The Destabilizing Truth: Only The Wealthy Can Afford A Middle Class Lifestyle

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The "middle class" has atrophied into the 10% of households just below the top 10%.

The truth is painfully obvious: a middle class lifestyle is unaffordable to all but the top 20%. This reality is destabilizing to the current arrangement, i.e. debt-based consumerism a.k.a. neofeudal state-cartel capitalism, so it is actively suppressed by the officially sanctioned narrative: that middle class status is attainable by almost every household with two earners (a mere $50,000 annual household income makes one middle class) and middle class wealth is increasing.

It's not that difficult to define a middle class lifestyle: just list what was taken for granted in the postwar era of widespread prosperity circa the 1960s, four decades ago.

In What Does It Take To Be Middle Class? (December 5, 2013), I listed 10 basic "threshold" attributes and two somewhat higher thresholds for membership in the middle class:

1. Meaningful healthcare insurance (i.e. not phantom "insurance" with deductibles that cost thousands of dollars a year that offers no non-catastrophic care at all)
2. Significant equity (25%-50%) in a home
3. Income/expenses that enable the household to save at least 6% of its 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
6. Reliable vehicles for each wage-earner
7. The household does not rely on government transfers to maintain its lifestyle
8. Non-paper, non-real estate assets such as family heirlooms, precious metals, tools, 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

The higher thresholds:
11. Continual accumulation of human and social capital (new skills, 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, 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 layoff, college costs or a medical emergency.

In Chris Sullin'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.

I then added up the real cost of these minimum thresholds and arrived at a minimum of $106,000 annual household income--double the median household income in the U.S. According to Census Bureau data, only the top 20% earn this level of income.

Here is a chart of the real income of the lower 90% and the top 10%, which by definition cannot be "middle class":

The top 10% takes home 51% of all household income:

This suggests that the "middle class" has atrophied into the 10% of households just below the top 10%. Households in the "bottom 80%" are lacking essential attributes of a middle class lifestyle that were once affordable on a much more modest income.

Note that this $100,000+ household income has no budget for college costs, lavish vacations, boats, weekends spent skiing, etc., nor does it budget for luxury vehicles, SUVs, oversized pickup trucks or private schooling. Savings are modest, along with living expenses and retirement contributions. This is a barebones middle class budget.

So how have we maintained an increasingly unaffordable lifestyle? With debt:Wages have risen modestly while debt has increased enormously.

As I have described many times, the Federal Reserve's "solution" to the widening gap between income and expenses was to financialize the middle class's primary asset: the home. I have explained this in depth: The Fed's Solution to Income Stagnation: Make Everyone a Speculator (January 24, 2014)

Fed to the Sharks, Part 2: Housing and the Death of the Middle Class (April 9, 2014)

But turning everyone into a speculator via financialization had an unintended consequence: widening wealth inequality. It turns out most people are poor speculators, believing "this time it's different" again and again. In addition, financialization favors those with the most capital: this is the essential take-away from Thomas Piketty's book Capital in the Twenty-First Century.

The conclusion is inescapable: What's the Primary Cause of Wealth Inequality? Financialization (March 24, 2014).

As a consequence, net worth (i.e. ownership of assets and wealth) of middle income households has been reduced to a sliver:

The widening wealth gap cannot be entirely explained away as the result of some innate force of capitalism; the rich have gotten richer as the direct result of central state/central bank policies introduced since the heyday of the middle class forty years ago.

So where does this leave us? To answer that, we need to examine the systemic causes of the higher costs and reliance on speculative bubbles that have eaten the middle class alive. We'll address those tomorrow in Part 2.

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Winston Churchill's picture

Watch out below.
Dollar or stawks ?
The FedRes's decision time.

SoilMyselfRotten's picture

Isn't gold supposed to rise in the face of a dollar shellacking? Hmmm...

Winston Churchill's picture

There you go being logical again.
Take two tabs of LSD, and call me in the morning.

max2205's picture

Some how I think this is sugar coating. ..the bottom 65% have negative net worth


FSA is the new middle class

SoilMyselfRotten's picture

Down-arrowed myself for asking a silly rhetorical question

bigbucksr's picture

This article gives a ridiculous definition of middle class. The article describes a family with a net worth of easily 1 million dollars....middle class to me, is defined by someone with an increasing net worth and net worth between 100k to 500k....

Okienomics's picture

I credit CHS for offering a definition, but also agree his seems generous. Compare middle class of 1950-1970, when the norm was a <1,500 sqft house, one car, one television, a little savings and generational wealth in the form of a few pieces of jewelry and some home furnishings. Luxury Vacation? Load up the woody and visit family, the state park or the big city.

I'm not saying that wealth inequality isn't a problem, just that things for the 50th percentile income family are actually still pretty decent if you don't piss it away on stupid stuff like $200 sneakers for jr., fake nails every week for Mom and a debt laden BMW for Dad. Those families who practice being thrifty are doing all right.

Vampyroteuthis infernalis's picture

Charles, I don't know how you were raised or where you live in Cali, but your definition of middle class is warped. This reminds me of the guy who claimed he was raised middle class when his father was a successful medical doctor. Delusion has no ends.

TrumpXVI's picture

Yeah...good point...the one about "increasing net wealth".  That's my problem.  I'm easily "Middle Class" by CHS's definition, but I don't feel middle class.  This is really mainly because although I'm still better off than many, many people....I'm getting poorer.....and poorer....every day.  And I'm working a half decent, full time job.

gimme-gimme-gimme's picture

I think the "middle class" benchmark was set in the 50's and 60's during an anomalous era.

From what I understand this was only possible because we eat other peoples lunch. i.e we steal prosperity from developing nations to live better.

Guess things are slowly reorganizing globally.

Better get with the program or get left behind!

yogibear's picture

The Federal Reserve has already made it's choice. It will attempt to print out of debt.  Zimbabwe style in a controlled manner.

Russia and China can change the controlled to a panic.

yogibear's picture

The Federal Reserve has already made it's choice. It will attempt to print out of debt.  Zimbabwe style in a controlled manner.

Russia and China can change the controlled to a panic.

Fuh Querada's picture

Yeah but Kyle Brass said buy USD. He said the yen is going to 115 by end-year.

madcows's picture

i guess i'm not middle class... must be a wage slave class-er

Sudden Debt's picture

Over here in Belgium, making money  is one thing...

paying 55% taxes on all income...

paying a 21% VAT on almost everything you buy...

and pay your bills to be able to make money...

that's the hardest part... and if there's money left... you buy silver with it :)

no kidding... I need to make at least 14K a month as a independt per person just to pay the bills.



Edward1290's picture

gotta blame the Rothchilds for that.........they named a street after those aszholes in Tel Aviv.....

Sudden Debt's picture

so you get to drive over them every day :)

StandardDeviant's picture

Yeah, that's it: it was the Rothschilds (with an 's') who elected all those socialist politicians in Europe.

Sure is nice to have someone else to blame, isn't it?

AGuy's picture

14K * 12 = 168K Euro or $232K USD!


Monty Burns's picture

I'd agree with the poster.  You'd need that kind of pre-tax money anywhere in northern Europe to raise a family of 4 or 5 in comfort.  The tax to pay for bloated public sectors and the FSA is the killer.

drendebe10's picture

For enabling this in just 5 short years, a standing ovation for the coerupt atrogant narcissistic lying sociopathic illegal alien fudge packer in chief living its grand imperial golf lifestyle on the backs of taxpaying US citizen serfs and peasants. Saps.

pods's picture

Guess you didn't really look at the article or charts?

He certainly plays his part, but this is a wee bit bigger than him.

This has been progressing for a hundred years.  Exponentially.


SoilMyselfRotten's picture

You have to be rich to live in Belgium so you can afford all those US Treasuries we're dumping on you.

Canoe Driver's picture

CHS: your class distinction discourse has a glaring error. The affluent want and need PRECISELY a high-quality health insurance which guards against financial catastrophe. The top 20% of American society neither wants, given proper understanding of the issues, nor needs to pay, either directly or through taxation, for health coverage which takes, say $600 per month in premium, and gives back, say, $150 for an office visit, or $90 for a medication. This tragic misconception, which is essentially a blunder by the mathematically disadvantaged, is the true root of the American healthcare crisis. Once you subtract these ridiculous exchanges of premium dollars for reimbursement on petty medical expenses, what is left, even for the best healthcare policies, is coverage against financial catastrophe, i.e., catastrophic coverage, which is the purpose of all insurance.  Earthquake insurance, for example, does not seek to replace the Limoges that fell off my bookshelf during Loma Prieta. The idea is to prevent a bankruptcy. Why is this so difficult for the sheeple to grasp? We need public healthcare for the poorest 80% of the people, and true catastrophic coverage for everyone else. You see, the need for private health insurance is based on the protection of private assets. Similarly, the need for public health insurance is based on the protection of public assets.

BTW, pre-exisiting conditions should default into the public system, with the affluent patient presenting a denial of coverage letter from their carrier, unless there is evidence that the insured willfully neglected to pay premium, in which case the insured pays for treatment of pre-exisiting conditions in accordance with ability to pay.

That is the solution, but greed prevents it from being implemented, absent the understanding of the general public, which clearly includes you, CHS.

Chuck Knoblauch's picture

Do the affluent want to live in a Chinese economy and society?

I think they do.

Canoe Driver's picture

Corrected: Pre-existing conditions should default into the public system, to the extent the insured's solvency is at risk, with the affluent patient presenting a denial of coverage letter from their carrier, unless there is evidence that the insured willfully neglected to pay premium prior to onset, in which case the insured pays for treatment of pre-existing conditions in accordance with ability to pay.

Where private carriers are compelled to cover pre-existing conditions, the result is not "insurance" at all: it is a transfer payment scheme. Insurance is the paid assumption of a measurable risk. For a medical condition which pre-dates binding of the policy, the "risk" is 100%, so the actuarial calculation means the associated premium must be the full cost of care. Calling this "insurance" is absurd.


homonohumanus's picture

Which is why any states has to fund it-self using its central banks without paying interests...

The bunch of the state activities can be at best "balanced" as far as budget is concerned. There is no room for paying interests even in properly managed system.


Americans are so misslead about everything... the Cold War has been the excuse used to remove any sense to the right US worker gained through UNions and the fight for workers right and state run programs...


People brains has been crushed before their wealth...

Now Americans spend too much, my american wife agrees go figure... In most EU countries people have saving, that is why they are hammering us with taxes, they are still money to be stolen.

Most Europeans manage to do that with lesser incomes, higher taxes pressures, etc.

Americans should give them selves a good look in the mirror before they even start to complain. They've been on the best end of the shaft for a long while, still are.



bagehot99's picture

A first class precis of the enitre health insurance racket, exacerbated and enshrined in law by Obamacare.

Using your car insurance for new brake pads, or wiper blades, or an oil change would strike every motorist as laughable and absurd.

As it should for a routine office visit, or getting a Z Pack.

StandardDeviant's picture

All excellent points -- but, sorry, an automatic -1 for the puerile, condescending, smug, and incredibly annoying "sheeple".  Can we kill this tired meme already?

Sudden Debt's picture

well... seems like that internet economy isn't really paying off for everybody he?...


pods's picture

My friend's mom makes $83 an hour on the internet.

Just don't ask what she has to do for it.


sondernauch's picture

This paradigm of wealth = class is tiresome anyway. Some families are very well educated and have lots of class though they have little money. Nothing wrong with money, of course, but let's stop limiting our thinking to the narrow mindset of the currently ruling merchant class. If we cannot think outside of their box we will always be imprisoned by it.

Skin666's picture

Deflation - Good for savers and the productive


Inflation - Good for debtors and the unproductive


Case solved

buzzsaw99's picture

so many people are living middle class lifestyles on working class income it isn't even funny

Sudden Debt's picture

a while ago, there was a advertising on TV that said: "Even unemployed people deserve to go on vacation".

And that was for a vacation bonus for the unemployed from the government to go on vacation...

now that's sick...


J J Pettigrew's picture

Higher real estate taxes, higher health care costs, higher energy costs,
and not a fair return on savings....all serve to trim the disposable income
from the middle class. And ours being a 'service" economy bodes ill for
that sector. Sure, the uber rich will support some of it, but the lions share
will suffer. All factors mentioned decided by Central Planning from the G.

Dr. Engali's picture

I don't understand "humans".

pods's picture

Heard the local news run a story about the Odessa firebombing.

Said the US is worried about clashes and people were killed when a "government building" was set on fire.
Nothing about who was in there and who set the fire.  I am sure that was by accident.

Smart people will be able to decipher this.

Media whores, doing DC's bidding.


fonzannoon's picture

My wife calls me yesterday and tells me she had her review. they gave her a 5% raise and told her she should be happy, because it's more than most people got (prob true). I made a wiseass remark about how even after her raise she is not making any more than last year. So she gets off the phone with me and marches back in ( i would not have advised this) and asks for more money because she is not making more money than last year. They tell her to illustrate what she is saying. so i took her raise, subtracted taxes, subtracted (the absurd) rise in healthcare premiums, and then showed her a chart of food prices. she is marching back in there with it today, and will probably get fired. It will be a great example of how inflation leads to deflation, and divorce.

d edwards's picture

Look on the bright side, bro: if she gets fired she will be "freed from job lock" (so says Nancy Pelosi)-then you can get on the gov't gravy train!


Seriously, eliminating the middle class is a basic tenent of marxism and the marxist regime in DC from Barry on down is doing a bang-up job. bastards!

Babaloo's picture

"job lock" has to do with having to keep your job for the health insurance.

And it's "tenet," not "tenent."

Turn off Fox and get an education.

drendebe10's picture

If mama aint happy, nobody happy. I am trying to learn to keep my mouth shut but it aint easy.

ElvisDog's picture

Right, but then she'll be mad that you're not talking as much or mad that you're trying too hard to make her happy.

JackT's picture

Glad to see I'm not the only one.  

Mark Carney's picture

You guys too!


We should be like brothers and have chat time.