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Musings Report #43 10-23-15 What's Eroding the Middle Class?
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For those who are new to the Musings reports: they are basically a glimpse into my notebook, the unfiltered swamp where I organize future themes, sort through the dozens of stories and links submitted by readers, refine my own research and start connecting dots which appear later in the blog or in my books. As always, I hope the Musings spark new appraisals and insights. Thank you for supporting the site and for inviting me into your circle of correspondents.
What's Eroding the Middle Class?
I have devoted many blog posts to the erosion of the middle class, for the specific reason that when the middle class--the layers of the economy between the Power Elites and landless laborers/state dependents--erodes away, history shows that the nation/empire is destabilized and descends into crisis.
A society without a functioning middle layer of economic and social activity is not stable, though repression can mask this for a time.
As historian Peter Turchin explained in his book "War and Peace and War," societies that lose the cohesion needed for concerted, collective action eventually collapse, either by failing to meet an external threat or from internal conflicts.
The social and political glue that holds societies together is the sense of a shared identity and purpose. Economies constructed of a supremely wealthy elite, a thin layer of independent artisans and small farmers, and a great mass of laborers with no assets has no shared sense of identity or purpose; those at the bottom have little in common with those at the top, and the thin middle that is scraping by has little affinity with either the elite above or the poverty-stricken below.
This erosion of a self-employed, independent middle class was an important pre-condition for the collapse of Rome and the French Revolution.
As I have outlined in some detail, the middle class in the U.S. is eroding: the lifestyle that was widely accessible to a broad swath of households in the 1960s is now only available to the top 10% below the wealthy (the top 5%). This includes not just possessions like a home or vehicle but productive assets that can be handed down to the next generation.
As it stands now, many households that consider themselves "middle class" have few if any productive assets, and even fewer will have any assets to pass on to the next generation as their retirement and other expenses may well consume much of whatever assets they currently own.
There are five primary drivers of this erosion in my view:
1. The shifting of pension and healthcare costs/risks from the state and employers to employees
2. The decline of scarcity value to labor in general and specifically to college degrees that were once the guaranteed ticket to middle class security
3. The inexorable rise in big-ticket costs: higher education, healthcare and housing. Even as wages stagnate, these costs continue rising. claiming an ever-larger share of household incomes, leaving less to save/invest.
4. The transition from an economy with stable returns to a financialized boom-and-bust economy that wipes out middle class wealth in the busts but doe not rebuild it in the booms.
5. The regulatory and administrative barriers to self-employment in a state-cartel dominated economy that has been globalized.
There is zero evidence that any of these drivers is going to reverse, for the reason that they are reflections of deep forces that cannot be reversed: demographics, globalization, the exhaustion of financialization, the 3rd Industrial Revolution (i.e. the digital revolution) and the loss of scarcity value in the foundations of the middle class: labor and financial capital.
There is more to say on these topics, and I'll address these in future Musings.
Summary of the Blog This Past Week
Why Is Wealth/Income Inequality Soaring? 10/23/15
The Real Trouble Begins When Rising Inequality Splinters the Elites 10/22/15
Sorry, "Feel the Bern" Fans: President Sanders Won't Change Anything 10/21/15
A Fatal Accident Waiting to Happen: U.S. Healthcare 10/20/15
Four Ticking Global Time-Bombs Few Even Hear 10/19/15
Best Thing That Happened To Me This Week
Fresh poi and lau-lau's brought back from Hawaii, plus home-smoked pork and ulu (breadfruit).
Market Musings: Buy the Rumor, Sell the News?
It doesn't get much better than blow-out earnings from tech giants Microsoft, Google and Amazon, another promise of QE from the ECB's Mario Draghi and a rate cut in China.
That's actually the problem, because what's left to push markets higher next week? The mood (as reflected by the CPC put/call ratio) is once again euphoric, which also sets up the potential of an "unexpected" retrace.
Another signal of note is the VIX (volatility) did not crumble as stocks soared. In the normal bullish upswing, the VIX is crushed as equities rise. But today, the VIX actually closed up despite a 100+ point rally in the NASDAQ and a 22-point rally in the SPX.
When everybody gets euphorically bullish, it's usually a good moment to be skeptical. This may well be one of those buy the rumor, sell the news moments. After a breathless run-up from late September, equities look poised for a retrace of some measure, especially given the numerous open gaps (small but nonetheless, open gaps get filled) below that are begging to be filled.
Trading note: as I projected, the USD rose smartly. I liquidated my call options on UUP for a 100% gain in a matter of days. It doesn't happen that often, but it's nice when it does...
From Left Field
“Every president has been manipulated by national security officials”: David Talbot exposes America’s “deep state”
industrial 3D printer fits in a truck, can print an entire building in 24 hours
Has It Become Impossible to Prosecute White-Collar Crime? Financial crimes might be too complicated to take to trial.
Forget the war on drugs: Alcohol ruins more lives than all other drugs combined
HOW AN F STUDENT BECAME AMERICA’S MOST PROLIFIC INVENTOR Lowell Wood broke Edison's patent record and helped bring down the Soviet Union
Why the Left Isn’t Talking About Rural American Poverty
Straw/Hay Bale Gardening: Effortless Food Production with No Weeds, No Fertilizer & Less Watering (VIDEO)
Early men and women were equal, say scientists
The Death of the Party -- not the political kind, the friends kind...
America's crushing surge of student debt has bred a disturbing new phenomenon
Who in their right mind would want to visit Dubai? Sterile and morally destitute Dubai shows what happens when you chase heavy pay cheques at the cost of all else, says Alex Proud.
Elderly People Look At Their Younger Reflections In This Beautiful Photo Series By Tom Hussey
"The secret of all victory lies in the organization of the non-obvious." Marcus Aurelius
Thanks for reading--
charles |
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