Imagining A Middle Class Does Not Create One (October 12, 2010)
Surveys show that Americans wildly underestimate the concentration of wealth in America. This disconnect between perception and reality shows the power of propaganda.
Americans have been trained to believe that membership in the "middle class" is their birthright if they "work hard" in the status quo. What income defines "middle class" is a function of locale and prevailing wages/costs ($100,000 in Manhattan or San Francisco isn't much because costs are so high), but in terms of purchasing power we can probably agree that middle class membership includes:
1. reliable private transport
2. a home with meaningful equity
3. healthcare insurance/coverage
4. a retirement fund of some sort
5. a college education/higher education or training
How many people "own" all of the above minimum standards has been drastically reduced by various factors.
Another measure of "middle class" is even simpler: a middle class household owns some wealth. It could be a retirement fund, a free-and-clear home, a business, income property or gold/cash/investments.
By that measure, the middle class comprises at best 20% of the populace.
The estimable Barry Ritholtz of the Big Picture blog recently published a chart which depicts the actual distribution of wealth in America and the perceived distribution of wealth--what people estimate based on their knowledge.
Estimates of Wealth Distribution Are Widely Wrong.
I have reprinted this chart of financial wealth (the SUV, boat, barcalounger, etc. are not counted as liquid assets/financial wealth) from time to time:
The first chart depicts total wealth, which includes depreciating assets that are illiquid (SUVs, boats, furniture, etc.) and typically overvalued. In terms of financial wealth, the top 20% own fully 93% of all assets.
If we characterize the top 20% as "wealthy," then the next 20% would be the "upper middle class" (60% -80%) and the third quintile (60% - 40%) would be "middle class." In terms of financial wealth, the Great Middle Class owns a mere 6% of total assets.
The bottom 40% (the "working class" and "the poor") own less than 1%.
Clearly, Americans are holding a fantasy-view of their piece of the American Dream/middle-class membership. A number of people I know consider themselves middle-class based on their substantial income--but they own very few financial/liquid assets, and if they lose their jobs then their health coverage vanishes.
The net value of their vehicle(s) and other possessions is also near-zero in terms of net (value minus outstanding loan balance) worth on the open market.
Their "membership" in the middle class is tenuously based on perceived membership gained by consumer activities such as shopping at Whole Paycheck (Whole Foods), the brand of car they drive (net value, near-zero) and other status symbols they feel reflect their "values" and "membership" in the middle class.
Sadly, it's all delusory. Debt-serfdom and zero assets does not equate to middle class. When "membership" in the middle class ceases to mean owning meaningful wealth, it is no longer a middle class. It is instead a superficial consumption pattern of "aspirants" to what was once a true middle class.
When the average "middle class" American looks at this chart, they probably reckon this enormous rise in net wealth includes them. But as we have seen above, it doesn't; their "ownership" of this vastly increased wealth is a meager 6%. In other words, the vast majority of this increase flowed to the top 20%.
We can see the real situation in this chart: most of the increases in income went to the top slice ("the wealthy"):
I am not passing judgment here on whether this distribution is "good" or "bad" or if it is the result of global wage arbitrage or other factors. What I am saying is the disconnect between the nation's highly concentrated wealth and Americans' perception of wealth distribution reveals the power of propaganda.
The status quo's organs of influence (the mainstream media, status quo education, Central State, etc.) have very effectively "sold" the American public on their "membership" in an "ownership" society comprised of a Great Middle Class.
All of that is very clearly propaganda. The reality is the middle class owns almost none of the financial wealth of the nation, and thus its resilience in the face of economic adversity is as wafer-thin as its real financial wealth.
I think the evidence that people are catching on to this reality is growing.
For instance, here is insider/media personality Peggy Noonan's take on what might be characterized as "middle class" angst or anger:
For those who wonder why so many people have come to hate, or let me change it to profoundly dislike, "the elites," especially the political elite, here is one reason: It is because they have armies of accountants to do this work for them. Those in power institute the regulations and rules, and then hire people to protect them from the burdens and demands of their legislation. There is no congressman passing tax law who doesn't have staffers in his office taking care of his own financial life and who will not, when he moves down the street into the lobbying firm, have an army of accountants to protect him there.
Status quo Republican water-carrier Noonan misses the point, of course, which is that the Power Elites' army of apparatchiks and toadies is merely a reflection of this extreme concentration of wealth and power.
If we examine the top 20%, we find the top 1% hold most of the financial wealth of that group, and if we examine the top 1%, then we find the top 1/10th of 1% own most of the wealth of the top 1%.
Noonan sees the symptom--a well-paid army of toadies protecting the Elites' wealth and power-- and ignores the disease: the high concentration of financial (real) wealth. The one thing she does "get," however, is the rising hatred of the debt-serfs for the Power Elites.
Perhaps we in the U.S. will experience our own "Cultural Revoluton" in the years ahead.
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