspects of life, gift giving has accelerated to yet another deranging mania, a frenzied tearing through the pile of gifts followed by a sugar-crash stupor.

There's actually something refreshingly wonderful about enjoying all the traditions without the obligation to buy or make gifts. It's like a great burden is lifted from the entire holiday experience, clearing space for some magical gratitude for what we have that isn't a consumerist frenzy of over-indulgence and over-consumption.

Maybe the real gift would be engaging the kids in making gifts for each other. Or exchanging little notes of what we're grateful for in the past year. Gift wrap them if you wish.

As for the dependence of "economic growth" on holiday credit-card splurges--even Santa is exasperated.

---

My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

Read the first chapter for free (PDF)

Read excerpts of all three chapters

Podcast with Richard Bonugli: Self Reliance in the 21st Century (43 min)


My recent books:

Disclosure: As an Amazon Associate I earn from qualifying purchases originated via links to Amazon products on this site.

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print) Read the first section for free


Become a $1/month patron of my work via patreon.com.

Subscribe to my Substack for free

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Thank you, Gary S. ($5/month), for your marvelously generous subscription to this site -- I am greatly honored by your support and readership.		Thank you, Wayne K. ($50), for your outrageously generous contribution to this site -- I am greatly honored by your steadfast support and readership.

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What's It Take To Be Middle Class Now?

Can an economy in which 10% of the households qualify as middle class claim to offer widespread opportunities for secure prosperity? No, it cannot.

Defining the middle class is a perpetually popular parlor game because it's well-known that the foundation of widespread prosperity is a broad-based middle class and a sturdy ladder of social mobility that enables those below the middle class to work their way up to middle class security.

Here's an example of a typical trope on the subject: What Does It Take To Be Middle Class?

The topic is also a perennial favorite because the middle class is losing ground. By basic measures of income, it's slipped from 60% of the populace to 50%.

A strong case can be made that assessed by characteristics of middle class security and prosperity rather than income, the middle class has effectively shrunk to 10% of households as only the top 30% of households earn enough to afford what was within reach of the top 60% in decades past.

By definition, the top 20% cannot be "middle class." The top 20% is comprised of the upper-middle class, the wealthy and the super-wealthy (the 80% to 95% bracket, top 5% and the top 1%).

Attempting to define the middle class by income alone is futile due to regional differences in costs and purchasing power. $100,000 annual household income that will barely pay rent and necessities in a major metro city can stretch considerably further in smaller cities far from high-cost zones.

Regardless of income, households that are living paycheck to paycheck don't qualify as middle class if we qualify "middle class" by these characteristics:

In Why the Middle Class Is Doomed (April 2012) I listed five "threshold" characteristics of membership in the middle class:

1. Meaningful healthcare insurance (i.e. not phantom coverage that only kicks in after thousands of dollars are paid in cash).

2. Significant equity (25%-50%) in a home or other real estate.

3. Income/expenses that enable the household to save at least 6% of its net income.

4. Significant retirement funds: 401Ks, IRAs, etc.

5. The ability to service all debt and expenses over the medium-term if one of the primary household wage-earners lose their job.

I then added a taken-for-granted sixth:

6. Reliable vehicles for each wage-earner that are fully covered by insurance.

Author Chris Sullins suggested adding these additional thresholds:

7. If a household requires government assistance (SNAP, Medicaid, rent subsidies, etc.) to maintain the family lifestyle, their middle class status is in doubt.

8. A percentage of non-financial hard assets such as family heirlooms, precious metals, business equity, rental income property, land, etc. that can be transferred to the next generation, i.e. generational wealth.

9. Ability to invest in offspring (education, extracurricular clubs/training, etc.).

10. Leisure time devoted to the maintenance of physical/spiritual/mental fitness.

Correspondent Mark G. suggested two more:

11. Continual accumulation of human and social capital (adding new skills, expanding social networks and markets for one's services, etc.)

And the money shot:

12. Family ownership of income-producing assets such as rental properties, bonds, etc.

The key point of these thresholds is that propping up a precarious illusion of consumption and status signifiers does not qualify as middle class. To qualify as middle class (that is, what was considered middle class a generation or two ago), the household must actually own/control wealth that won't vanish if the investment bubble du jour pops, and won't be wiped out by a medical emergency.

In Chris's phrase, "They should be focusing resources on the next generation and passing on Generational Wealth" as opposed to "keeping up appearances" via aspirational consumption financed with debt.

So how much does it cost to meet these qualifying standards? Two generations ago, public school teachers, healthcare workers, skilled craft workers and others with median-level incomes could meet all of these qualifications, for the purchasing power of their earnings was extremely high compared to now. A median wage bought a lot of shelter, vehicle, healthcare, college education, etc.

According to the US Census Bureau, Real median household income was $74,580 in 2022. (Source: Income in the United States: 2022) This is the "middle income" that presumably qualifies as "middle class," but it would take extreme frugality and sacrifices to stretch $75,000 to cover the qualifications listed above, even in low-cost regions.

As a general guideline, $75,000 would only stretch to meet these qualifications if 1) the family home was owned free and clear, i.e. no mortgage, either via inheritance or extreme efforts such as building your own home with cash savings, 2) no student loan debt, either by gaining desirable skills outside college or completing college on scholarships, with family financial aid, etc., and no vehicle loan, i.e. a reliable used car/truck that is owned free and clear.

These may strike younger readers as impossible fantasies, but as I've often noted here, forty years ago I worked my way through a four-year university program with part-time jobs and built a house from scratch with only savings, income from temp construction jobs and a $5,000 bank loan ($17,000 in today's dollars) which we paid off in two years.

Even with extreme frugality, this debt-free lifestyle is no longer within reach of the non-wealthy, as costs for college, land, permits and building materials have skyrocketed, along with the costs of healthcare, insurance, vehicles, childcare, etc.

I submit that for most households in higher-cost regions, these qualifications can only be met with an annual household income of $150,000 or more, which according to the Census Bureau, is the cutoff level for the top 20% (top quintile) of American households.

According to the Census Bureau, the top 20% earn 52% of all income, and the top 5% earn 23.5% of all income. The top 10% of households have an income of $216,000 or higher, and the top 5% have incomes of $295,000 or higher. The top 1% bracket is $867,000 and up. (TableA-4a, Income in the United States: 2022).

In lower-cost regions, it may be possible for frugal households in the 70% to 80% income bracket to qualify. According to the Census Bureau, this bracket earns between $118,700 and $153,000. This 10% might qualify as middle class. Households earning less would likely qualify only if they inherited significant wealth from their families or received substantial financial aid from their families, such as college paid for in full, a down payment for a home purchase, etc.

In summary: if we set minimum standards for qualifying as middle class by what was within reach of typical American households two generations ago, relatively few households qualify as middle class. Middle class means more than being able to charge a lavish cruise or foreign vacation on a credit card or buying a new truck with a huge loan. It once meant owning assets, not owing debt on assets.

Consider a few charts. Here we see the percentage of wealth owned by the 50% to 90% bracket--what we might consider middle class--has declined sharply as wealth has concentrated in the top 10%.



By way of example, the top 10% own 90% of stocks.



Wages are the bedrock of middle class income and wealth accumulation, and here we see wages share of the national income has been in a freefall for 45 years. It has recently ticked up, but it is not yet clear if this is just another temporary blip or an overdue clawback of income that has predominantly flowed to capital.



Can an economy in which 10% of the households qualify as middle class claim to offer widespread opportunities for secure prosperity? No, it cannot. "Middle class" isn't just income or consumption; it demands a toehold of ownership of real assets that offer security, not a lifetime of debt servitude.

As security becomes increasingly precarious and unaffordable, Self-Reliance offers an alternative to a lifetime of debt servitude.

---

My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

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A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
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Check All That Apply: Artifice, Suppression, Deceit, Denial, Delusion

Why does the phrase "bread and circuses" keep coming to mind?

In my previous post, I asked Can We Reverse America's Distemper?, starting from the historical perspective of 50-year cycles of socio-economic cooperation and discord, a cycle documented by Peter Turchin.

I referenced a January 1974 essay (America Agonistes)--50 years ago--in which the author identified three key sources of decay and collapse: rigidity (resistance to change / adaption), deep alienation and the erosion of crucial institutions.

In his recent book End Times: Elites, Counter-Elites, and the Path of Political Disintegration, Turchin identified America's perverse wealth pump that transfers wealth from the working / middle classes to the wealthy elites as a core source of systemic risk, a source fueled by the time-honored dynamic of entrenched elites and incumbents rigging the economy and key institutions to serve their interests above the interests of the general public, i.e. the common good.

These entrenched interests resist any adaptation that might diminish their wealth and power, and this is a source of systemic rigidity. Any attempt to reverse the perverse wealth pump meets with fierce resistance: reforms are watered down, new tax breaks are secreted into legislation to replace those lost to reforms, and so on.

What's different now compared to 50 years ago is the substitution of narratives for reality. Rather than honestly address the sources of risk and decay, the elites of 2023 America seek to persuade the restive populace that everything is going great, and their sense that things are unraveling is false.

The purpose of the misdirection and obfuscation is to obscure the rot within crucial institutions and the resulting deep alienation generated by the elites protecting their reverse wealth pump. In other words, facing the sources of systemic risk would reveal a power structure in which the only possible outcome is the perverse wealth pump eating away at the nation's economy and social fabric.

Apologists and pundits shout that the public's sense that things are going wrong is delusional because GDP is rising and inflation has been tamed. But these metrics are not measures of social or economic well-being; borrowing and squandering trillions of dollars boosts GDP even as it undermines the economy, and inflation is blatantly gamed to understate reality.

The tools of this effort to paper over real issues with happy-story narratives are Artifice, Suppression, Deceit, Denial and Delusion. As in the surveys that ask "Check all that apply," if we examine the status quo response to any consequential issue, we find one or more of these being pressed into service.

Any conflicting evidence is suppressed or denied, delusions are hyped as reality ("we're all getting richer!", etc.), fabrications and artifice are deployed to misdirect and obfuscate, and when all else fails, deceit and subterfuge are rolled out in force.

Fifty years ago, the nation's power elites still had the capacity to admit that the nation's problems were systemic and demanded honest appraisals. Yes, there were the usual fumbling attempts to substitute PR for real solutions--for example, WIN, Whip Inflation Now--a PR ploy that was widely mocked at the time, but on the whole, leaders faced issues directly and serious, honest debates over the correct policy responses were open to public scrutiny and feedback.

Now we have self-serving virtue-signaling, posturing, narrative control, hearings and spectacles in which the objective is to provide cover for all that is taboo because it threatens to reveal corruption and deceit or the self-interested skims and scams of the elites benefiting from the reverse wealth pump.

The fatal rigidity unraveling the nation's ability to adapt is the need to reassure the public with bogus statistics and narratives. Consider this chart, courtesy of the Federal Reserve, that displays the collapse of the bottom 50% households' share of financial assets--the assets that generate income and build wealth.



In comparison, the top 1%--1.3 million households--saw their share of financial wealth soar to 35.3%--15 times the financial assets of the bottom 50%, 65.5 million households. Perverse wealth pump, indeed. But for the punditry tasked with spewing the PR, it boils down to this: since I'm doing great, everyone must be doing great. We can be relatively confident that the economists and pundits spewing the happy PR aren't living in self-storage units. They're jetting off to a conference in Singapore and enjoying the high life.



But what about total assets--you know, used vehicles and TVs and houses? The bottom 50% households' share of total assets has declined, too. Quick, jury-rig some obscure metric to create the illusion that "we're all getting richer," something to mask the reality that "a few are getting much richer than everyone else."



The status quo refuses to understand the problem because that would demand changing the system that rewards them so richly. And so the "solution" is to twist the narratives and metrics to make it appear that all is well, and marginalize any skepticism of the cover story.

We're constantly assured the problems are being dealt with and resolved, yet these solutions don't actually seem to be addressing what's unraveling: public trust, transparency, public health and an affordable cost of living, to name a few.

If we can no longer discuss consequential issues openly and directly, the odds that real solutions that require trade-offs and sacrifices can emerge are vanishingly low. Yet that is the path we're on: rigidly stick to the script and act as if that fixes what's broken.

Why does the phrase bread and circuses keep coming to mind?

---

My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

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My recent books:

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When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

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Can We Reverse America's Distemper?

Social trust, a baseline measure of social stability, has eroded.

Consider this description of America's discontent:

"...a Hamlet-like loss of self-confidence, with an apocalyptic sense of doom for the civilization. On the Right it embodies a conviction that the sensate culture is pushing the society down the Gaderene slope of drugs-and-fornication to destruction. On the Left there is the vague sense that America is imperialist, fascist-oriented, caught in inner contradictions of class and ethnic struggles which will end in self-destructive wars or civil chaos.

...the fragmenting and polarizing of institutions (family, neighborhood, university, church, nation)--in short, the overloading of the social nervous system by sudden accelerations of change."

Is that a reasonably fair description of America in 2023? Interestingly, it was written in January 1974, describing the America of 50 years ago. (America Agonistes (Max Lerner, Foreign Affairs, January 1974). I have often referred to Peter Turchin's evidence-based cyclical mapping of the structural sources of social disorder which he has updated in his latest work, End Times: Elites, Counter-Elites, and the Path of Political Disintegration.

Turchin identified 50-year cycles of integration--in which people find reasons to cooperate--and disintegration, in which people find reasons to devolve cooperation. From this perspective, that an article from 50 years ago sounds current is not only no surprise, it was easily predictable.

This Salon article summarizes many of the conclusions in Turchin's new book: Hope in "End Times": Peter Turchin's analysis of our coming collapse could help us avoid it:

For all its breadth and depth, there's a simple message at the core of "End Times": At the heart of our problems, Turchin writes, is "a perverse 'wealth pump' ... taking from the poor and giving to the rich," and we have to find a way to turn it off.

This reflects "one of the most fundamental principles in sociology, the 'iron law of oligarchy,'" he writes, "which states that when an interest group acquires a lot of power, it inevitably starts using that power in self-interested ways." For example, while wages fell far behind the growth of economic productivity from 1979 onward, Turchin cites analysis from the Economic Policy Institute indicating that three-fourths of that gap was due to elite-driven policy shifts: weakened labor standards, the erosion of collective bargaining, corporate globalization and so-called fiscal austerity.

Diminished economic conditions for the less educated were accompanied by a decline in the social institutions that nurtured their social life and cooperation. These institutions include the family, the church, the labor union, the public schools and their parent-teacher associations, and various voluntary neighborhood associations."

Back in America's previous cyclical crisis, Lerner identified the sources of decline in this way: "Civilizations die not only of rigidity, failure to meet challenges, constitutional breakdown. They may also die of deep alienations and the erosion of crucial institutions."

He concluded that America's cult of change precluded a decline due to rigidity:

"My own stress is on studying the crucial factors in the death of past civilizations, and using them to put questions concerning American directions. To start with, the rigidity which marked a number of declines and falls is only minimally present in America, with her cult of change and her experience of social and cultural revolution."

I will consider the issue of rigidity in upcoming posts, but for now, let's consider the decay of America's social and economic foundations, starting with Turchin's perverse wealth pump that has stripmined the bottom 90% to enrich the top 1%, as shown in this chart:



Social trust, a baseline measure of social stability, has eroded. It's worth noting that the tumultuous 1970s don't come off so badly in this chart compared to the present. It is not coincidental that social trust rose in the 1990s, when prosperity included the entirety of households and not just the top 10% and has since declined sharply as prosperity was concentrated in the top 10%.



The hyper-financialization and hyper-globalization of the economy--the engines of wealth and income inequality-- took off in 2000, more than tripling total debt. Soaring debt service is a consequential measure of financial decay:



Across every institution, the entrenched elites and incumbents now respond to decline by doing more of what's failed, a sign not of flexibility but of self-serving rigidity:



I'll consider an even more destructive manifestation of rigidity in my next post.

---

My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

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My recent books:

Disclosure: As an Amazon Associate I earn from qualifying purchases originated via links to Amazon products on this site.

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

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The Original Song That Came To Me in a Dream

It was interesting to compose a melody in a dream.

Of Two Minds is devoted to exploring socio-economic dynamics, so it leaves out 95% of my life. My daily life is unworthy of comment, but I'm making the rare exception to describe a rare event: composing a new melody in a dream.

I've been an amateur musician since my late teens, when I picked up the cheap, narrow-necked, steel-stringed acoustic guitar my older sister had understandably abandoned as unplayable. Over time, better guitars came my way and I bought a Fostex four-track tape deck in 1983 to begin recording my original songs (2011 to 2023). This history tracks millions of other musicians, both amateurs and those who progressed to professionals.

On occasion, I've heard music in my dreams, but none that I recalled with any clarity. I've only had one dream in which I remembered the tune upon awakening and immediately recorded the melody on my phone. I had this dream in December, 2022, while vacationing in Thailand with my wife.

Even more unusually, the song was composed in the dream with the help of Paul McCartney. In the dream, Mr. Paul was sitting at a piano, and I asked him to help me with a song I was working on. He noodled around on the keys and a simple melody emerged. The dream ended, I awoke in the middle of the night and recorded it before it slipped from my memory.

I'm guessing that my subconscious drew upon Mr. McCartney for inspiration because he famously dreamed the melody of his song Yesterday and awoke reckoning he'd heard the tune somewhere. After spending a few weeks asking friends if they'd ever heard this melody before, and finding no one had, he concluded it was in fact an original melody that had come to him in a dream.

He has also reported having a peaceful dream of his long-departed mother saying to him, "let it be." This was the inspiration for the song Let It Be. Clearly, dreams are powerful sources of creative work, and his example likely offered a subconscious inspiration.

My little melody is no masterpiece, but it was interesting to compose a melody in a dream, and so I slowly filled out the tune with lyrics, chords, riff, etc. Thanks to the creative arranging and orchestration of my friend Tommy Tabasco, a finished song eventually emerged. I call it My Mr. McCartney Dream Song, or simply My Dream Song.

My hope is the story and the song bring a smile, and that Mr. McCartney won't mind being part of my dream.

To illustrate the development of the song, I'm posting three versions:

Acoustic rough draft recorded on my iPhone SE

Arrangement 1

Arrangement 2



Here are the lyrics:

We know Mr. McCartney
writes songs in his dreams

so deep in my own dream
I say to Sir Paul

Mister Paul would you help me
write a new song

could you give three minutes
it won't take too long

Mister Paul's at his piano
and happy to help

I watch as he improvs
and out comes this tune

This is my Mr. McCartney Dream Song
Paul helped me write it in my own dream

BRIDGE

You and your mates
gave us such joy
Yes all of us
Vera, Chuck, Dave and Zoe

Mr. Paul you're a very
hardworking guy

You're co-writing new songs
in other bloke's dreams

It's not quite as easy
as it may seem

Mister Paul I must thank you
for this dream song

I'm one lucky bloke that
you helped me along

This is my Mr. McCartney Dream Song
Paul helped me write it in my own dream

Music and lyrics copyright Charles Hugh Smith November 2023, all rights reserved globally.

---

My new book is now available at a 10% discount ($8.95 ebook, $18 print): Self-Reliance in the 21st Century.

Read the first chapter for free (PDF)

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My recent books:

Disclosure: As an Amazon Associate I earn from qualifying purchases originated via links to Amazon products on this site.

The Asian Heroine Who Seduced Me (Novel) print $10.95, Kindle $6.95 Read an excerpt for free (PDF)

When You Can't Go On: Burnout, Reckoning and Renewal $18 print, $8.95 Kindle ebook; audiobook Read the first section for free (PDF)

Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $9.95, print $24, audiobook) Read Chapter One for free (PDF).

A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet (Kindle $8.95, print $20, audiobook $17.46) Read the first section for free (PDF).

Will You Be Richer or Poorer?: Profit, Power, and AI in a Traumatized World
(Kindle $5, print $10, audiobook) Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake (Novel) $4.95 Kindle, $10.95 print); read the first chapters for free (PDF)

Money and Work Unchained $6.95 Kindle, $15 print) Read the first section for free


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