Guest Post: America's Four Socioeconomic Classes

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

A titanic political battle is brewing between the parasitic aristocracy, the dependent class and the two classes creating value with their labor.

In the conventional view, America's socioeconomic classes are divided by income and wealth into various layers of Wealthy, Middle Class and Poor.
If we extend the analysis presented in Why Employment in the U.S. Isn't Coming Back (January 29, 2013) and Why Employment Is Dead in the Water (January 28, 2013), we get an entirely different framework that breaks naturally into four classes:
1. Parasitic financial Aristocracy (creates no value, skims national surplus)
2. High value creation (employed, heavily taxed)
3. Low value creation (employed/informal economy, lightly taxed)
4. No value creation (unemployed, dependent)
There are of course various distinctions that must be made within each broad class, but the point is the financial health of the nation ultimately depends on creating surplus value--value in excess of the costs of production and overhead.
Wealth that is incapable of generating new wealth is consumed, i.e. eating our seed corn: once the investable capital is gone, it is no longer available to leverage new wealth creation, and the nation spirals into poverty and conflict.
The key metrics are value creation and cost: assessing the value created by each class and the costs of maintaining each class.
In the conventional view, the wealthy subsidize the poor via taxes and donations to charity (i.e. noblesse oblige). But the conventional framework ignores the key question of where the wealthy obtained their fortunes, and the consequences of that wealth acquisition on the larger economy.
If the wealthy parasitically skimmed their wealth, they are in effect depriving the economy of capital that could have been productively invested elsewhere. If they created value far in excess of the costs of their enterprise, then they were conduits of high-value creation.
Here is a snapshot of parasitic wealth skimming: the financial aristocracy skims roughly 5% of the nation's entire output (GDP) from the 60% of the populace that are debt-serfs (the top 5% have wealth that is not debt-dependent, and the bottom 35% are too poor to have any credit).
Financial profits per capita (per person): this eliminates the abstraction of numbers in the hundreds of billions of dollars by measuring the parasitic skim extracted from each American:
The financial sector is only the most visible part of the parasitic skim; most of the skim is hidden within cartels enabled and enforced by the Central State (Federal government).
Correspondent Mark G. has identified the two dead-giveaway characteristics of parasitic cartels:
1. Real outputs (i.e. surplus value) are visibly falling despite ever higher resource inputs (costs).
2. The cartel enforces a socio-political agenda that has nothing to do with the ostensible purpose of the cartel's operations.
This describes the national security cartel, the sickcare cartel, the higher-education cartel and the drug-war/gulag cartel, to name just the most obvious.
The national security cartel absorbs hundreds of billions of dollars annually, yet the value of trillion-dollar weapons systems like the F-35 are rapidly diminishing in an era of networked drones.
The sickcare cartel now absorbs almost 20% of the nation's entire economy (GDP) yet the health of the populace measurably declines by most international metrics.
The higher-education cartel manages to expand its share of the national income even as the cartel's output--the relevancy and value of its product, a college degree-- is increasingly marginalized. (Students: You Are Exploited Debt-Serfs April 12, 2011)
Overcrowded classes now routinely view coursework on large screens that is drawn from the Internet rather than live lectures--lessons the students could get for free on their own. Textbooks that cost $150 each (how's that for cartel pricing?) cover material that is also available online for free or a very low cost. Meanwhile, administration costs are replacing instruction as the primary costs of the cartel:
No wonder higher education and healthcare are "rights." That agenda guarantees the cartels' control of the national income will only expand.
The drug-war/gulag cartel consumes billions of dollars annually on suppressing marijuana and jailing drug users and nickel-bag dealers, while fully legal and readily available alcohol kills tens of thousands annually via vehicle accidents, murders committed while intoxicated, liver disease, etc., none of which can be traced to marijuana usage.
Forgotten thanks to the relentless drug-war/gulag cartel propaganda is the fact that U.S. physicians routinely prescribed cannabis in the late 19th as a cure for a variety of common ailments. (For the record, I am not a user attempting to justify my usage; this is simply unassailable historical fact.)
Since the value created by these cartels is far less than their costs, they are all part of the parasitic aristocracy skimming wealth rather than creating it.
As noted in the previous essays on employment, once an economy's cost basis rises above the value created by most labor, it is no longer financially possible to pay people to perform low-value creation work.
Robots and software become the only sustainable way to get the work done for a cost that is lower than the value created. Robot Economy Could Cause Up To 75 Percent Unemployment. As I explained in Why Employment in the U.S. Isn't Coming Back, ever-higher labor and overhead costs make this the only path open to enterprises that aren't subsidized or protected by the government.
What we need to consider is what happens as the parasitic and dependent classes take an ever-larger share of the national surplus while the classes creating most of the value decline in size and political influence.
This has nothing to do with what people "deserve" or what they've been promised; it has everything to do with what is economically sustainable. The conventional political discussion is focused on what everyone is receiving; the discussion that matters is how much value is being created, and can that wealth support a parasitic aristocracy, politically untouchable cartels and a vast and growing class of State dependents.
Based on income and taxes paid, it appears the high value creation class has shrunk to around 20% of the workforce, as the top 20% pay roughly 80% of the income and payroll taxes.
In general terms, there are 150 million people reporting earned income, i.e. working at some sort of job or self-employment. Roughly 38 million are part-time, and so full-time workers number around 112 million. As noted in Why Employment Is Dead in the Water, 38 million American workers earn less than $10,000 per year, a number that aligns with the number of part-time employees; 50 million earn less that $15,000 a year and 61 million earn less than $20,000 annually.
In broad-brush, the bottom 40% of wage earners work in low-value creation jobs. Their wages are capped by the value their labor creates. The top 20% are in high-value creation jobs and the middle 40% fill the spectrum between $100,000 and $21,000 a year in earned income.
Looking ahead, we can discern a time when the class creating most of the value and paying most of the taxes declines to the point that the value created is no longer large enough to support both a parasitic aristocracy and a vast class of dependents (children, retirees, disabled, unemployed, etc.) while the majority of wage earners are barely getting by on their declining household incomes. Recall that there are about 307 million Americans and roughly a third have living-wage jobs, i.e. full-time jobs.
Courtesy of Doug Short:
That sets the stage for a titanic political battle--one that could trigger a constitutional crisis--between the parasitic aristocracy, the dependent class and the two classes creating value with their labor.
In this context, America is filling the gap between the value we create and what we spend by borrowing $1 trillion+ a year on the Federal level and hundreds of billions more on the local-government and private-sector levels. All this debt isn't being "invested" in new value-creation; it is funding consumption and cartel skimming on a monumental scale. 


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GNWT's picture

If every banker had a notion Like Ben Bernank-i-a Then every country'd be ZIPR-in' Just like the USA

Pure Evil's picture

It's not true that robots will cause 75% unemployment, everyone will be working in the entertainment industry producing various porn films.

I sincerely doubt most humans are going to want to watch robots do it. You might get as far as having robots doing it with humans.

Popo's picture

Regarding the original post:  You really have to add another class to American society and that's public-sector workers.   These workers are actually parasites as well, although they do not see themselves as such -- and it is largely not their fault.  But the inescapable reality is that public sector workers are statistically paid more than their private-sector counterparts.  They also receive a far greater amount of tax dollars than they pay in to the system.  Public sector unions are responsible for destitute municipalities across the USA and public sector unions carry enormous political influence.

They are clearly a class unto themselves. 

wisefool's picture

Yes. but the most damaging aspect of this is that the tax code is written by buerocrats, for buerocrats. How would they know how to do it any other way?

A person making $100k with full .gov pension/benes deserves to be taxed at 35%, because quite honestly, the work that they do is not very hard, and even if it is, it has no real downside accountability. Not to be morbid, but hillary admitted she has 70,000 people working for her, but she still needed to create a new undersecretary for "dangerous situations" as a result of the Benghazi situation. How many embassies does the US have in hotspots? 30? 40? see again 70,000 people. She giggled through most of that hearing. In the other parts, she was shamelessly asking for more money.

Then you got NGOs which are basically the same setup. Just because a person works for a non profit, does not mean they don't pay out huge salaries. Again, for work without lasting responsibility.

Contrast to a medical doctor out of school. $300k+ in loans. Makes $100k for 80 hour weeks after 7 years in the most competitive academic environment around. And if thats not enough, she is likely taking non stop hazing from senior doctors and jaded nurses (Even if well meaning). You can't deduct interest on student loans if you make over $60k or some rubbish. taxed at the same rate as the local media person for the red cross who sells the doctor the blood to use in her patient, that was donated (both monetarily and physically)

We complain about economic theory here alot (Monetary and fiscal policy) but there is another very important part. Management theory requires pay increases under the standard two-factor motivator system. Especially now that people are less and less impressed with the old types of perks (corporate tickets to the foosball game, travel junkets, dog treats, etc.)

There is a simple solution ... but like keynes said ... it will take 1 man in a million to see it.

OutLookingIn's picture

People want to be serviced.

They expect certain services;

Such as garbage being taken away. After dumping and flushing their crap is disposed of. Turning on the tap and water comes out. Turning up the thermostat and they get warm. Certain services are a must. The problem lies with the governmental system being top heavy with too much pork.

CH1's picture

The problem lies with the governmental system being top heavy with too much pork.

The problem lies with people obeying predators.

Law97's picture

It's not that simple.  You'd have to dive even deeper and separate public sector employees that add value and those who don't and those services that are inherently best performed by public sector vs. those that aren't.  We can't go to a strictly privitized mercenary army, for instance.  Also, some government regulatory oversight is necessary and actually adds to a fair level playing field for better competition (the SEC, for instance), as well as just simply enhanced quality of life (e.g., air pollution regulations). 

There is way to much waste and that should be addressed, but there is a role for the public sector.  Call me a communist, but I actually think the money we spend on our national park system is worth every penny.  You can think of many more examples if you give it a moment's thought.

So please don't demonize all public sector employees. 

I'm mostly a Ron Paul guy, but please, let's not throw the baby out with the bathwater.

FrankDrakman's picture

Already happening, buddy. Go to your favourite 'tube' site, and search for 'sybian'.

Seasmoke's picture

the only thing better than ZIRP, is of course, NIRP

LawsofPhysics's picture

Indeed, now when will the bank pay me interest to take out another loan?

chunga's picture

The power of negative compound interest is awesome.


reader2010's picture

In the final analysis, there are only two classes in any society throughout recorded history, the rich and the poor. That's about it.

vato poco's picture

Naw, I'd say we're going to back to the Medieval Model. Nobility, Clergy, Burghers, and Serfs/Cannon fodder. Just substitute "Bureaucrats/Educrats" for Clergy, and it's pretty much dead-on.

Spastica Rex's picture

Educrats as clergy - that's good, very novel, very accurate.

I was one.

FrankDrakman's picture

The clergy label is quite accurate - question the educrat orthodoxy, and you're a heretic (or worse, a terrororist). They claim to be keepers of an exalted truth that low brow ZH'ers like me and WB7 can't understand. They require regular financial tribute, and they insist on performing long monologues where we're supposed to sit silently and drink it all in. And of course, they're morally superior since they're 'not doing it for the money', even though they make way more than the peons they're supposedly serving.

CH1's picture

What we have are producers bracketed by parasites above and below.

It is a cosmic wonder that the producers never stop playing a game that abuses them without end.

scatterbrains's picture

or to put it more directly.. those who hold the gold and the rest yah niggas

GreatUncle's picture

A quaint curiosity for a Democracy is you need the 3rd group I think.

The middle that is bought and paid for by the rich in any form (can be higher incomes or handouts) to ensure the vote goes the way they would like and why money talks.

Whiner's picture

Thank you. No Dome Top reversal to her. Outstanding!

wisefool's picture

Ohh boy. Can we work this like a role playing game? roll a 4 sided dice to determine your class. The old God might not have played dice according to Einstien, but he is no longer with the crew doing gods work.

Midas's picture

There's a card game like this.  I'm not sure of the name, Kings and Serfs?

jay28elle's picture

Damn I hate these complicatd articles. All it must be saying is all is good since the market is up still.

eclectic syncretist's picture

Charles Hugh-Jass of ObTuseMinds blog makes even simple things sound complicated.

Diplodicus Rex's picture

Can I offer a possible explanation for the apparent self-destructive path on which we all seem headed? Please don't kill me for this, but when looking for answers you need to consider every permutation, not just the ones you like.

It is agreed that the banksters have been at this game a very long time and their parasitic nature has prevailed all during that period. At its most fundamental level the debt-based currency model is broken from the day it starts since every unit of currency in existence comes into being by printing the principal out of thin air and charging interest on it. The interest is never printed and hence there can never be enough currency to pay back the principal plus interest. Therefore, the only model which sustains this formula even for a short while is perpetual, exponential growth. Only by growing the money supply exponentially can there be enough collective principal amounts in circulation in order to pay the principal plus interest back to the parasites.


Given the above as a statement of fact, then, unless you change the currency model then there is very little you can do to solve the problem. So, and here it comes, what if our political leaders understood this and also understood that it would be impossible to steer the ship around the iceberg? In which case, if the end result is inevitable and predictable, why not simply get there faster and use the crash to make the fundamental changes to the currency model? In other words, get the iceberg fair and square in your sights and put your foot to the metal. Bust the mathematically corrupt system of wealth transfer by accelerating the system towards the iceberg? Its going to get there anyway. Why not save years of pain and get it over with?

Now the above proposition gives far to much credit to a whole bunch of people where it's definitely not due but it's worth considering if only on an academic level.

Bring on the down arrows............

Fox-Scully's picture

The problem is our political leaders (most of them) either do not understand the problem or are in on the grabfest!

wisefool's picture

The other problem is that the state always has war in the tool box. And they are the only ones with it in the toolbox. So there is the delema: If they don't use war when it is the "solution", nobody else can. Hank Paulson was not even in DOD, State, CIA, or congress, but he thought we might need to roll tanks in the streets in 2008.


centerline's picture

Both.  They are not put into office to understand the problems.  They are put into office to achieve specific aggendas and in return are given oppotunities for themselves that otherwise would not be possible - usually of the grabfest nature.  Most probably realize that the risks are mounting every day - but, the egomaniac sort that finds thier way to higher offices probably think they can outsmart/outmanuever the inevitable.  A marriage made in heaven for banksters that know the real game.  Politicians = eventual scapegoats.

LawsofPhysics's picture

So, you are saying that our political "representation" is enriching themselves in order to save us?  Why am I skeptical?  PLease, these guys are puppets for the moneychangers and are in on the take.  Guillotines are about the only thing that will bring about restoring law and order.  The moral hazard is too great now to "fix" anything without executing the perps

centerline's picture

I unfortunately agree.  But, even then it won't solve the problem of massive brainwashed and dependant populations, weak supply chains, dwindling resources, massive promises that cannot be kept, etc.  One way or another, there will be chaos.  Pretty clear now that our government is preparing for this.  Man - we are really in a pickle here.

CH1's picture

Forget guillotines.

Just Stop Obeying Them!

Diplodicus Rex's picture

LoP, I'm not saying I believe this to be the case. I'm just exploring possibilities.

centerline's picture

No down arrows here.  But I will add there is a difference between stock and flow.  The system you describe is in fact true, but it has been explained to me in the past that the mechanisms are more complicated.

I recall that Steve Keen did take a stab at modeling such a system to prove it can be stable, but in my humble opinion those economic models (even sophisticated ones like Steve's) fail to capture simple truth.  That simple truth is that those who are closest to the creation of money benefit the most.  As do those who exert any degree of control over it's measurement and/or flow.  Hence, the wealth transfer mechanism.

Likewise, even the best model's so far are closed systems... generating the same boundary flaws that MMT'ers toss around which makes me laugh (and refer to them openly as "very dangerous people").  



pods's picture

Not going to down arrow you, and I heartily agree with your first part.
Your second part does not take into account the benefit that our government gets out of a fractional reserve, debt based currency.
They get to deficit spend without having to pay it back in anything material.  In fact, they merely pay it back in depreciated FRNs.

It is a mistake to think that bankers alone benefit from this system.  The government gains just as much as the bankers. 



Ghordius's picture

+1 -> the benefit that ... government gets out of a

fractional reserve,

debt based,

+ global reserve +


MachoMan's picture

So, and here it comes, what if our political leaders understood this and also understood that it would be impossible to steer the ship around the iceberg? In which case, if the end result is inevitable and predictable, why not simply get there faster and use the crash to make the fundamental changes to the currency model? In other words, get the iceberg fair and square in your sights and put your foot to the metal. Bust the mathematically corrupt system of wealth transfer by accelerating the system towards the iceberg? Its going to get there anyway. Why not save years of pain and get it over with?

Now the above proposition gives far to much credit to a whole bunch of people where it's definitely not due but it's worth considering if only on an academic level.

That's a great thesis and all, but you miss the entire purpose of the inflationary bias...  which is, those in power keep the skim.  

Look at it alternatively, do you think that the "iceberg" was smashed in the 70s?  dotcom bust?  2008?  At the very least, I would hope that you would agree 2008 was a sort of "cascade" event, but for monetary intervention... (that is going to happen eventually anyway, but again, that misses the point of inflationary bias).  Point being, they're not speeding head first into anything...  they're shutting off compartments on a sinking ship after hitting the iceberg (naturally those of the underbelly of the ship)...  in the hopes that the remainder has enough buoyancy to float until help comes...  or, alternatively, long enough for them to secure life rafts. 

CH1's picture

unless you change the currency model then there is very little you can do to solve the problem.

No argument, but it goes deeper than that.

So long as producers obey parasites, the same types of problems will recur. The meme is an evil one: It is right for important people to order me around.

spinone's picture

the debt system works just fine for the bankers

centerline's picture

The debt-based system has failed.  Economic cannabalism is all that remains.  Hence, the middle class being destroyed from the lower levels upward, one piece at a time.  Squeezed from both ends.

Atomizer's picture



The debt system works just fine. Ask your administration for the current budget plan. How long do you think you would have, if you spent money without servicing your debt obligations? Does the word collections come to mind?

centerline's picture

Got a feeling we are all going to find out at some point!  lol.

wisefool's picture

Perhaps not. Schumer recently said that the USA can indefinitely operate under "budget controls" instead of an actual "budget."

Bring on the new maths!

toady's picture

I was a 2, but now I'm a 4.

Atomizer's picture



The only gap is between gun ownership vs. Gun control panelist. Guess who loses the argument? Just imagine the Government playing a hand of poker during the wild, wild west. The government loses his bet and offers a derivative debt vehicle in the form of a repayment. What do you think will happen? /sarc


NoTTD's picture

The fourth class is also parasitic.   No need to cut them slack with a neutral name.

madcows's picture

um, I read that as two classes:  The workers, and the parasites.  The rich and poor are parasites living off of the workers.  No more, no Less.

Meat Hammer's picture

There's a 5th category - unemployed/INdependent.  That's where I want to be.

Atomizer's picture

Move to the UK. On your off time, you can help the Queen find her Gold.