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Our Phantom Middle Class
By Charles Hugh Smith
What happens when America finally admits its middle class is a phantom of feel-good fantasy? We may well find out in the next four years.
Of the many things we cannot bring ourselves
to admit, one of the most consequential is that
our vaunted middle class is illusory, a phantom
of our imagination rather than a reality. The
reality is the vast majority of the nation's
wealth and income has been diverted from the
middle class to those at the pinnacle of the
wealth-power pyramid and the technocrat /
financier insider class (the top 10%) that
serves the interests of those at the pinnacle.
This transfer has accelerated rapidly in the
21st century as virtually all the real income
gains of the past 20 years have flowed to the
top 0.1%. This RAND study found that America's
elites siphoned $50 trillion into their own
pockets in the past two generations:
The earnings of the top 0.1% grew 15 times faster than the earnings of the bottom 90% (See chart below) as wages' share of the economy continues its 50-year decline.
As for wealth: the top 0.1% own more than the bottom 80% (see chart below) and the top 1% own 40% of all private wealth and the top 10% own 90%.
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If the top 10% own 90% of
the wealth and has captured virtually all the
income gains of the past 20 years, then isn't it
obvious America has no middle class? What
the traditional middle class--generally defined
as the 50% between the bottom 40% and the top
10%--own is debt and a feeble grasp on very thin
reeds of capital.
Please ponder the chart below of the $1.7
trillion in student loan debt burdening those
who bought the narrative that a college diploma
was a passport to the security of the middle
class. The debt load carried by those clinging
on to aspirations of middle class security is
staggering. As I've noted here before, burdening
powerless students with uncertain futures with
trillions in high-interest debt would have been
viewed as criminal two generations ago, but now
it's celebrated by those reaping the interest
from precariat debt-serfs.
Broadly speaking, the key assets of the middle
class are capital and agency, with
capital being defined as financial,
intellectual and social capital that generates
income, earned and unearned, and agency
defined as control over one's life and options
and having a say in public decision-making.
Understood in this way, the 50% between the
bottom 40% and the top 10% own precious little
income-producing capital and possess very little
agency. The political class serves the top 0.1%
and only gives lip-service to the PR-worthy
convention of a middle class in the form of
platitudes. In terms of control over one's
options, those claiming middle class status
cling to jobs because they need the healthcare
insurance coverage provided by the employer, not
because the job is rewarding.
As for possessing skills, much of the workforce
has few producer skills, as the
consumer economy devotes inordinate
attention not to producing but to marketing,
speculation and complying with counterproductive
regulations and bureaucratic file-shuffling.
Once the con of printing trilions of dollars out
of thin air dissolves and the nation has to
balance its books in the real world, these
file-shuffling and speculative skills will no
longer generate meaningful income.
The last vestiges of financial security for the
middle 50% are pensions and ownership of a home,
which is less a real asset and more a
call-option on the current housing bubble. This
phantom "wealth" is one encounter with reality
away from disappearing into the mists of
speculative extremes imploding.
As for pensions, these promises on future energy
and income gains are only geared for an economy
of ever-expanding energy, productivity and
production of surplus goods and services. As
America has substituted speculation for these
real-world gains, pensions are also one
encounter with reality away from disappearing
into the mists.
The American Dream was based on broad-based
access to acquiring capital and agency, access
which has narrowed to the top slice of the
economic order. Even the top 10% is misleading,
as the vast majority of capital and agency are
held by the top 1% and to a lesser degree, the
top 5%. The actual capital and agency of those
below the 5% mark falls off rapidly, effectively
reaching near-zero about the 15% mark.
As the chart "wages aren't keeping up" shows,
the purchasing power of "middle class" wages has
plummeted, meaning less income is available
after paying all the big-ticket essential
expenses. The Federal Reserve has played a game
of lowering interest rates so households can
lower their interest expenses by refinancing
their mortgages, but this game has ended;
interest rates cannot drop any further without
entering negative rates, a zone of insolvency
for the banking sector.
In other words, the game of creating the
illusion of real wage gains is over.
What happens when America finally admits its
middle class is a phantom of feel-good fantasy?
We may well find out in the next four years.
Charles Hugh Smith is the proprietor
of the popular blog
OfTwoMinds.com.
His 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.