Once again, political discussion has shifted to the travails of the American middle class. This will happen every once in a while, for two reasons. Since the distribution of income is roughly bell-shaped, the middle of the distribution is where you will find the most votes. Second, a plurality of Americans still consider themselves “middle class,” so that’s a big interest group.
The problem, as Vox’s Ezra Klein recently wrote, is that the middle class is almost impossible to define. The obvious stumbling block is the variation in local living costs.
“(T)he amount of money needed to feel middle class varies sharply across the country. Making $50,000 leaves you struggling in Manhattan and wealthy in Detroit,” Klein writes. “Some argue that our definitions of ‘middle class’ and ‘wealthy' should adjust for local living costs. But maybe that’s an adjustment too far: Is living in New York City a necessity, or is it a luxury good, much like buying a fancy car or a huge house?”
That’s a big difficulty, but there are others. For example, should we look at wealth, or income? Think of a family that inherited $1 million but makes $30,000 a year. And what about age? A $30,000 salary is just fine when you’re 22 years old and just out of college, but it’s pretty low for a 50-year- old.
Also, when we talk about household income, we should think about costs – being a bachelor is much cheaper than feeding a family of five. But then again, family, like living in New York City, is a choice.
There are other choices that don’t get included in the income statistics. What if I want to work only 20 hours a week, making enough to live, and spend the rest of my time making art or playing video games? Am I poor because my income is low, or middle class because I can afford a life of leisure?
I’ve come to the conclusion that middle class is more of a state of mind than an income threshold. “Middle class” basically means a feeling of being in a similar economic situation to the people around you, combined with a sense of overall optimism and security about that economic situation. In other words, if you think “I’m doing OK, and most people around me are doing OK too,” you’re in the middle class.
That’s why inequality kills the idea of a middle class, even if it improves people’s standard of living overall. When everyone makes $50,000 a year, it’s easy to tell that you’re middle class. If half of those people suddenly start making $150,000 a year, it’s no longer so easy.
For the half of people still making $50,000, nothing has changed in terms of their absolute material standard of living – they still have the same number of cars, TVs, etc. But now they might think to themselves, “Have I failed in some way? Why am I still making $50k when half of the people in the neighborhood are making three times as much as I am?”
Actually, I suspect it goes much deeper than income alone. In the 1960s, we had an economic system where most people didn’t just have similar standards of living, they also had similar economic prospects. Stable, long-lived corporations dominated the economic scene. You got a job out of high school (or college) and moved up the ladder. You could expect to have modest means as a young person, increasing steadily as you aged. Most of your friends, relatives and neighbors would be on a similar track.
Then came the 1980s, and the great dislocation that smashed the old corporatist order. A combination of globalization and competition, neoliberal policy and technological change knocked the old corporate ladder out from under the feet of American workers. Economic life now is more like a game of Super Mario, where you jump from platform to platform and grab whatever coins you can. And if you miss a platform, you fall.
Actually, I’ve lived in a middle-class society. When I was in Japan 10 years ago, it was still the case that many people worked in one corporate job for their entire life, and most of those workers were generalist “salarymen” instead of specialized employees.
Instead of asking “What do you do?”, as Americans do, Japanese people would ask “Who do you work for?” That was all you needed to know. There was a great feeling of economic sameness. That feeling of sameness defined the Japanese middle class.
Of course, that cozy, predictable world was already on the way out. A combination of technological change and increased competition from China and South Korea has forced Japan to adopt policies that look more and more like Ronald Reagan’s. Corporatism is disappearing there, and with it will go the great Japanese middle class.
So the idea of the middle class is dead. There is no going back in our lifetimes. We need to find a new way of thinking about broadly shared prosperity.
Noah Smith is an assistant professor of finance at Stony Brook University and a freelance writer for a number of finance and business publications.