June 5th, 2008 by Rightsideup

You’ll have to forgive me my fascination with the middle class and bear with me a little longer. After reading yet another article about how we’re all worse off, I was prompted to go and read a little more about definitions of the middle class on Wikipedia.

Firstly, on that article. The focus is the statistic that Americans are “$1.7 trillion poorer” over the last quarter. Of course, this refers not to income but to assets, and the primary impacts are the decline in house prices and the decline in the value of stocks, mutual funds and so on:

The value of real estate assets owned by households and non-profits declined by $305 billion, while financial assets fell by $1.3 trillion, led mainly by a $556 billion drop in stocks and a $400 billion decline in mutual funds.

In other words, these are all declines that don’t really affect people’s spending money, as it were, since they’re assets that tend to be held for long periods of time. This drop is 3% of the previous quarter’s total wealth, but:

The first quarter’s decline follows a $530 billion drop in wealth in the fourth quarter of 2007. Until then, net worth had been rising steadily since 2003, climbing nearly 31% over those five years.

In other words, because these assets are held over long periods of time, the drop this quarter (and even several like it) are unlikely to have a significant impact over time. And of course, although this decline is painted as making “Americans” poorer, you can bet that if the trend was going the other way, and “Americans’ wealth” was increasing, the focus of the article would be on the fact that these gains were affecting only the wealthiest segments of society.

Wikipedia and the Middle Class

But I digress. Back to Wikipedia and its articles on the Middle Class. The main article is here. It seems to have been written partly (perhaps even mostly) by someone with mostly experience of the British class system (close to my own heart, certainly, but not that relevant to the current question). There is some interesting stuff there, but it mostly reinforces my own sense, that:

Social hierarchies and their definitions vary. There are many factors that can define the middle class in a society, such as money, behaviour and heredity. In many countries, it is predominantly the amount of money that determines an individual’s position in the social hierarchy. In other countries, social factors may have as strong an influence. These factors include education, professional or employment status, home ownership, or culture.

But, there is a separate article specifically on the American Middle Class here. This is longer, more scholarly (Wikipedia approves much more of the numerous footnotes in this one) and focused on the American experience. What strikes me about this article and also a Congressional report referenced in the first one which can be found here, is that, whereas in other countries, definitions of the middle class often encompass many factors, one of which may or may not be income, income is the primary driver of class distinctions in the US. Most studies attempt to define the middle class as being essentially synonymous with middle income, with the debate centering on how big the middle should be (the middle quintile, the three middle quintiles, etc.).

If you do take that approach, then of course the idea that the middle class is being squeezed, or changing size to any extent at all, is absurd – the number of people who are above or below average never changes, and the middle is always the middle. Only under more sophisticated definitions of class structures does this make any sense at all (though even there it’s clear that if the middle class is shrinking, it’s because some of its members are successfully climbing, not descending, the social ladder). Some of the more sophisticated definitions, which seemed to be embraced more by academics than politicians, involve the type of work someone does or the level of education they have attained. This, of course, takes away the “grading on a curve” element of class structure – it’s not possible for everyone to be above average, but it is at least theoretically possible for everyone to achieve high levels of education or to work in professional occupations.

For all Lou Dobbs’ bloviation on the topic of the shrinking middle class or the squeeze on the middle class, most of the evidence suggests that it is perfectly healthy, static in size according to some definitions and only shrinking because its members are getting wealthier according to others. There have been periods in the past when the middle class has shrunk because its members are becoming poorer in relative terms but this isn’t one of them. Of course, there’s the issue of relative incomes, which studies show is actually almost as important as absolute incomes, but that’s probably a topic for another time. And the idea that there is some kind of “gap” emerging between the very rich and very poor is particularly absurd. Depending on the definition of the middle class used, it encompasses somewhere between 45% and 60% of the population, which can hardly be called a “gap.”