The End Of The American Dream - USA

The Middle class is defined as a set of people with these aspirations:

I want to own my own house
I want to live in a safe neighbourhood with good schools
I want to be able to put a bit of money away for taking a modest vacation every year.
I want a health insurance.
I want to be able to save a little for retirement.
I want to be able to send my kids to college.

These make up the "Middle class basket."


Big Question:  Are you doing the things that are most important in your life?

What Happened to the Middle Class in U.S,?

What Happened to the Middle Class?

By Morgan Housel | More Articles 
August 28, 2012 | Comments (142)

It's a bad time for millions of Americans. No surprise, then, that a survey by the Pew Research Center last week showed that 85% of self-described "middle-class" Americans say it's harder to maintain a middle-class lifestyle today than it was a decade ago. Only 9% said it was less difficult.

But here's what is surprising -- or, at least, telling. Pew asked respondents "How much do you blame (each) for the difficulties the middle class has faced in the past 10 years?" They answered:

Source: Pew Research Center. Graphic recreated.

They blamed everyone -- except themselves. How fair is this?

Step back for a second. Why middle-class finances have deteriorated is one of the most complicated subjects out there. Whenever someone points the blame at one reason or one person, stop listening. They've got it wrong. There could be thousands of reasons, most of which we don't understand. Part of the problem owes to globalization. Some of the blame lies with health care costs, changes in family structures, educational attainment... the list goes on and on.

But one factor that doesn't get enough attention is the role perceptions alone have played in the decline of the middle class.

A group of Fools and I met a business executive named Andy last year. We asked him what concerned him about America. He responded:

What concerns me most is the perception that people share that it is so terrible right now. I think life in America has been tough since the time of the Colonists all through World War 2 and all the way through today. The middle class has gotten it all twisted. Maybe it's because of the credit cards and the candy bars that people are being fed, but the reality is, I think we have the same amount of discretionary income, and the ability to guide our own future. But our values have radically shifted.

Now, discretionary incomes for millions of Americans have declined in recent years. But he makes a valid point when the dates are stretched out further.

Take measures of subjective well-being, e.g., surveys that ask, "How happy are you with life?" Most show that the percentage of Americans very satisfied with life peaked around the 1950s. Median household income back then was $31,500, adjusted for inflation. Today it's a hair over $50,000 per household. So we're richer. An average American household in 1950 spent 30% of its budget on food. Today, that's down to 13%. The shares going toward shelter and apparel have dropped sharply in the last half-century, too. So we have more disposable income. The average new American home in 1975 was 1,500 square feet. Today, it's 2,169 square feet. So we're also living in bigger, nicer homes. And all of this has happened decades after reported happiness peaked.

You don't have to take this back quite so far: In 1990, the average American family spent 5% of its budget on entertainment, while in 2010, 5.2% of spending was devoted to having fun. Or, if you want to take this back a century or so, consider this quote from Matt Ridley's bookThe Rational Optimist: "Today, of Americans officially designated as 'poor,' 99 per cent have electricity, running water, flush toilets, and a refrigerator; 95 per cent have a television, 88 per cent a telephone, 71 per cent a car and 70 per cent air conditioning. Cornelius Vanderbilt had none of these."

So why do so many middle-class Americans feel cheated? It's not so much that they've gotten poorer, but that a few have gotten so much richer. 

According to author Tim Noah, "From 1980 to 2005, 80% of the total increase in Americans'net income went to the top 1%." Nobel-winning economist Joseph Stiglitz points out another mindblower:

The upper 1 percent of Americans are now taking in nearly a quarter of the nation's income every year. In terms of wealth rather than income, the top 1 percent control 40 percent. Their lot in life has improved considerably. Twenty-five years ago, the corresponding figures were 12 percent and 33 percent.

If you're a member of the middle class watching this happen, you feel worse off. It doesn't matter that you're better off in absolute terms. When you go from a minivan to a minivan with an extra cupholder, while the corporate exec goes from a Lincoln Town Car to a fleet of Bentleys and a private jet, you feel like you've slipped behind. We don't feel richer, because the goal posts of what counts as "rich" have moved dramatically.

There's actually a theory that says this explains the consumer debt boom over the last few decades. It's the "keeping up with the Jonses" effect, where the aspirations of the middle class are inflated by the legitimate wealth of the rich. "Trickle-down economics may be a chimera, but trickle-down behaviorism is very real," writes Stiglitz.

Here's a good example of how powerful this is. Last week, Nike (NYSE: NKE  ) said the new LeBron James shoe could retail for a whopping $315. Many were shocked at the price, but others went further. Marc H. Morial, CEO of National Urban League, called on Nike to drop the shoe altogether. "To release such an outrageously overpriced product while the nation is struggling to overcome an unemployment crisis is insensitive at best," he said. "It represents twisted priorities and confused values."

There's an easy solution for those who can't afford $315 sneakers: Don't buy them. But Morial's call implies that many consumers won't be able to fight the urge.

Here's why that's important: We know that the consumer debt used to feed those urges has played a big role in the deterioration of middle-class finances in recent years. Brookings economist Karen Dynan has shown that the households that levered up with the most debt last decade have had to cut their spending by the most today. A Federal Reserve study showed that the regions that accumulated the most debt last decade saw some of the largest declines in employment over the past few years. Congress, CEOs, or the Bush administration didn't force those consumers into debt. They chose it.

To the extent that shifting values have spawned the rise in debt, which has in turn contributed to the deterioration of middle-class finances, there's no one to blame but yourself.

Rise of the middle class

Rise of the middle class
By Tang Jun (China Daily)
Updated: 2010-11-18 15:12

Society will be more stable when one third of the Chinese population has material means to become social backbone

Many scholars and individuals are showing concern about what kind of social structure will bring the best stability.

According to sociological theories, a modern society can be divided into four ranks: the wealthy, the middle class, labor and the disadvantaged. The middle class creates the ladder between the well-to-do and the poverty-stricken, thus easing the antagonism between them, by granting those at the bottom the hope of rising to a higher level.

Generally speaking, in a modern society, the middle class contains 60 to 70 percent of the population, leaving about 15 to 20 percent at either end of the ladder. Such a large middle class ensures stability for a society.

How do we define the middle class? There are three standards: material wealth, job status and self-identity.

Concerning material wealth, a middle income, sufficient to maintain a comfortable but not luxurious lifestyle, is the first pursuit of the middle class. In the present social situations, a typical middle-class family tends to own a car and a house, together with certain financial products.

The xiaokang (literally moderate prosperity) standard introduced by the government is essentially the Chinese version of the middle class. Sufficient wealth accumulation is the first prerequisite to be xiaokang.

Job status is another essential. In this society, a salary is still the most important income source for most individuals; therefore a stable job is the pursuit.

With the rise of knowledge capital, intellectuals and technicians are taking more pride in gaining a position through their knowledge or technical skills.

Self-identity is also indispensable. Being middle class means having access to a decent and relatively comfortable life and having the will to strive forward. This is beneficial to both the people and society.

During the past 30 years, a middle class has come into being in China. According to Professor Lu Xueyi of the Chinese Academy of Social Sciences, 23 percent of the population belong to the middle class; five years ago it was 18 percent. He estimates that the number will increase by 1 percent every year. If that growth rate can be maintained the middle class could reach 40 percent of the population by 2020.

However, that will not be achieved without problems. Ever since reform and opening-up in late 1970s, our changes in social structure have lagged 15 years behind economic development; that's the origin of many of our social problems.

The middle class, with a strong sense of social responsibility, should be the backbone of society. The awareness of being a responsible citizen offers strong support for society. However, the middle class in China is still immature in this respect and society needs them to meet their social obligations.

Of course, the rise of the middle class in any society is in dire need of rational support from the government. On their road to industrialization and modernization, many developed countries offered support or subsidy to blue-collar workers, helping them to own and accumulate capital. After World War II, many countries also used the policy "houses for residents", which proved very successful.

Owning a house has long been considered a prerequisite of entering the middle class, and when more and more people find it hard to reach this standard, it is impossible for them to remain silent.

The present tendency of economic growth is unfriendly to many people, especially to the supporting pillar of industry - migrant workers, whose number has reached 200 million. We hope the "inclusive growth" in the 12th Five-Year Plan (2011-2015) will solve these problems.

Three decades ago, Deng Xiaoping said: "Let one part of the people get rich first." Today might we make a similar statement for the 12th Five-Year Plan period - let one third of the Chinese people become middle class first.

The author is a researcher and secretary general of the Social Policy Research Center of the China Academy of Social Sciences.

http://www.chinadaily.com.cn/business/2010-11/18/content_11571957.htm


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