Barry Ritholtz analyzes the annual Census Bureau report on consumer income and describes some trends. This confirms what I'm seeing in the Atlanta area.
Source: The Big Picture: The Disconnect and Economic Classes.
I find two elements of this to be utterly fascinating: The diminishing Middle Class, as well as the rise of the Ultra-Wealthy:
1. The diminishing Middle Class A large population occupying the economic strata between the rich and the poor is a relatively recent -- and potentially fleeting -- post-war phenomena. There have been merchants and craftsman for thousands of years, but they were much closer in lifestyle to the poor than the rich. On a scale of 1-10, with the poor at 1 and the rich at 10, I'd put this group at a 3. It wasn't until the post WWII period where the middle really moved towards, well, the middle, occupying a range from 4-6. (These #s are not quantifiably derived -- they are rough estimates).
I wonder if today we are at the onset of this group becoming a considerably smaller. Think about the jobs that used to pay a comfortable wage + benefits, from manufacturing to postal workers, that are going away or getting downsized or simply replaced by technology and/or the private sector.
Consider also the reasons why GM and Ford have such competitive legacy problems -- they are competing against Korean and Japanese companies who's government pays for many of the expenses of their rising middle class -- healthcare, child care, retirement accounts, etc. And the competition from Chinese firms is so intense because their workers are willing to accept wages that moves them from the 0/1 range on the 1-10 scale to a 2-3.
Some Americans have adapted by throttling back their lifestyle -- in effect becoming lower income. Others have gotten the entrepreneurial spirit, started their own gigs, and moved further upstream. But for the most part, the middle class is getting squeezed smaller, with each end of the bell curve distribution moving (up or down) into the adjacent class.
My fascination with this is how it impacts consumer spending and the comapnies affected by that.
2. The Ultra-wealthy have always been around -- Rockefeller, Carnegie, Frick, Guggenheim, etc. What's so intriguing to me about this is how the Ultra-Wealthy class has expanded wildly over the past 20 years, thanks to a combination of 3 elements: a) a technological meritocracy; b) a readily available method of cashing out the benefits of that meritocracy via options and the stock market; c) a significant drop in the highest tax brackets.
Even without the Market, Bill Gates would have been a billionaire. He made money the old fashioned way -- monopoly profits ala the Rockefeller or Carnegie model.
But think about all the other players who are Billionaires w/o the advantages of a monopoly: Steve Jobs, Larry Ellison, Jeff Bezos, Meg Whittman, Scott McNealy, John Chambers, The Yahoo and Google Boys, Michael Dell, Mark Cuban, Andy Grove -- and thats just tech. I haven't even mentioned all the telecom Billionaires. The past few years gave the major insiders of the home builders an opportunity to cash out -- and they have been doing so in droves, entering that rarified group. That's before we get to the Real Estate moguls, the Hedge Fund billionaires, or the big entertainment money.
I'm guessing that there are more people in the U.S. with a net wealth in excess of 250 million dollars (inflation adjusted) than ever before. Thats truly astonishing. And given my fascination with multiple variables, I wonder if the same underlying factors are the root cause of these changes (i.e., globalization and the maturing of capital markets) -- or if there is any sort of a causal relationship between the two (I doubt it, but good luck trying to quantify it).
Interesting observations. It's all a part of the de-Americanization of America. When was the last time you heard about a "middle class" in a non-democratic country?
Posted by: Dave Hill | February 15, 2006 at 11:03 PM