October 31, 2019

Where is the line between "working class" and "middle class"? Maybe there isn't any.

Defining the "middle class" has devolved to a pundit parlor game, so let's get real for a moment (if we dare): the "middle class" is no longer defined by the traditional metrics of income or job type (blue collar, white collar), but by an entirely different set of metrics:

1. Household indebtedness, i.e. how much of the income is devoted to debt service, and

2. How much of the household spending is funded by debt.

3. The ability of the household to set aside substantial savings / capital investment.

4. The security of the households' employment.

5. The dependence of the household wealth on speculative asset bubbles inflated by central bank policies.

6. The percentage of the household income that is unearned, i.e. derived not from labor but from productive assets.

7. The exposure of the households' employment to automation, AI or offshoring.

8. How much of the household income is government transfers: benefits, subsidies, etc.

After writing about the middle class and America's class structure in depth for over a decade, it seems to me the actual, real-world class structure is something along these lines:

1. No formal earned income, dependent on government transfers, possibly supplemented by informal "black market" income; no family wealth.

2. The Working Poor, those laboring at minimum wage or part-time jobs with few if any benefits. This class depends on government transfers to get by: EBT (food stamps), housing subsidies, school lunch subsidies, Medicaid, etc. Highly exposed to reductions in hours, tips, gigs, etc. and layoffs.

3. The "muddle class" which muddles through on earned income, much of which goes to debt service (student loans, auto loans, mortgages, credit cards) and skyrocketing big-ticket expenses: rent, healthcare, childcare, etc. Unable to save enough to move the needle on household capital, any net worth is dependent on speculative asset bubbles continuing to inflate. Highly exposed to layoffs or destabilizing changes in employment status: from full-time to part-time, loss of benefits, etc.

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