middle class is alive and well
April 07, 2008
– Comments (10)
The rumors about the death of the middle class have been slightly exaggerated. What is the basis for these rumors anyway? Let's go over some favorite pet peeves. Expensive gas? Shrug. Is that such a big expense as some panic-stricken SUV drivers would have us believe? Let's run the numbers. In order to really bite, this higher price should take some meaningful amount out of your pocketbook. Let's say, an extra $1000 a year would be noticeable. The price of gas has increased about $1 per gallon, from 2.40 to 3.40, so in order to lose $1000, you have to spread this additional cost over 1000 gallons. A normal car should run 30,000 miles on this amount of gasoline, which is considerably more than an average driver (and perhaps an average household) should drive in one year, so for the people who buy their cars rationally, price at the pump is a lesser issue than this year's $600 present from Bush. Don't be an idiot, don't drive a gas-guzzling SUV you have no reason to own, and you'll do just fine. What else? Food? Yes, food is a big concern and it could become an important issue in the future. But for now, price increases have been relatively modest. A year ago, a family of 4 would need roughly $10,000 to buy food. This number should be something like $11,500 today (I don't believe the official 4.5%), but it should still be manageable. The median household income was 48,000 in 2006, and despite "income stagnation" complaints it did increase slightly afterwards. In practical terms, the recent deterioration of macroeconomic conditions amounts to roughly $2000 of additional expences for an average family living within its means. This is unpleasant, but it doesn't take you brom the middle class to the lower class. Nor does it have to result in reduced consumption if you counter this challenge by reducing your 401K contribution, which would obviously have negative long-term repercussions, but is perfectly acceptable for a period of 3-5 years while we're grappling with this temporary oil spike. This is where we stand today from the income standpoint. But wealth is less a matter of income than a matter of assets. Considering that house values have doubled as compared to Clinton's era of good feeling, and stock indices, which form the backbone of your 401K plan, also grew very substantially (excepting the 1999-2000 dot-com aberration), it should take middle class a higher than average level of impudence to complain about being squeezed.
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