The Upper Middle Class Is Getting Squeezed
wsj.com
wsj.com
The real story is that the “upper middle class” played too fast and loose at the top of the longest bull market in decades and now reality is setting in.
Here in Phoenix, $127k is about the household earning you need to afford a 4 bedroom home ~500k/~2500 mortgage). I wouldn’t consider that an upper middle class lifestyle.
Maybe I’m just out of touch with the situation but 75k for a household seems like borderline poverty.
averages: georgia 61980 tennessee 54665 alabama 51734 south carolina 56227
now, people with these incomes would have a house and a car or two. they would shop at regular stores and do more or less okay until quite recently with inflation. to put this in a more real sense, in several of these states, you could until 2019 find large (around 1300 sqft) two bedroom apartments for less than 1k/mo if you left major cities out of your search. if you wanted to buy a home, you could get one at around 2000 sqft for less than 200k.
I find it more useful to talk about “security” than “class”.
Are you or do you feel secure in your ability to secure shelter? Water? Food? Transportation? Land? Education? Healthcare? Retirement income? Vacation? Disability income? Legal services? Ability to give friends and family money? Permits and political access/favors?
I doubt any household with $75k income in the US is securing their retirement, or even healthcare.
Sure, that works, too. Throws the rhythm off, though.
Upper middle class -> selects their car or children's education (5, sometimes just brushing 6, figure stuff) to project an image to others in their class
Middle class -> selects their clothes and consumer goods (2-3, occasionally 4 figure stuff) to project an image to others in their class
Roughly speaking, of course.
https://en.wikipedia.org/wiki/Middle_class#/media/File:Globa...
Upper middle class: has a job and alternate income source, doesn't even consider not taking a family vacation
Middle class: has a job, doesn't worry about root canal or car repair, saves money for a family vacation
Lower middle class: has a job with healthcare, barely past paycheck to paycheck
Below that: has multiple part time jobs or full time hourly position, each check is already spent
https://www.statista.com/statistics/203183/percentage-distri...
> I wouldn’t consider that an upper middle class lifestyle.
I don't know that the conceptual upper middle class lifestyle actually matches the reality anymore. I think that's true of most quintiles. The upper middle class lives like the middle class used to, the middle class lives like the lower middle class used to, etc.
That "upper middle class lifestyle" upshifted and is the domain of the lower rungs of the top quintile now.
Are they using adjusted numbers perhaps? Adjusted to what? Ahh... The non-paywalled article uses "middle income" the moment it starts giving numbers, so the title is click-bait.
Mean inflation from 2000-2021 (last year on record) was ~2.24%, including a 4.7% increase in 2021.[1]
$50k inflated at this rate would be approximately $80k.
I'm sure others are more qualified to discuss implications, but consider that while inflation erodes nominal purchasing power, it cannot account for effectively deflationary impacts of technology (for an example, see[2]). Of course, we cannot eat technology, at least not exactly; so we probably want to look at metrics related to how easy it is to live. It might be worth looking at cost per calorie, for example, or for commonly-available proxies (e.g., fast food prices).
[1] https://www.usinflationcalculator.com/inflation/historical-i...
[2] In 1999, hard drives were sized in the hundreds of megabytes and cost more than they do today. See, i.a., https://en.wikipedia.org/wiki/History_of_hard_disk_drives#20....
Oh, for sure: inflation is challenging to measure, and it probably isn't very descriptive for a lot of common situations. (I think the Consumer Price Index is an attempt to help solve this issue. CPI compounded about about 2.1% per year between 2000 and 2021.[1,2] The CPI includes measures of rent, but it also adjusts for seasonal changes.[3])
Inflation and CPI both obscure a lot of ground-level realities for people--the nature of all summary statistics is that they fail to capture the totality of reality in favor of giving us a broad sense for what's going on. Anecdotally my folks moved after their rent increased by 50% when their lease expired. (That was last year.) These are obviously nontrivial increases that have dramatic impacts on people.
[1]: https://www.rateinflation.com/consumer-price-index/usa-histo...
[2]: (270.97/172.2)*(1/22.) ≈ 1.021
[3]: https://www.forbes.com/advisor/investing/cpi-consumer-price-...
They don’t make for sympathetic victims, but fortunately the WSJ has never been averse to changing facts to fit its narrative.
> After accounting for the effect of other economic variables, we find a negative correlation between long term inflation and income inequality for low inflation rates. The results suggest that this link turns positive for higher inflation rates (i.e. above a threshold that we estimate at an inflation rate of 13%). These results are in line with other previous studies, which also find a U-shaped relationship between inflation and income inequality (Galli and van der Hoeven, 2001, Bulir, 2001, and Auda, 2010). However, they contradict the strong and widespread belief that inflation hurts the poor more than the rich and thus increases income inequality.
https://thehill.com/changing-america/respect/poverty/3572806...
And we know wage growth for the poor unemployed is far below current inflation levels.
It's also an odd argument for a supply-failure-induced inflation spike. Fiat currencies just have a hard time dealing with that kind of thing--such situations come dangerously close to making people realize the currency is literally worthless because all you have is this weird paper when you want gasoline. The bug isn't a bug, it's the system working as conceptualized (printed money = the stuff/services you can buy with it).
The question is: why aren't wages also thought of this way? I don't really care that I make N dollars. I care that I can buy N gallons of gas. Unions sought to make that a reality in the 70s, perfectly reasonably, and we've let conservative economists make that the boogie man.
I think a fair counter argument here is "if there's less stuff, we can't guarantee that your wages will always let you get N% of it", but my rejoinder here is why are wages the first thing on the chopping block? It seems like we have a lot of other areas to trim first, but our immediate reaction is "lower wage power by not pegging them to CPI, and raise unemployment by raising interest rates", both of which workers bear the brunt of. That strikes me as pretty unfair.
Depending on how you define "wage", there might be a 3rd category as well: government-provided benefits. E.g., social security, food stamps, tax credits, etc. My impression (very well could be wrong) is that there's often a lag between true inflation and adjustments to those benefits.
You could go write for the WSJ - they need more hot takes about why rich people getting poorer is actually a tragedy.
If you converted into other assets, whose price floats against the currency (stock, real estate, metals, art), the price is affected by the floating, but that floating can protect you against inflation as well. You can lose without inflation as well, the risks are different.
If you have that in foreign currency, you are damaged by their inflation, but not necessarily by domestic one.
And now back to your point: who do you think has the resources, that can be held in non-liquid form, convert back as/if needed? Rich or poor?
Those debts are at such high interest rates that inflation and rate hikes have little bearing relative to how much it already costs to sustain them.
By contrast, wealthier people mostly have mortgage debt, backed by real estate as collateral. Those are at much lower interest rates and benefit from inflation.
> After accounting for the effect of other economic variables, we find a negative correlation between long term inflation and income inequality for low inflation rates. The results suggest that this link turns positive for higher inflation rates (i.e. above a threshold that we estimate at an inflation rate of 13%). These results are in line with other previous studies, which also find a U-shaped relationship between inflation and income inequality (Galli and van der Hoeven, 2001, Bulir, 2001, and Auda, 2010). However, they contradict the strong and widespread belief that inflation hurts the poor more than the rich and thus increases income inequality.
Until the causes of the correlation is better understood, it could as well just an error in the model.
A lot of people who though they were "comfortably rich" in the last couple of years are having a bad wake-up call that their loan interest or income was not as predictably favourable as they imagined.
This is probably not the same thing as "being squeezed".
That is what is known as a "mistake". It happens and one day it could happen to you, so don't laugh at the people going through it. None of us should be smug about it or do the "don't invest money you don't have" etc.
What I take offense to in this article is the passive voice around it where "they get squeezed" instead of "I lost money".
The same applies if you took a margin call in the last 6 months after borrowing against $AMZN and buying BTC with it. Does it suck, YES. Worse, you could owe the IRS money for the margin call sale.
All of that said, there was a specific video that this guy reminded me of from "How Money Works".
https://www.youtube.com/watch?v=_INmFnlp-hU
It specifically called out "Own a bunch of properties" as a "Buying yourself a new job", rather than being comfortable.
Alternatively, it’s called “risk management” and people with conservative risk management feel the urge to laugh in the bad times because those with liberal risk management are often not afraid to brag about it during the good times.
Conservative: marked by moderation or caution
https://www.census.gov/library/publications/2021/demo/p60-27....
It is probably at the median household income now.
That said, the example person they used isn't really paying for insane overextension - especially assuming rates are fixed and pre-rate-hike. He's paying because his living margins and costs are more impacted by inflation than his real-estate costs and now the cost of living margin he expected to be relatively stable is going away.
I get that the SF Bay Area is its own little universe, but what? You're borderline homeless on that income.
These people are making probably 200k with a working spouse. They’re in the same salary bands as local doctors and attorneys. Quality of life based on income is very different in middle America.
How is this person getting “squeezed”? He isn’t. People just get greedy when the stock market goes up and then they overleverage and tell themselves they’re on the cusp of getting rich.
Investor psychology makes people take riskier bets when they see the number in their account go up, despite every investment book explaining why you should do the opposite and derisk during a mania.
A squeezed upper middle class is good for the climate. Squeeze away, I say.
This is what both parties have been doing for decades with no exceptions. It's time to stop playing tribal games.