The rising cost of living combined with stagnant and falling wages are what define the destruction of middle-class citizens in the modern United States of America. Last year, the top 1% of earners took home 68% of all American income. In the meantime, middle-class purchasing power (when adjusted for inflation) has fallen below that of the 1950’s. Between the 1940’s and 1970’s the U.S. enjoyed the most prosperous era in its history, as taxes on the top 2% of wealthy Americans were at their highest rates, and middle-class wages kept pace with productivity. All of this in the face of a federal deficit with a ratio of 125% of GDP. A thriving middle-class is the key to prosperity, innovation, and national security.
So, if you haven’t been paying attention—or you’re just part of the 1% that has no idea what’s going on down here—take note of the follow list which identifies five indications that the middle-class is fast becoming extinct.
Explosion of Healthcare Jobs
If you’ve ever stayed up late enough for your eyes to bleed, you’ve probably encountered one of those late night infomercials that try desperately to sell you a new career in the healthcare industry. You know the ones: “Stuck at that dead-end job and looking to make a difference? Not going anywhere with your life? Making minimum-wage? Call the “We Are Barely Accredited For Healthcare Education College” and get on the fast track to a new and exciting career watching people go broke without insurance.
Aside from the laughable logos and lame soundtracks, these higher education institutions will often kickoff their pitch with some outrageous statistic about how healthcare jobs are expected to grow 22% over the next year. The funny thing is—as much as I want to say it’s bullshit— it’s true. Healthcare jobs keep exploding. It sounds crazy, right? How is it that healthcare jobs seem to be growing at ridiculous rates without end? Suddenly, everyone wants to stick others with needles and clean up human excrement for a living? NO! Of course not.
The reason healthcare industries jobs are on the rise is because it’s one of the few fields that people can earn a livable wage at without having to fork over a mortgage for a college degree. Most healthcare jobs start at around $10/hour—way above the federal minimum wage. But even if you wanted to go for higher education, you wouldn’t need to go very far to make some serious bank. A dental hygienist requires only an Associates Degree (that’s two years of college), and can start as high as $35/hr. It’s a serious skill to clean people’s teeth, but the education-to-projected-salary ratio is one of the best bangs for your buck in this economy.
Hot degrees and job fields aren’t necessarily indicative of a society’s passion to pursue those disciplines—they are indicative of lucrative markets where wages are buoyant or climbing. Why do you think the MBA is so hot? Because everyone LOVES going to meetings and wearing ties and getting headaches from staring at screens all day long? No. What’s the first thing people say when someone decides to get a history degree? “How are you going to make a living with that?” These areas are hot because people know that the salaries in those fields pay livable wages while all others have stagnated or fallen.
Baby Boomers and Social Security Bankruptcy Warnings
Talking about how entitlements programs are running out of money is a famous tactic of Republicans who want to scare the general public with government debt. Scaring people with large public debt makes it easier to get them to vote for policies that cut spending to such programs. This, in turn, hopes to defund such programs publicly to a degree that would require them to be privatized—meaning that the average person would be in charge of funding their own retirement, in precarious markets, at the rate of high fees charged by investment banking firms. Think about it: all those potential profits wasted on a public which has collectively invested in a sure-thing. Social Security payments make up nearly 70% of all elderly persons retirement income. Imagine what that would be worth to an investment firm on the open market—BILLIONS AND BILLIONS.
The truth is, the mystery of keeping Social Security solvent is as simple as 6th grade math. It’s self-sustaining. Social Security is funded by payroll taxes. And since the average person works longer than their retirement years, most everyone will be paying for themselves and then some. Well, what about those who don’t work? Yes, it’s true, there are those who don’t work. However, the cost of their payments are more than paid for by the taxation on the wealthy 2% of Americans—unless of course they aren’t paying their fair share. One prominent economist proved that a 6% increase of taxes on the wealthiest Americans would fund Social Security FORVER. That’s how much these people at the top are dodging. Got it?
What about the Baby Boomers? There’s so many of them retiring, there can’t possibly be enough money to support them all. WRONG. Messages about the unsustainable financial burden of retiring baby boomers are merely a propaganda campaign meant to scare people into voting for reforms we don’t need and don’t work—mostly cuts on other social program outlays that target poor and disadvantaged families. But ask yourself: Do you honestly think that the government hadn’t anticipated the potential impact of a large generation that would someday retire in the future? So, we all know about the baby boomers, but no one did anything? Exactly. Back in the 80’s, the Reagan administration anticipated the future retirement of the baby boomer generation and took precautions to make sure Social Security was well funded to handle them. In 1983, adjustments to the Social Security program were made, raising the retirement age by two years, and raising the taxes on the top 2% of Americans. Ironically, it was this extra tax revenue that masked the deficit created by other tax cuts for the wealthy.
So, if Social Security is funded by payroll taxes, less payroll tax means less Social Security money. Still with me? Now for the big finish. The REASON Social Security is in danger of becoming insolvent is NOT because of rampant entitlement spending or Social Security freeloaders, it’s because the majority of wages have not kept pace with productivity. And, the wages that have kept pace and beyond (the top 2%), have had deep tax cuts. The fact is middle-class wages have fallen. Falling wages means less payroll tax, which means less Social Security money. The other factor is inadequate tax revenues from the wealthiest Americans, whose taxes have been cut to the lowest levels in the history of our country.
Let me put it another way, in 1993, during Bill Clinton’s presidency, Social Security had a huge surplus of money. Why? Because he was brave enough to significantly raise taxes on the top 2% of wealthy Americans. Oh, and unemployment was at its lowest since the initial post war era. BOOM.
Luxury Markets Everywhere
I feel like there was a time when true luxury brands and markets were practically undiscoverable. If you wanted to buy a luxury brand or product you had to know the right people. You had to make “arraignments” and pal around with brokers: art brokers, comic book brokers, fruit brokers, car brokers—you get it. But now more than ever do luxury markets APPEAR to be accessible. From bistros to handbags to grocery store to hand cream—they’re everywhere. There’s almost nowhere for the middle class to spend their non-existent wages.
The Internet, radio waves, and television broadcasts are now filled to the brim with all of these overnight luxury markets that never existed before. Take KIA for instance. Here’s a car company making affordable vehicles in the mid-range to low-end market since 1974. And then, this year, KIA enters the luxury market with their new Cadenza model. But, KIA’s not the only one. Specialized food markets, tea markets, and high-income housing markets have popped up everywhere in blink of an eye.
Luxury markets in 2013 are expected to gross $318 billion in sales due to emerging markets and “affordable luxury”. Though, however subjective the term “affordable” proves to be, it’s apparent that the market has exhausted the wallets of the the middle-class. This is precisely the reason for the rapid expansion of luxury markets and the emerging of seemingly “attainable” luxury goods. Luxury markets are not necessarily becoming more accessible by more people—that would be impossible in this economic climate. No. Luxury markets are expanding BECAUSE demand in middle markets is shrinking due to shrinking wages.
So, how does a company make up for overall waning sales? Simple; they enter the luxury market where the sale of one luxury product is equal to the sale of three items in the middle-class market. Shrinking profits in middle-class markets due to falling wages have caused many companies to develop products for luxury markets whose sales can make up the difference. Companies go to where the money is. As the majority of wealth continues to concentrate at the top 2% of American incomes, the consumer market, desperate to keep profits buoyant, will follow the trail and lap at their heels.
If you’re a smart company living in a time where the middle-class is becoming extinct, you can no longer expect lasting revenue from a “one-shot-one-kill” perspective. That is, people who have lost their wealth are not willing to buy high-priced products off the shelves. They can’t take that kind of financial risk, even if it is a one-time deal. So, what’s a company to do when the CEO needs another house in the Hampton’s and a good quarterly report for investors? The answer is switching products for services.
The strategy of replacing products with services means that companies can charge a lower price for ACCESS to goods, but the revenue stream from such subscriptions is essentially UNLIMITED—AND no wealth is transferred to the middle class because they aren’t receiving a product. For example, you used to be able to buy Adobe Creative Suite software for between $1200-$1600. Sure it was a huge upfront cost, but you OWNED the software. The wealth of the product was transferred to you, and though it may have depreciated over time, you could later sell it and recoup some of your investment costs.
In the new subscription model, Adobe allows customers to access its tool on a Cloud for which they pay an access fee of between $30-$50 a month. This strategy eliminates the need for a high-cost initial investment which middle-class persons can no longer afford, while cleverly exceeding potential revenue intake which draws from an essentially endless member subscription.
The shift from a product-based market to a subscription-based market perpetuates the further erosion of the middle class in two ways:
A.) In the wake of dwindling purchasing power, rather than asking customers to pay a high cost upfront, the subscription model allows companies simply extract infinitely MORE money out of the middle-class over a longer period of time DESPITE whether or not they use the product much or benefit from content updates.
B.) Offering customers a service rather than a product deprives them of ownership over anything. Wealth in the form of a physical product never leaves the company. This means to say that because customers don’t receive a physical product, and merely pay for access to it, that value can never be handed down to other family members or sold onward into secondary markets (like Craigslist). In this case, customers can never buy something that might also appreciate in value, and therefore add to the wealth of the person who owns it. In this way, essentially, the market is extracting wealth from consumers, but not giving them something of equal value in exchange for that capital. All the wealth stays with with company.
General Price Increases
In traditional economics, when demand goes down, prices come down. Because the middle-class has less buying power than they did in the 1950’s, it seems that prices should also come down. But, look around. Prices everywhere just keep going up. People talk about inflation, but inflation happens when people are getting good wages and there’s a lot of money in the middle class.
What many people fail to realize is that, though there are economic laws that guide financial outcomes, human psychology is the most powerful ingredient by far. If today a prominent economist went on television and said that Company (A) showed significant management and financial weakness in his/her opinion, that company’s stock price might PLUMMET within a few hours. It’s true that demand might be down, but not because of the intrinsic value of that company, but rather, simply because some economist trashed it. The result is the loss of millions in investment capital dollars for no reason at all.
The point I’m trying to make is that markets and prices can be manipulated based on human motives, not just numbers. In this case, the upward trend of prices and price gimmicks (Get 2 for $3) is not a reflection of an increase in demand, but rather a strategy to make up for waning revenue. When the middle-class has weak purchasing power, prices should come down. However, the culture of “our bottom line can’t slip, even in a recession” has produced price hikes and gimmicks meant to make up for the hole in middle-class wages.