How Long Can the Top 10% Households Prop Up the "Recovery"?

Of Two Minds ^ | 10/31/2014 | Charles Hugh-Smith

[SeekAndFind]

The question of "recovery" really boils down to this: how much longer can the top 10% prop up the expansion?

A flurry of recent media stories have addressed housing unaffordability, for example Why Middle-Class Americans Can't Afford to Live in Liberal Cities.

The topic of housing unaffordability crosses party lines: Housing Ownership Back to 1995 Levels (U.S. Census Bureau).

Other stories reflect an enduring interest in the questions, what is a living wage?and what is a middle-class income? These questions express the anxiety that naturally arises from the sense that we're sliding downhill in terms of our purchasing power--a reality that is confirmed by this chart:

Here's a recent story that delves into the question of "getting by" versus "middle class": How Much Money Does the Middle Class Need to Get By?

"Just getting by" in costly coastal cities requires an income in the top 20%: around $60,000 for individuals and $100,000 for households.

The article references MIT's Living Wage Calculator, which I found to be unrealistic in terms of the high-cost cities I know well (Honolulu and the San Francisco Bay Area). It appears the calculator data does not represent actual rents or food prices; the general estimates it uses woefully under-represent on-the-ground reality.

Current market rents in the S.F. Bay Area far exceed the estimated housing costs in this calculator, and that one line item pushes the living wage from $36,000 for two adults closer to $45,000 in my estimate--roughly the average wage in the U.S. (not the median wage, which is $28,000).

If you want to know where you stand income-wise, here is a handy calculator: What Is Your U.S. Income Percentile Ranking?

Here are the data sources:

Wage Statistics for 2013 (Social Security Administration)

2013 Household Income Data Tables (U.S. Census Bureau)

There are many complexities in these questions. For example, Social Security data does not include food stamps, housing and healthcare subsidies provided by the government, etc., so lower-income households' real (equivalent) income is much higher than the published data.

Then there are the regional differences, which are considerable; $50,000 in a Left or Right Coast city is "just getting by" but it buys much more in other less pricey regions.

As for what household income qualifies as "middle class"--it depends on your definition of middle class. In my view, the definition has been watered down to the point that "middle class" today is actually working class, if we list attributes of the "middle class" that were taken for granted in the postwar era of widespread prosperity circa the 1960s.

In What Does It Take To Be Middle Class? (December 5, 2013), I listed 10 basic "threshold" attributes and two higher qualifications for membership in the middle class. Please have a look if you're interested.

I came up with an annual income of $106,000 for two self-employed wage earners and the mid-$90,000 range for two employed wage earners, the difference being the self-employed couple have to pay 100% of their healthcare insurance, as there is no employer to cover that staggering expense.

$90,000 puts a household in the top 25%, and $101,000 places the household in the top 20%. $150,000 a year qualifies as a top 10% household income.

If we set aside income and consider net worth, net worth (i.e. ownership of assets and wealth) of most households is modest:

This shows the decline in household wealth since 2003:

Can an economy in which the majority of households are "just getting by" experience robust growth, i.e. "recovery"? If we discount the millions of households who are paying for today's consumption with tomorrow's earnings, i.e. credit cards, auto loans, student loans, etc., I think it's self-evident that only the top 20% (and perhaps really only the top 10%) have the income and net worth to expand a $16 trillion economy.

By definition, the top 10% cannot be "middle class." Yet it seems that these top 12 million households are propping up the "recovery"--dining out at pricey bistros, paying $200 a night for hotels, buying homes that cost $500,000 and up, paying slip fees for their boats, funding their children's college education with cash rather than loans, etc.

The question of "recovery" really boils down to this: how much longer can the increasing debt of the bottom 90% and the wealth of the top 10% prop up the expansion?

[Resettozero]

Everyone knows we’re not coming out of this unscathed. In the meantime, some are working hard at eating, drinking, and being gay, while others realize eternal souls of Americans are in imminent danger and are concerned about that.

[Neidermeyer]

All quintiles , when you adjust for spendable money after taxes are more than 10% down ... not just 5 or 6% .. and necessities are up in price ,, food by greater than 10% in a year , energy including electric is hovering at highs..

[detective]

There is no recovery. Just phony statistics from the Obama Administration. Except for a very few, everyone’s real income is declining. Everyone’s net worth is declining.

More and more Americans are collecting government handouts. More and more Americans have “left the labor force”.

America's debt has reached unsustainable levels.

[raybbr]

As long as they allow the sloths, politicians and media to force them into it.

[wastoute]

If the gummint can squeeze taxes outa you, you are middle class.

[buckalfa]

Nothing to worry about, once the Regime equalizes the incomes of all workers of the world, all will enjoy the benevolence of the state!

[Grampa Dave]

We will last as long as our net incomes are not exceeded by our gross taxes from every level and every left wing scam pretending not to be a tax in the form of bonds for education and fees we never heard of before.

[ChinaGotTheGoodsOnClinton]

Related question: “How long can the Fed prop up the stock market with QE gazillion?”

[familyop]

They don't "prop up" anything, unless they are making real products on American soil. Let's have a look at what's really going on.

Heavy Hitters: Top All-Time Donors, 1989-2014
http://www.opensecrets.org/orgs/list.php
American Fedn of State, County & Municipal Employees $60,949,129 [Democrat] 81% [Republican] 1%”

Leviathan (Uncle Sam employs more people than you think)
National Review ^ | 02/03/2011 | Iain Murray
"...nearly 40 million Americans employed in some way by government."

More Than 101 Million Working Age Americans Do Not Have A Job
http://www.freerepublic.com/focus/f-bloggers/3005481/posts

America’s Ruling Class — And the Perils of Revolution
http://spectator.org/articles/39326/americas-ruling-class-and-perils-revolution

The Fragmenting of the New Class Elites, or, Downward Mobility
http://volokh.com/2011/10/31/the-fragmenting-of-the-new-class-elites-or-downward-mobility/

Environmentalism and the Leisure Class
http://www.freerepublic.com/focus/f-news/2835601/posts

The New Upper Class and the Real Reason We Dislike Them
http://www.freerepublic.com/focus/news/2843575/posts

Are you a member of the political class?
http://www.americanthinker.com/blog/2010/08/are_you_a_member_of_the_politi.html

Downton’s Class System — and Ours: We have a ruling class that despises the free market and does...
http://www.freerepublic.com/focus/f-news/3024119/posts

The War on Humans
http://www.youtube.com/watch?v=RWcEYYj_-rg

[Wuli]

“The article references MIT’s Living Wage Calculator, which I found to be unrealistic in terms of the high-cost cities I know well (Honolulu and the San Francisco Bay Area). It appears the calculator data does not represent actual rents or food prices; the general estimates it uses woefully under-represent on-the-ground reality.”

As the very first link shows (which seems to be ignored elsewhere in the article) big Liberal cities are a problem unto themselves when it comes to affordability,
and income requirements there should not be conflated to any requirements elsewhere in the nation.

My other problems with with the “living wage” analysis is that the job, & hours worked assumptions about “living wage” are wrong and false, because they are positioned on the idea that everyone working is working as “primary head of household” and every job is a job meant and intended to be filled by a “primary head of household”. That has never been the reality of many jobs, as I have seen all my life.

I have been around sixty plus years, and going back to my childhood and teens, we considered ourselves middle class BUT dad’s job was not allowed to be considered all that all of us needed, and we all worked and contributed, when and how we could. Maybe what’s wrong is too many families today are under the impression that such a family pulling together financially is both verbotten and passe, and most of all politically incorrect. Maybe what’s missing is not missing, except that the TV families in the 1950s were idealized, and not COMMON in many ways, where today the gritty reality of most families family life is sold as just a “raw deal”.

Lastly, the authors reference to a study of who is Middle Class is a reference to a bogus study. They make their own criteria and new standard for middle class - applied where, when and how in past determinations of middle class?, no mention. Then as I reviewed the criteria it seemed to me that MOST of who has usually been considered middle class have NEVER mat all that criteria and many not even most of the criteria. By that criticism, to me, the study cannot be used as defining a sliding back of the middle class. Other factors might make valid arguments, but not that study.

[Wuli]

wealth “inequality” is a statistic that does not identify who can and cannot afford something

both living wage (which uses income statistics) and “wealth estimates ignore the wage and wealth equivalents of public assistance in the lower income quintiles. and yes, staying at a “rent subsidy/public housing” level income amounts to an “asset” just like home equity, even though it is not a cashable, transferable asset - in fact, many with such assistance understand it that way and will not improve their “earned income” so as to not lose that asset