Wednesday, December 7, 2011

Shrinking Middle Class-- Two Directions

As we are constantly reminded the Middle Class has been shrinking significantly. True enough and it is a real problem, but what is the complete consequences of the skrinkage?

I read an article buried on page 15 of the Wednesday, November 16th, New York Times. The headline was "Middle -Class Areas Shrink as Income Gap Grows".

The article told a very interesting story beyond the headline. Based on a study done by Stanford University, the percentage of neighborhoods that were middle class had dropped from 65% to 44% since 1970.

We've heard similar things like that a lot before. I assumed that a shrinking middle class meant that those in the middle class were dropping out of the middle class, and by "out" , I assumed "down". By the way, I conducted a little informal poll, and those who I asked about what is meant by the middle class shrinking all said that people had drop out of it by going down in income.

As it turns out not everyone who left the Middle Class went down.

Roughly 50% of those no longer in the middle class had actually gone "up" and were no longer middle class because their incomes increased, and they moved "up" not "down".

Unfortunately more than 50% who left the middle class did move down.

Based on that report from Stanford, the percentage of affluent Americans actually rose from 7% to 14% since 1970; while the percentage of lower income Americans also increased from 8% to 17%. Both essentially doubled. Clearly the gap between the "haves" and "have nots" is growing more acute, but it's growing both ways.

Now I understand where much of the apparent growing affluence came from in the midst of otherwise economic decline.

Make no mistake about it, the growing income inequality gap is a serious and potentially dangerous problem. It is not healthy to be a society sharply divided betweeen "haves" and "have nots".

I have addressed solutions in a previous post, but at least the reasons for the shrinking middle class are not all negative, as I, and I assume most, have been lead to believe.