Analysis: The Middle Class is changing, shrinking

In President Obama's State of the Union speech, he said that America had "turned the page" on crisis and should now devote itself to "Middle Class economics." He also said that "middle-class economics works" and "these policies will continue to work, as long as politics don't get in the way."

How have they "worked"? Have the numbers of Americans living a Middle Class lifestyle increased? Do those in the Middle Class have it easier than before?

Not so fast, Mr. President. The facts are, that the Middle Class has been shrinking for 40 years and the very definition of who is "Middle Class" has undergone a big transformation.

New York Times:

“Middle-class economics means helping working families feel more secure in a world of constant change,” Mr. Obama told Congress and the public on Tuesday.

Still, regardless of their income, most Americans identify as middle class. The term itself is so amorphous that politicians often cite the group in introducing proposals to engender wide appeal.

The definition here starts at $35,000 — which is about 50 percent higher than the official poverty level for a family of four — and ends at the six-figure mark. Although many Americans in households making more than $100,000 consider themselves middle class, particularly those living in expensive regions like the Northeast and Pacific Coast, they have substantially more money than most people.

However the lines are drawn, it is clear that millions are struggling to hang on to accouterments that most experts consider essential to a middle-class life.

“I would consider middle class to be people who can live comfortably on what they earn, can pay their bills, can set aside something to save for retirement and for kids in college and can have vacations and entertainment,” said Christine L. Owens, executive director of the National Employment Law Project, a left-leaning research and advocacy group.

The dynamics of American society are unlike those anywhere else. People are constantly moving up and down the economic ladder, falling in and out of the Middle Class. The definition given by the liberal above is meaningless - especially in big cities in the northeast and on the pacific coast. In those areas, "living comfortably" means making well into the six figures so that you can afford a house. Setting aside money for college, retirement, and a yearly vacation is practically impossible unless you make north of $150,000 a year.

The real measure of Middle Class is in wealth - equity in a home, a solid financial foundation investing in mutual funds, including IRA's. But the housing and financial meltdowns destroyed much of that wealth, leaving a lot of people hanging on the edges of the Middle Class, hoping for a rebound.

But beyond definitions of what constitutes the Middle Class, there has been a change in the demographics of who is Middle Class:

In recent years, the fastest-growing component of the new middle class has been households headed by people 65 and older. Today’s seniors have better retirement benefits than previous generations. Also, older Americans are increasingly working past traditional retirement age. More than eight million, or 19 percent, were in the labor force in 2013, nearly twice as many as in 2000.

As a result, while median household income, on average, has fallen 9 percent since the turn of the century, it has jumped 14 percent among households headed by older adults.

The growing prominence of older people in the middle class reflects, in part, the way Social Security and Medicare — originally set up as safety nets to protect seniors from falling into poverty after retirement — have provided a substantial cushion for them against hard times.

Social Security and Medicare have become Middle Class entitlements - a big change from when they were intended to act as a safety net. And the changes to those programs have put an unsustainable strain on government financing to the point that they are both headed for insolvency in the next 15 years.

If older Americans are becoming a larger segment of the Middle Class, it's likely to shrink further as efforts to save both Social Security and Medicare necessarily involve some kind of reduction in current benefits.

There is no shortage of ideas on what to do about the shrinking Middle Class from the left or the right. Redistribution won't work. What we need is a path that we can follow to create more and better jobs so that today's young people can begin to build wealth and enter the Middle Class with some sense of security and optimism.

Relying on government to provide that is foolhardy.

In President Obama's State of the Union speech, he said that America had "turned the page" on crisis and should now devote itself to "Middle Class economics." He also said that "middle-class economics works" and "these policies will continue to work, as long as politics don't get in the way."

How have they "worked"? Have the numbers of Americans living a Middle Class lifestyle increased? Do those in the Middle Class have it easier than before?

Not so fast, Mr. President. The facts are, that the Middle Class has been shrinking for 40 years and the very definition of who is "Middle Class" has undergone a big transformation.

New York Times:

“Middle-class economics means helping working families feel more secure in a world of constant change,” Mr. Obama told Congress and the public on Tuesday.

Still, regardless of their income, most Americans identify as middle class. The term itself is so amorphous that politicians often cite the group in introducing proposals to engender wide appeal.

The definition here starts at $35,000 — which is about 50 percent higher than the official poverty level for a family of four — and ends at the six-figure mark. Although many Americans in households making more than $100,000 consider themselves middle class, particularly those living in expensive regions like the Northeast and Pacific Coast, they have substantially more money than most people.

However the lines are drawn, it is clear that millions are struggling to hang on to accouterments that most experts consider essential to a middle-class life.

“I would consider middle class to be people who can live comfortably on what they earn, can pay their bills, can set aside something to save for retirement and for kids in college and can have vacations and entertainment,” said Christine L. Owens, executive director of the National Employment Law Project, a left-leaning research and advocacy group.

The dynamics of American society are unlike those anywhere else. People are constantly moving up and down the economic ladder, falling in and out of the Middle Class. The definition given by the liberal above is meaningless - especially in big cities in the northeast and on the pacific coast. In those areas, "living comfortably" means making well into the six figures so that you can afford a house. Setting aside money for college, retirement, and a yearly vacation is practically impossible unless you make north of $150,000 a year.

The real measure of Middle Class is in wealth - equity in a home, a solid financial foundation investing in mutual funds, including IRA's. But the housing and financial meltdowns destroyed much of that wealth, leaving a lot of people hanging on the edges of the Middle Class, hoping for a rebound.

But beyond definitions of what constitutes the Middle Class, there has been a change in the demographics of who is Middle Class:

In recent years, the fastest-growing component of the new middle class has been households headed by people 65 and older. Today’s seniors have better retirement benefits than previous generations. Also, older Americans are increasingly working past traditional retirement age. More than eight million, or 19 percent, were in the labor force in 2013, nearly twice as many as in 2000.

As a result, while median household income, on average, has fallen 9 percent since the turn of the century, it has jumped 14 percent among households headed by older adults.

The growing prominence of older people in the middle class reflects, in part, the way Social Security and Medicare — originally set up as safety nets to protect seniors from falling into poverty after retirement — have provided a substantial cushion for them against hard times.

Social Security and Medicare have become Middle Class entitlements - a big change from when they were intended to act as a safety net. And the changes to those programs have put an unsustainable strain on government financing to the point that they are both headed for insolvency in the next 15 years.

If older Americans are becoming a larger segment of the Middle Class, it's likely to shrink further as efforts to save both Social Security and Medicare necessarily involve some kind of reduction in current benefits.

There is no shortage of ideas on what to do about the shrinking Middle Class from the left or the right. Redistribution won't work. What we need is a path that we can follow to create more and better jobs so that today's young people can begin to build wealth and enter the Middle Class with some sense of security and optimism.

Relying on government to provide that is foolhardy.