Wednesday, February 10, 2021

What Collapsed the Middle Class?

The middle class has already collapsed, but thanks to debt and bubbles, this reality has been temporarily cloaked.

What collapsed the middle class? In many ways the answer echoes an Agatha Christie mystery: rather than there being one guilty party, a number of suspects participated in the collapse of the middle class.

Can we consolidate these dynamics into a few core causal factors? I've made the case in the pst few posts that yes, we can: many of these causes are part of a single dynamic, the decapitalization of the middle class and the decay of the ladder of social mobility which enabled tens of millions of workers to transform their wages into productive capital via saving and investment in their own human capital, their own enterprises and assets that earn income.

The Top 10% Is Doing Just Fine, The Middle Class Is Dying on the Vine (2/4/21)

The second primary dynamic is the substitution of debt and speculation for earned income and productive capital. As the purchasing power of the bottom 90%'s wages declines, the status quo has substituted debt for income and speculation for investing in productive capital.

Debt and the Demise of the Middle Class (2/9/21)

This dynamic incentivizes debt, speculation and consumption rather than producing, savings and investments in human and productive capital. The source of this incentive structure is the maximization of corporate profits earned by banks loaning money to the middle class and by selling the middle class on superfluous consumption being the signifier of "success" rather than production being the signifier of "success".

In reality, what counts is agency (control of one's life, having a voice in governance) and ownership of productive capital. Becoming a debt-serf to buy more stuff and grab a few chips in the speculative casino sacrifices both agency and the acquisition of productive capital. But this sacrifice is oh-so profitable to the financier purveyors of debt and speculative gambles in the casino.

The third dynamic is globalization, and specifically the tyranny of global markets. Global banks and corporations are ideally placed to profit from the arbitrage of labor, environmental regulations, currencies, corruption (dear in some places, cheap in others) and the price of debt and risk.

Wage earners have no such leverage. In effect, all the risks of competition are eliminated for corporate monopolies and cartels while the risks are transferred to workers who face a global race to the bottom in wages, opportunity and income security.

The fourth dynamic is speculative bubbles put many assets out of reach of the bottom 90% who have only their wages and savings. The winners in speculative bubbles are those fortunate enough to have bought homes, bonds, rental properties, land, etc. decades ago when a house could be had for three times median income and bonds paid solid, above-inflation returns.

The bottom 90% attempting to find productive assets at affordable prices now are out of luck. Consider a 900 square foot home built in 1916 in the desirable San Francisco Bay Area community of Albany, CA. The house sold for $135,000 in 1996, 3.8 times the national median household income.

Then Housing Bubble #1 boosted the value to $542,000 in 2004, 12.2 times the national median household income. Housing Bubble #2 has pushed the value to slightly over $1 million, 14.5 times the national median household income. Only those inheriting wealth (or who chose wealthy parents), those earning over $250,000 annually or speculators who just scored big gains in bitcoin or GameStop could afford this very small, modest house.

That's what speculative bubbles do to the middle class: they leave them behind forever. Those who bought 25 years ago entered the top 10% in wealth due to the bubblicious increase in the value of their home. A few winners in the casino who sold at the top might have edged into the top 10%, but the vast majority of gamblers in the casino cannot compete with the insiders, manipulators and pros, so they lose ground. This is why the bottom 90% collect an insignificant 3% of all income from capital.

Jay Taylor and I discuss The Upcoming Revolt of the Middle Class (22 min)

These four primary dynamics manifest in the following ways. Each one helps generate a two-tier Neofeudal Economy of a Financial Aristocracy and its top 9.9% technocrat class who own virtually all the productive capital and the bottom 90%, a disenfranchized ALICE (assets limited, income constrained, employed) workforce.

1. The shifting of pension and healthcare costs and risks from the state and employers to employees. (see chart below)

2. The decline of safe, secure high-yielding investments as central banks have driven savers into risky, crash-prone speculative assets such as stocks and junk bonds.

3. The decline of scarcity value in college diplomas that were once the ticket to middle class security. How Many Slots Are Open in the Upper Middle Class? Not As Many As You Might Think (March 30, 2015).

4. The inexorable rise in big-ticket costs: higher education, healthcare and housing. Even as wages stagnate, these costs continue rising, claiming an ever-larger share of household incomes, leaving less to save/invest.

5. The transition from a stable economy with predictable returns to a financialized boom-and-bust economy that wipes out middle class wealth in the inevitable busts but does not rebuild it in the booms.

6. The regulatory and administrative barriers to self-employment, forcing most of the workforce into wage-slavery and/or dependence on the state. Endangered Species: The Self-Employed Middle Class (May 2015).

7. The rising exposure of the U.S. workforce to highly educated, lower-cost competing workforces in a globalized economy.

8. The decline of labor's share of the U.S. economy: the slice of the pie distributed to earned income has been declining for decades.

9. The share of the earned-income slice going to the top 5% is rising.

10. The wealth of the middle class is tied up in the family home, a non-income producing asset prone to the wild swings of housing bubbles and busts. Stagnation Nation: Middle Class Wealth Is Locked Up in Housing and Retirement Funds (October 25, 2017).

The middle class has already collapsed, but thanks to debt and bubbles, this reality has been temporarily cloaked. All bubbles pop and all excessive debt ends in default. When these inevitably occur, the reality can no longer be hidden.







If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

My new book is available! A Hacker's Teleology: Sharing the Wealth of Our Shrinking Planet 20% and 15% discounts (Kindle $7, print $17, audiobook now available $17.46)

Read excerpts of the book for free (PDF).

The Story Behind the Book and the Introduction.



Recent Podcasts:

Jay Taylor and I discuss The Upcoming Revolt of the Middle Class
(22 min)

My COVID-19 Pandemic Posts


My recent books:

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).

Pathfinding our Destiny: Preventing the Final Fall of Our Democratic Republic ($5 (Kindle), $10 (print), ( audiobook): Read the first section for free (PDF).

The Adventures of the Consulting Philosopher: The Disappearance of Drake $1.29 (Kindle), $8.95 (print); read the first chapters for free (PDF)

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



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




NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Birgitta M. ($5/month), for your marvelously generous pledge to this site -- I am greatly honored by your support and readership.

 

Thank you, Edmund O.-S. ($5/month), for your massively generous pledge to this site -- I am greatly honored by your support and readership.

Terms of Service

All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.


Our Privacy Policy:


Correspondents' email is strictly confidential. This site does not collect digital data from visitors or distribute cookies. Advertisements served by a third-party advertising network (Investing Channel) may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative). If you have other privacy concerns relating to advertisements, please contact advertisers directly. Websites and blog links on the site's blog roll are posted at my discretion.


PRIVACY NOTICE FOR EEA INDIVIDUALS


This section covers disclosures on the General Data Protection Regulation (GDPR) for users residing within EEA only. GDPR replaces the existing Directive 95/46/ec, and aims at harmonizing data protection laws in the EU that are fit for purpose in the digital age. The primary objective of the GDPR is to give citizens back control of their personal data. Please follow the link below to access InvestingChannel’s General Data Protection Notice. https://stg.media.investingchannel.com/gdpr-notice/


Notice of Compliance with The California Consumer Protection Act


This site does not collect digital data from visitors or distribute cookies. Advertisements served by a third-party advertising network (Investing Channel) may use cookies or collect information from visitors for the purpose of Interest-Based Advertising. If you do not want any personal information that may be collected by third-party advertising to be sold, please follow the instructions on this page: Do Not Sell My Personal Information


Regarding Cookies:


This site does not collect digital data from visitors or distribute cookies. Advertisements served by third-party advertising networks such as Investing Channel may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative) If you have other privacy concerns relating to advertisements, please contact advertisers directly.


Our Commission Policy:

As an Amazon Associate I earn from qualifying purchases. I also earn a commission on purchases of precious metals via BullionVault. I receive no fees or compensation for any other non-advertising links or content posted on my site.

  © Blogger templates Newspaper III by Ourblogtemplates.com 2008

Back to TOP