Endless articles are written about the middle class. They claim that it is disappearing. This has been a rally cry for about 40 years. Whenever I read such an article, a few questions immediately come to my mind.
How do you define middle class?
Where is the evidence that it is disappearing?
Why is this a bad thing?
Classes do not exist in nature. They are constructs of the mind. Any author that talks about any economic class must define those terms. The word “poor” today had a different meaning a 100 years ago. The poor, today in the western world, have cars, cellphones and AC units. A 100 years ago the poor were drinking puddle water. That is because capitalism has created an enormous amount of wealth over the past 100 years. Now we understand that the word “class” is relative to a time and place. Any author that writes an article about the end of times due to the disappearing middle class must define this word. If he does not define it, you should ignore him.
Most articles use household income or some variation of it. They post a chart of it declining since the 1970’s and tell you its the end of the world. There is a major problem with household income statistics in general. The number of people per American household has declined over the years. When you compare household incomes from a year when there were 6 people per household with a later year when there were 4 people per household, you are comparing two different things. Let us say income per person increased 25%. This mean that 4 people are now making the same income as 5 people made earlier in time. But not as much as 6 people made. So household income will actually show a decline, when in fact per capita it has risen.
Let us pick on the pew research center. Click here to read their article. They define classes by using household income which is size adjusted. Below they print a graph showing the trends of the years.
So the middle class lost 9% since 1971 according to them. The upper class grew 5% and the lower class grew 4%. If the upper class grew more than the lower class is this bad? Why? I can also play with their parameters to show a different story. For instance, see this chart showing the middle class is moving to the upper class.
The middle class is not the basis for any civilization. Think about the Pareto distribution (the 80/20 rule). A very small percentage of people are the true innovators and entrepreneurs. They are the great builders. Such names as Henry Ford, Jeff Bezos, Sam Walton come to mind. They are always a small percentage of any civilization. These individuals have made the middle class (however you define that word) better off. There are more gadgets. Living conditions are far better. There are more medical breakthroughs.
The word middle class is a buzz word. It invokes a lot of emotions in people. Politicians use it to get the masses all riled up. I suggest you consider the three questions above whenever you hear the word middle class.