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The Solution To The Declining Middle Class: Destroy Fixed Costs And Debt
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
The solution to the erosion of the middle class lifestyle is to destroy debt and other fixed costs and eliminate self-sabotaging discretionary consumption.
Last week I covered the structural dynamics causing the decline of the middle class. In general, the costs of untradable services (healthcare, higher education, government) and the rot of financialization have increased while wages have stagnated. The Federal Reserve's "solution" was to make everyone who owned a house a speculator who could only keep even with rising costs by riding the asset bubbles higher and then extracting the "free money" generated by these bubbles before they popped.
The Decline of Small Business and the Middle Class
The Changing Nature of Middle Class Work
How the Middle Class Lifestyle Became Unaffordable
The Destabilizing Truth: Only the Wealthy Can Afford a Middle Class Lifestyle
The Changing Nature of Middle Class Work
How the Middle Class Lifestyle Became Unaffordable
The Destabilizing Truth: Only the Wealthy Can Afford a Middle Class Lifestyle
Let's take two representative households to understand the decline of the middle class and the solution. Let's say both households earn $81,000 annually, virtually all from wages and salaries. This puts the family at around the 70% mark of U.S. households, just within the top 30%. (For context, the 2011 median household income was $50,054.)
This income is solidly middle class: not low enough to qualify for much in the way of government subsidies but not high enough to avoid prioritizing and trade-offs.
Household A has a big mortgage on a house they bought near the top of the market with a minimal down payment, student loans, two auto loans and credit card balances. After making the loan payments and paying for utilities, transportation, groceries, employees' share of healthcare costs, eating out, mobile phone/broadband/TV service plans, there is little money left to save for emergencies, travel, college for the kids, home maintenance, etc.
How do we describe this family: middle class or debt-serfs? Actually, they're both:measured by what they superficially own (home, two vehicles, communication and entertainment devices, college degrees, etc.), this household is solidly middle class. But measured by how much income is spent servicing debt, how much is left to accumulate or invest, the family's net worth (their assets' market value minus debt) and generational wealth, this household is mired in debt-serfdom: their debts will never be paid off.
The mortgage will never be paid off, and by the time the parents' student loan debt is reduced, the next generation's student loans are piling up. The auto loans may eventually be paid off, but it will look cheaper to buy a new vehicle with a modest monthly payment than to pay costly auto maintenance with scarce cash.
Debt anchors this household's fealty to the state and financial sector as securely as any medieval peasant household's bond to the noble's manor house. This is the basis of my characterization of the U.S. economy as a neofeudal arrangement based on debt.
Household B shares the family home that is owned free and clear (mortgage has been paid off) with other family members, owns debt-free vehicles and maintains the cars themselves, rarely eats out, has no student loans (either paid cash for college, used scholarships and grants or paid their loans off), buys cheap catastrophic medical insurance and invests money in staying healthy/preventative care, i.e. eating and preparing real food and enjoying regular fitness, lives close to work, invests some of the ample family savings in enrichment (lessons for the kids, etc.), occasional frugal travel and income-producing assets and retains the rest for emergencies such as vehicle breakdown, medical emergency, etc.
If this scenario seems "impossible," recall that 1/3 of all homes (roughly 26 million houses) in the U.S. are owned free and clear, i.e. there is no mortgage.
How do we describe this family: middle class or wealthy? Actually, they're both:this household has a solidly middle class income, but because they've eradicated fixed costs (most importantly, debt, costly "gold-plated" healthcare insurance, etc.) and discretionary luxuries such as eating out, costly entertainment plans, etc., but measured by their values, behaviors and net income saved and invested, this household is upper-middle class or wealthy, having achieved a level of prosperity that eludes free-spending households with double their annual income.
The solution to the erosion of the middle class lifestyle is to destroy debt and other fixed costs and eliminate self-sabotaging discretionary consumption that cripples the household's ability to accumulate capital that generates income. There is nothing magical about the values and behaviors that enable this; it boils down to choosing to leave the permanent adolescence of debt-based consumerism behind and move up to a more prosperous, productive way of living: doing more with less.
I am indebted to Paul C. for this graphic depiction of how instant-gratification consumption that appears "cheap" is actually horrendously expensive when the consequential costs and alternatives are considered:
This is but one example of many in which the lower-cost alternative is the better choice, not just in value but in opportunity costs. We assess the opportunity costs of every purchase or loan by asking one simple question: what else could we have done with this money?
It's a question that is scale-invariant, that is, it works as well for a nation as it does for an individual, and every organization between these two ends of the economic spectrum.
In the case of the debt-serf "middle class" household, the answer to the question, "what else could we have done with our money?" is slowly build productive assets and prosperity that is within your own control.
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The solution to the erosion of the middle class lifestyle is to destroy debt and other fixed costs and eliminate self-sabotaging discretionary consumption.
I did! I did!
Now the government pays me for everything. And by saving $per day by not smoking/drinking/using and only eating vegetables and not buying chips or energy drinks I'm saving $3,650 per year.
YeeeeeeeeHaaaaaaaaa
Wait a minute. That means it will take me 100 years until i can afford a new home.
Peak Credit has been breached!
RE
For me personally it has.
Look. We are about to be saved from banksters.
Health officials have confirmed a second U.S. case of a mysterious virus that has sickened hundreds in the Middle East.
Wonder if Rumsfeld has a brand of Tamaflu to cure this one.
Here’s a make-work program that will help in self-liquidating the debt. Euthanize the unproductive!
For every disabled person euthanzied, offer the Death Angel 1% of the projected cost savings over the five years of savings from government teat.
Example: the average check to a disabled person is $1,145.70 a month. 1,145.70x60= $687.42 commission for putting a disabled person to sleep. 10 a day and you’re talking decent coin. Not to mention the benefits to society.
Will anyone whack the disabled for a commission?
They hate us for our death squads?
Well, sure. But everyone gets emotional about eating their peas. The fact is, not everyone can rotate on a spit, in a vegetative state, like Ariel Sharon for years and years.
"Elderly, invalid Inuits ("Eskimos") as an example and back in the old days, used to voluntarily die of exposure to the freezing cold in a matter of minutes by being transported to a sacred place and removing their garments."
"Traditional Indigneous American elders held the view that it was unfair of them to be a burden to their families and communities when the time came where they could no longer contribute to the community and tend to their basic needs by themselves. Younger people who ended up becoming severly disabled due to injury or disease also held the same view about themselves, especially when they suffered from incurable, ongoing pain."
"In many traditional Indigenous American societies, newborns born with severe, dehabilitating birth defects were often euthanized by being placed in a natural body of water, usually a stream or river, to drown. It was not considered humane to allow such a person to spend a life in such a state of being.*"
"Indigenous American traditionalists view death as nothing more than a change of worlds not to be feared, and consider most categories of mercy killing to be moral and humane as long as the act is swift and painless."
Not only is your view appalling, but contributes to the sheer amount of waste that America is infamous for. I say if you draw breath you are capable of work, so why not give them the opportunity? I don't wanna bash your idea without presenting an alternative view so here it is: Productivity Retreats.
It is often said that retirement itself kills because the retiree has lost his/her reason for living, and I am a firm believer that retirement does, in fact, kill. So why not present a government program to the younger generations inviting them to turn in their unwanted elders to the state so they can continue on with their lives without any burden?
The elderly attending these retreats will participate in tasks suited to their age such as sewing, baking, gardening, mining, and woodworking. Is your elder in a vegetative state? No problem. Either drop him or her off at one of the retreats or leave them on your doorstep for easy and convenient pickup, and they will be tasked to their own unique capability such as composting.
Many people have this idea that if you are disabled you are worthless, and these retreats will give them the elderly the self-esteem boost and purpose that they desperately crave.
There will be no "FIX" for the declining middle class until we "FIX" the corrupt campaign finance system.
You cannot expect politicians to solve this problem. They will never neutralize the power of money in politics and patronage. The corruption works for them as a group.
And the Supreme Court has been stacked by successive Presidents with Corporatists who think it is a "good thing" that Oligarchs have a death hold grip on our political system.
Therefore, no "FIX" will occur until we have a 18th century style revolution.
And that won't happen until 90% of us have been reduced to hungry hobo-sapiens, rattling our cups at the 0.1% as they drive by in their luxury safari vehicles and security trains.
'18th century style revolution'
Repeat of the American Civil War?
The Civil War was 1860-1865.
Americans love their hypochondria care, their ponzipensionitis, their educavitation and diploma mills unl, their McMansions R US, their free stuff, their empire.....well as long as the poor and pros are taking the bullets, their frictionless no entropy economics.
Even though they may really be net tax payers, even though they could do better on their own, even though they know it doesn't really work.
WHY? THEY'RE JUNKIES. So instead of being pandered to 24/7/365, being told how great they, how they're going to be taken care of, how they can have what they want, you expect them to stand up to well organized heavily armed men.
Humility, it isn't in you. Courage, it isn't in you.
One more appointment on that Supreme Court by Barack Obama officially erases Christianity in the United States.
The erosion of America’s middle class is not economic, or even accidental. It is the deliberate targeting of America’s traditional culture and the weapon being used is government and media militarism for diversity.
Consider that just one more appointment on the U.S. Supreme Court by Barack Obama could officially erase the cornerstone of Christianity in the United States foundation.
“Good morning, Eeyore,” said Pooh.
“Good morning, Pooh Bear, “ said Eeyore, gloomily. “If it is a good morning, which I doubt,” said he.
Why, what’s the matter? asked Pooh.
“Nothing, Pooh Bear, nothing,” said Eeyore.“We can’t all, and some of us don’t.”
“Can’t all what?” said Pooh, rubbing his nose.
“Gaity. Song-and-dance. Here we go round the mulberry bush.”
And it now appears that the majority of Americans living under the Obama Court are going to have to settle for “unhappy.”
But the differences in the outlooks of Eeyore and Pooh are not the diversity Rev. Barry W. Lynn, executive director of Americans United, has in mind as his group recently lost its Supreme Court suit against prayer in local government meetings. It’s the majority he has in mind.
Said Lynn: “This ruling is out of step with the realities of modern day America. In a country where pluralism and diversity are expanding every day, a Supreme Court decision that gives the green light to ‘majority rules’ prayer at local government is exactly what we don’t need.”
Translation: The welfare society mass media popular culture - same-sex marriage, open borders, only atheism allowed in all public places - is not diversity, it’s to be legislative conformity.
Much of the media portrayed the Supreme Court 5-4 ruling allowing prayer as Christians supporting the decision and the 3 Jews and 1 Catholic as opposed, implying the decision involved Christian prayer. But it’s not religion that was involved in the decision. It’s race.
For the four opposing votes, Jews Kagan/Breyer/Ginsburg and Catholic Latina Sotomayor are the likely anti-white European culture votes.
What culture, then, would these renegade justices put in place of traditional middle class America? Some suggest it would be universal atheism and others a new Utopia of new age Judaism, without God.
As one Christian minister put it as strongly as he could, Brother Nathanael, “The work of repairing the world is not for Jews without Jesus. Their religion of the future will be the ultimate wrecking of the world.”
Whatever the goal, combined with votes from Justice Sotomayor who puts race over the U.S. Constitution every time, the Jewish votes on the court bring the balance just one vote short of shutting down America’s Christian, middle class culture.
At least they get to call eachother with their obamaphones!
This addresses only one side of the equation. The spending side.
The production side, what value added we bring, or what value we create for ourselves and ---others, millions of others----for sale, is accepted apparently as being unable to change for the better by very much.
This is what is disturbing about this piece. We cannot produce through our labors anything anyone wants that will bring income to ourselves, life chaning income.
"Your Money or Your Life" and "A Return to Thrift" should be required reading along with "Cashing in on the aAmerican Dream, How to Retire at 36" by Paul Terhortz.
What does one do when one has ALREADY moved to the lower cost but healthier alternatives, has already eliminated all debt one can, and one cannot find better paying employment?
The left would tell you that it is the new 'norm' - get used to it.
Early Retirement extreme
Fientist
jlcollinsnh
a brave new life
Mr. Money Mousestache
Is this some code? A code to unlock a secret that would allow me to retire tomorrow? Gonna look into this...
The American 'Middle Class' is an historical aberation confined to the last half of the 1900's. Prior to that time, the vast majority of the population lived as serfs to kings and dictators who used spys to identify enemies and who enforced their laws through force of arms. After the year 2000, the vast majority of the population lives as serfs to debt and big bankers, who use electronic spying to identify their enemies and who enforce their laws through force of arms....
I remember 40 years ago. People didn't eat out nearly as much as we do now. They saved more, were more frugal with money, and bought houses that were within their budgets. They had to because the bank would not finance it otherwise. It's not all just banksters and big government. It is an entire generation that does, as the article says, live in a permanent state of adolescence, believing they are entitled to force someone else to pay for their necessities. They chanting "health care is a right" as if they aren't making soneone else work to pay for it. And, they have raised a generation of children to believe the same. Then there's an entire other group that believes government should be everyone's moral parents, encoding their morals into law. Together they have invested in government greater power to act as their parents, and it has been abused by the very people they empowered.
It's called living within your means.
But "middle class" to me has always meant a lot better than Mcdonalds, not cutting back further to rice and beans (though I'm perfectly happy with rice and beans, with some celery and peppers, and maybe some chicken or turkey rather than bacon, as often as not).
But the trick to being middle class these days is having a job, not dietary advice.
Not going to listen to someone that doesn't like bacon. Non starter.
The point is not only to get out of debt but like weight loss, keep it off. If the average American "feels rich" after whittling down debt through painful frugality for a decade and then blows it on a $50K Ford pickup....this is what the government wants you to do. Plant a garden, get a smaller house, pay off your [one] car and take your spouse to work and go to public schools...it is the 50s all over again
Agree except the 'public schools' that is the stupidity factory of the left.
The bottom line of sound money would be a great start.
Please stop moving the goal line.
well, ahem, all money is debt.
Used loosely, the old adage "Small leaks sink big ships" applies to the situation that is international politics. It's not just Asia and South America, you've got people in Greece and all over the world that have become victimized slaves to debt. And don't think the tax man doesn't come. They all make up the economy, and are having an increasing influence in it. What people don't realize is it isn't just the increasing national and public debt that weighs down our dollar, it's the mismanagement of our finances by our reserve. Trading billions and trillions of dollars for bad debt is the new fed policy. And we're too fat to see it.
The Tyler has some valid points in this article but overall this says 'get used to the new norm' - F' that.
But, but that cooling thingy in the place were all the dirty dishes are, only holds beer!
Frugality isn't the complete answer to the decline in the middle class, no more than ZIRP is the panacea to the US economic situation. That said, I do hope that people see the futility of complaining about <1% interest on savings while simultaneously making minimum payments on a 19% gold-beryillium credit card, 5% on a student loan, and 6% on an auto loan. That is comparable to stopping at McDonalds for a hotcake breakfast every morning during your morning jog.
The oligarchs don't care about the middle class, because it's cheaper to just pay people off with EBT and subsidized rent and cable.
So the ultimate fate of the American middle class is to be on welfare.
The mexicans and asians coming here like so many lemmings are such suckers.
Just kill all the lawyers, and this will be over.
Land is the key, if you can swing it, grow your own food and produce, get off the grid and the system, live as free as you can or die trying.
Land is the key, if you can swing it, grow your own food and produce, get off the grid and the system, live as free as you can or die trying.