Where did your middle-class customers go? | Hacker News Reader

Where did your middle-class customers go?

chicagobusiness.com

32 pointspetethomas31 comments

You can be pretty much sure that any article that discusses the 'middle-class' is politcally motivated. It's ill-defined and redefined for any purpose. The term 'middle-class' is practically meaningless, except as a mechanism to cause the reader to identify with the the group supposedly being victimized. It's purely an appeal to ethos and pathos.

That top 5%? Thats us. Never forget it. http://en.wikipedia.org/wiki/Household_income_in_the_United_... A couple who lives together making 75K each are in the top 5% of household income in the US. That's not even an incredibly high programmer salary. So as to where did your middle class customers go? Hacker News.

As to why the top 5% have so much wealth, well it's by starting early.

A year after I got out of high school I had a techsupport job for 36K / year I was making on par with my parents who had 25-30 years experience each, 3 years later and I was no longer a renter. Starting early and building a nice egg early on allows you to take advantage of compounding interest. I had a house at the time that most people were getting out of school with a pile of debt.

People in North America have a tonne of disposable income, look at McDonalads, Starbucks, etc. They do very good business trading on disposable income (consumer surplus). You don't need either of those companies, you can make a coffee/burger yourself and save a pile. In fact you can make yourself a fairly decent retirement for a latte a day.

That is indeed us.

Why we have so much wealth is due to broader economic factors. Add up robotics, automation, outsourcing, there really isn't a role for middle class labor anymore. You're either programming the machines or you're working at wal-mart. Which is all kinds of medium-long term concerning once you start wondering what happens when there's no middle class anymore.

If you're programming because you like it (most of us), then you're just lucky to be where we are. I'd still be doing it if it paid crap, it just so happens that it pays extremely well right now. Don't let it go to your head :)

> In fact you can make yourself a fairly decent retirement for a latte a day.

not really. $3 * (40*365) = $43,800. in order to save $1M over 40 years, you need to save $2083 a month. and $1M is not a glorious retirement.

You're forgetting the magic of compound interest. At 5% annually, $3/day comes to more like $137k. For $1M you need to save $655/month at 5%.

You forgot that your wealth compounds.

The article makes a major flaw. It equates income with consumption, assuming that if people are not earning money, they are not spending it. This assumption is utterly false.

ftp://ftp.bls.gov/pub/special.requests/ce/standard/2009/income.txt

Households earning $39,999 or less tend to have consumption exceeding income. For example, households with income in [$5000,$9999] tend to consume about $18k.

Presumably the difference between earned income and expenses is made up for with credit and welfare.

Presumably the difference between earned income and expenses is made up for with credit and welfare.

umm, why would credit and welfare not be counted as income?

Credit is (presumably) just a future income. And welfare is very real current income.

When the BLS and other government agencies talk about "income", they generally mean "earned income". Welfare is not earned income, neither is credit.

ok, thanks.

I don't agree with the article's cut off point that $50k household pre-tax income is middle class. 2 parents, 2 kids making $50k is $36k after tax. Mortgage on a small house is $1800/month. Cars are expensive too, add $400 a month for payments on that. Food prices have doubled the last couple years.

Average family can't afford health care ($12k/yr cost for 60% coverage plan for 2 parents 2 kids according to Congressional Budget Office), housing and food on that income.

Indeed,

I don't think you can judge comfort level or disposable income by raw income level very well regardless.

I have a friend who grew up in relative poverty. Her family had ten kids closely spaced together including twins. Her father made $150k/year with no benefits and her mother was a house-wife.

I had things a good deal easier just because my parents only had two kid even though their income was less.

Food prices have doubled the last couple years.

No, they are up 6.7% since Jan 1 2008.

http://research.stlouisfed.org/fred2/series/CPIUFDSL

Food prices have risen twice as much as inflation. So, no, they haven't doubled, but their rate of increase has outpaced the rest of the economy. And with wages stagnating in relationship to inflation, this is a cause for concern.

Inflation over the same period was 4.1%.

http://research.stlouisfed.org/fred2/series/CPIAUCSL

So no, not "double inflation" either.

Wages and salaries went up 4.9% over the same period.

http://research.stlouisfed.org/fred2/series/ECIWAG

So no, not "double inflation" either.

Alright, 163% of inflation, if you prefer to be pedantic.

Wages and salaries went up 4.9% over the same period.

As always, this only shows part of the story. This is the average for wages and salaries for private industry workers.

If you look at median household income, it's stagnated.

http://economix.blogs.nytimes.com/2009/09/10/a-decade-with-n...

Median household income in 1998 was $51,295 (adjusted). Median household income in 2009 was $50,303.

So we are seeing a stagnation of income, adjusted for inflation. On top of that, food prices are increasing 163% faster than inflation. Now you can post links to isolated stats, and attempt to handwave away the issue, but it is an issue, and each year that food prices eclipse inflation builds towards increasing social and economic problems for those in lower income brackets.

If food prices increased 6.7% (which, BTW, is a lot less than 100%, the number bugsy claimed), but CPI only increased 4.1%, that means other goods and services must have increased less than 4.1%.

You have now changed the reference period, and you are also looking at a different quantity. Wages and salaries have actually increased 28% since 2001 (data doesn't go back to 1998). See my previous timeseries.

Household income is a separate quantity - it can be raised or lowered by a variety of factors. For example, it can go down as household size decreases or as per-household hours worked go down. That's not the same thing as a wage decrease.

Also, your time period seems a bit cherry picked - you are comparing the top of the last bubble to the bottom of the current bubble.

In terms of income, I'm talking about medians, you're talking about means. If you want a solid indicator of how prices and wages affect people, I would suggest looking at the median values, which are not skewed by wealth disparities.

Also, you have to take certain factors in to account, such as the utility of the purchases in determining the effects of food prices eclipsing inflation. DVD players may have gone down in price, but that doesn't help much when you need to eat.

Also taking into account stratification in food quality (as mentioned above), availability, etc. is also important.

No, I'm talking about a wage index. It attempts to measure wages, while ignoring factors like hours worked, jobs worked, etc. I.e., if I quit my job as a trader and get a job as a bike messenger, wages haven't gone down in either profession.

Just so you know food prices as a percentage of income are actually down from the 1950s-1960s heyday of the middle class. Food prices in industrialized nations are a red herring. It's the difference between eating beef and eating pork. If it's really a big deal go to a fruit & veg store that sells Grade B instead of Grade A, you'll find the price difference for a few more spots on your Apple to be quite amazing.

Food prices are an issue in developing nations, in North America it's just a political talking point designed to conjure up images of starving children used to justify 'farm aid' most of which ends up on Park Avenue.

http://www.newwest.net/index.php/city/article/farming_park_a...

Most malnutrition in North America is caused by diet choices and not the inability to afford food. Food prices are increasing because there was a huge bubble of cash which we are trying to reinflate, food is the new housing. Look at commodities which do not trade on a futures exchange, they haven't risen in price. It's pure speculation that people will pay more for food than they currently are. If it's really an issue then perhaps the US could stop putting 25% of it's corn production into the gas tank.

Also, the CPI is rigged to present the picture that massive inflation isn't an issue in the US. If you believe the CPI is an accurate reflection of inflation in America I've got a bridge to sell you.

I greatly disagree it's a mere talking point. True, it's very difficult to starve in the U.S., but that shouldn't even be a baseline consideration for anyone, let alone a first world country, let alone the wealthiest country in the world.

Many health issues in the U.S. are caused by the inability to afford healthy food. Not the organic, grass fed stuff at Whole Foods, just even moderately healthy food.

Subsidies for ethanol aren't helping, but the problem is much greater than that.

Here's a great map outlining food deserts in the U.S., a major issue in nutritional health and related directly to poverty and health issues.

http://maps.ers.usda.gov/FoodAtlas/foodenv5.aspx

How do you define healthy food?

When I started my startup I went from 91K to ~20K, I've never eaten so healthy in my life. Why? Because frozen convenience foods are all out of my price range! I can't afford to go to McDonalds, etc.

What do I buy?

For meat? Whatever is on sale, I've learned to do miraculous things with cheap food, I downloaded a bunch of kitchen nightmares and watched how Ramsay showed them how to make great meals for cheap.

For veg? Concentrate on lettuce, carrots, frozen corn, peas, etc. Also, do local farmers markets. I can't say enough for buying in season. Lots of apples as well. I stay away from anything tropical as it doesn't seem to last that long.

Staples / Starches? Potatoes, rice, some pasta

I'm particular about how I spend my money and focus on finding the absolute largest sizes available. I'm buying whole pork shoulders for about half the cost on hamburger. Take it home, cut some of it up into a roast, some into steaks, all the stuff that doesn't look so great goes into the grinder. Ground pork goes nicely into chilli

Then I bought 20KG of flour and some yeast and have been making my own bread. A loaf of bread costs me something like 20 cents. Yes, there are labour costs but I'll take Sundays off and make a tonne of food for the rest of the week. Bread is especially good once you figure out how to par bake it and freeze it. In my fridge I've got shepards pie, beef barley soup, and chili, white bread, oat bread, whole grain, etc. Some of that mine, some of it cooked by my girlfriend. If you were to just make bread you'd kill your whole Sunday but I've got 3 or 4 things on the go at once. Chilli, soups, etc. It's also a great distraction and gives me time to be social.

The key is to buy in volume, make a lot of something all at once and put it in the fridge / freezer. Or buy foods that naturally keep for long periods of time. When I buy rice it's 25 KG, same with potatoes, I just put them in the cold part of my house.

I'd really like to eventually do a book called The Startup Diet.

It depends on how you eat. In my efforts to lose weight and get more healthy in general, I shop mostly along the outer edges of the store (produce/meats).

In these areas, prices have shot up way beyond 6.7%. Onions and potatoes are easily up 100% or more since 2006/7. "Cheap" cuts of meat like chicken, roasts, pork chops, skirt/flank steaks and beef briskets are easily up 15-20%. Milk is up. Butter up 150% of more since 2006/7. Beer is up 10%.

If you eat processed stuff, those manufacturers can blunt price increases by using lots of subsidized commodities like corn and soy products.

If you eat processed stuff, those manufacturers can blunt price increases by using lots of subsidized commodities like corn and soy products.

I think this is an important factor to consider. In many ways, this stratification simply offsets the costs into health issues later in life.

Those feds number are cooked. They replace steak prices with hamburger prices and say it is the same thing to show there is no inflation, while they have the printing presses running 24/7.

Food prices have doubled based on the receipts I enter into Excel. Everyone should do this and find that the Fed's numbers are totally fraudulent. Knowing this, you can then make better business decisions, such as to get rid of cash as fast as you can.

They replace steak prices with hamburger prices

This seems like the sort of thing they can only do once. Just curious, do you know when they did this?

As for my food expenses, month to month variation is bigger than any increase. Which is surprising, seeing as I've been actively trying to eat more for the past year. But I guess healthy food is cheaper than the crap I was eating two years ago.

I was curious so I googled it and found this: http://www.shadowstats.com/article/consumer_price_index

Apparently it happened early in the Clinton administration.

Quoting: The Boskin/Greenspan argument was that when steak got too expensive, the consumer would substitute hamburger for the steak, and that the inflation measure should reflect the costs tied to buying hamburger versus steak, instead of steak versus steak. Of course, replacing hamburger for steak in the calculations would reduce the inflation rate, but it represented the rate of inflation in terms of maintaining a declining standard of living. Cost of living was being replaced by the cost of survival. The old system told you how much you had to increase your income in order to keep buying steak. The new system promised you hamburger, and then dog food, perhaps, after that.

Right, the steak/hamburger is one of the well known examples and certainly not the only one nor is it an isolated example. It is the way things are done; cooking the books is the official state policy. The adjustments are done across the board and have resulted in massive "savings" (more money for war yay) regarding Social Security payments and such that are indexed to their official inflation rates.

$50K is listed as the absolute lower bound for middle class. Any lower bound is debatable, but it's about right when there are almost as many that don't fit as do. Many households at $50K aren't middle class, as you demonstrated, but there are lots of households with $40K of income that could be considered middle class. Most single guys/ladies with $40K of income are probably solidly lower-middle class. And families with an $600 mortgage payment instead of an $1800 mortgage could also be considered middle class at $50k. And with current interest rates (3% floating), $600/month will buy half of the houses in the midwest because $140K is the median house price in the midwest.

Considering the article cites Census data broadly collected across the country - not sure where you are getting those mortgage/food price numbers?

$1800 would buy you a 5 bedroom/2.5 bath/2400sf house in Houston.

A "small" house for a couple making $50K gross would run easily under $1000/mo.

While prices are higher, I'm not paying double over 2008 prices....otherwise I'd be paying $6 for a gallon of milk or $4 for a loaf of bread.

> Mortgage on a small house is $1800/month.

$1800/month is a >$300k 30 year mortgage.

> Cars are expensive too, add $400 a month for payments on that.

That's absurd.

It's not hard to stay well under $20k new and used is even cheaper.

Keep it for at least 7 years and $400/month is two cars and change.

Safe to say that anyone carrying an iPad while talking on an iPhone sipping a Starbucks is middle class.

In many, ways middle class is better defined as access to disposable income (at least from a marketing/retail perspective). What defines disposable income varies at all income levels, regions, social situation, etc.

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