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Tag Archives: middle class

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“What then is the American, this new man?…He is an American, who, leaving behind him all his ancient prejudices and manners receives new ones from the new mode of life he has embraced, the new government he obeys, and the new rank he holds…Here individuals of all races are melted into a new race of man, whose labors and posterity will one day cause great changes in the world.”  (J. Hector St. John De Crèvecoeur, U.S. visitor, 1782)

Today, asked “What then is the American?” we would probably answer, “Middle class.”

In an August Pew Research survey of 2508 adults, almost one-half said they were middle class. It seemed not to matter that dividing the number of US households into fifths and then looking at the middle fifth, income ranged from $38,040-$61,720 (2010). Moving beyond any valid income definition, people with more income and less said they were middle class.

Why?

This takes me back to a blog I wrote in 2010:

In a recent NPR interview, a painting contractor, an employee of Healthy Montana Kids, a man who runs a hi-tech robotic firm, and a hospice worker, all earning between $25,000 and $100,000 annually, said they were middle class.

Sort of like “Goldilocks and the Three Bears,” most Americans prefer identifying themselves as the middle class: “They don’t want to seem {too} poor, they don’t want to seem {too} rich-they want to seem like everyone else.” Why? Probably because middle class means more than income. Also, it connects to our values, our aspirations, our education, our jobs.

In a wonderful column, David Brooks identifies “middle class” as the key to our American identity. But then, he asks, as the rest of the world becomes more like us through a gigantic global middle class, how will we perpetuate our leadership and distinct identity? The answer, he says, are our middle class values. Our middle class values fuel our achievement, our innovation, and our sense of community that everyday activities like Little League embody. While Brooks cites Ben Franklin as a model, I like to remember that John Winthrop, governor of Massachusetts Bay Colony said we can be, “A city on a hill.”

Whereas we all agree that people like to identify themselves as middle class, the disagreement starts when we ask what is happening to the middle class. I hope you will take a look at these 2 links. While one focuses on whether middle class income has stagnated and the other looks at the changing size of the middle class, both show that your conclusions depend on how you interpret the statistics. Also, the August Pew Research on the middle class is here, my census statistics come from here, and the Crèvecoeur quote is from here.

Who is middle class?

 

 

 

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Decisions Have An Opportunity Cost That Require Tradeoffs

Why do Brazilians drink Coca-Cola?

Our story starts during 1990. Trying to cope with an 80% monthly inflation rate, Brazilian shoppers rushed to supermarkets early in the morning before higher price stickers replaced the old ones. In just one month, a $1 carton of eggs would cost $1.80.

You can imagine what a difference it made when Brazil got its staggering price increases under control. Purchasing power soared, the middle class grew and people bought more soda.

In a paper called, “Grab Them Before They Go Generic,” 2 researchers looked at Brazil’s new spenders. Curious about multinational consumer goods, they wondered whether demand would soar for a famous, heavily advertised brand like Coke as wealth grew in an emerging economy.

The researchers concluded that when the newly affluent started shopping, they had not yet formed a soda buying habit. If they initially bought a generic brand, they stayed with it, even when they could afford more. To get people to form a “premium habit” rather than a “frugal habit,” Coke cut its prices by 20% and according to the researchers, stopped the growth of Brazilian generics.

The paper from these 2 professors, one from Hebrew University and the other from Northwestern, applies far beyond Brazil to China, India, Turkey and Indonesia–to all emerging markets where the middle class is growing. Multinationals, they believe, should recognize the importance of shaping people’s buying habits as they develop.

If you want to listen to more about Brazil’s hyperinflation and how it was controlled, NPR’s Planet Money has a wonderful podcast. And here, The Economist quantifies the growth of the middle class in emerging economies. Finally, econlife looked at how Coca-Cola might have been too late in India for the newly affluent to form a premium habit when they selected Thums Up.

 

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Our Transportation Infrastructure is Crumbling

What does it mean to be middle class?

For a developing nation like China, income might be the key. If someone earns between $10 and $50 a day, then that person is middle class. Or perhaps you just need to be able to buy a tall macchiato at a Starbucks or a shreddded pork and seaweed doughnut at Dunkin’ Donuts. Or maybe it just means owning a cell phone or eating meat regularly.

I’ve been reading about how economists have been trying to identify the most accurate and simple way to identify the growing middle class in the developing world. One answer that made a lot of sense is “cars.”

Car registration data indicate that car ownership is soaring in many developing nations. The BRICs (Brazil, Russia, India, China) alone added 14 million cars in 2010. In China for 2010, 27 percent of all cars on the road were new registrations. If we use car ownership to estimate the size of the middle class in China, that takes us to 34.4 million passenger cars per household (averaging 3.1 people) and 106.6 individuals that might be called middle class.

Why look at the middle class? Because the middle class has been an economic growth engine, fueling small business formation, consumer spending, and market activities.

One interesting fact: There are 451 passenger vehicles per 1000 people in US while in China, the number is 27 per 1000 and for India, 10.

This Foreign Policy article is a good source for ideas that define the middle class and my car data, and then, if you want something more academic, you could continue with this OECD study. For a quick picture of the size of the middle class in different countries, this chart from The Economist is ideal.

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If you have questions about Verizon and middle class income growth,  your conclusions might depend on the questions that you ask.

My story begins with a disastrous call to Verizon Wireless. One agent left and never returned, three said they could not help me, and the fifth person, hearing I had made no progress after 45 minutes said, “An iPhone is a luxury item; these things take time.” The sixth agent, realizing my problem had an easy solution, helped me graciously and quickly.
Soon after, Verizon asked me to evaluate their service in an automated survey. Using numbers from 1 to 10 to quantify my satisfaction, I was supposed to assess the last person with whom I spoke in a series of questions. Only in a separate optional comment at the end could I tell about the other five people.
I suspect Verizon’s computers will conclude they just made another customer happy because I gave agent #6 a “10″ for every question. And yet otherwise, my experience was far from ideal.

The Verizon survey reminded me of statistics about middle class income.

Researchers disagree about how much middle class income grew from 1979-2007. Citing a 3 percent total, economists Thomas Picketty and Emmanuel Saez say there was virtually no growth. By contrast, a group of Cornell scholars says middle class income grew 36.7 percent.

A 33.7 percent difference! How? Because the answers you get depend on what you ask.

Picketty, Saez and the Cornell group had to decide whether they would ask questions about a tax unit, a household, or a family. The former two economists chose the tax unit while the latter selected the household.  Then, the Cornell group considered whether to ask questions solely about returns from land, labor and capital or to include government transfers. And after that, questions about household size become relevant because people sharing a household–even if unrelated–benefit from each other’s income through shared spending.

The Botton Line: When Verizon, Picketty and Saez, and the Cornell group looked at the answers to their questions, their conclusions were totally accurate. Who is right? It all depends on which questions you think are appropriate.

The NY Times introduced Thomas Picketty and Emanuel Saez and their ideas in a front page story. Their paper with much more detail is here. For the Cornell group’s research, an Econtalk podcast provided an excellent description and a great summary comparison chart. Gated, their NBER working paper is here.

*The first sentence of this post was edited after it appeared.

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The Per Capital Dog Population Is An Economic Indicator

In Latin America, with Brazil #1, being middle class means owning a dog.

According to the Economist, more dogs mean more pet food, “knick-knacks,” and veterinary care. Based on pet food sales, the Latin American dog to cat ratio is 6 to 1. (In Europe, cats and dogs are equally popular.) Called a “star market,” Latin American spending represents 10.2% of global pet care sales.

Broader implications? Perhaps this is not a dog story at all. Instead, we are considering the impact of higher income, increasing world trade, and economic growth on what we consume.

Thinking of past econlife posts, we can add dogs to beer, Coach purses, and pecans as economic indicators of ascending affluence.

The Economic Lesson

After we subtract taxes from personal income, the result is our disposable income. Disposable income can either be spent or saved.

In the U.S., per capita personal income in 2010 ranged from a high of $56,001 for Connecticut to the country’s low of $31,186 in Mississippi. 30.1% of all Brazilian households and 44.8% of Argentina’s households have the U.S spending power of $25,000.

An Economic Question: Using this Bureau of Economic Analysis map, explain how personal income varies in the U.S.

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