http://livingwage.mit.edu

Also look at the ratio of median income to real estate value. We are still in a housing bubble.

My household earns about 40% more than the national average, we do not live extravagantly, we budget well, and we feel barely middle class. This is ridiculous. I'm surprised there aren't riots.

If we "feel barely middle class", it's because our expectations and desires have grown faster than our means. It's not because we have less than some historical cohort.

Think about that for a minute.

Find me a corporation or an entrepreneur who thinks like this. Imagine a CEO saying this to shareholders and the board:

"We didn't make our goals this quarter, and many in our industry also showed reduced sales numbers. It is clear that we need to reduce our expectations. Next quarter's numbers will be lower, and shareholders are just going to have to take a loss."

He'd be out on his ass the next day.

Related to this is the idiotic garbage that the working class are fed by the media: that they should hate people who make good wages and agitate to cut those other peoples' wages down to be in line with their own.

Again, find me a corporation that thinks like this. Apple is currently worth more than Microsoft. Is Microsoft thinking "how can we make them make less money?!?" No. They're thinking "How can we grow? How can we make as much money as Apple is making?"

Unbelievable.

You realize that you're being sold into fiefdom on the feudal "lands" owned by the financial industry, right?

Edit: I'm not a socialist. I'm a capitalist.

Part of capitalism is negotiation. The American middle and working classes have been fed this ridiculous line of baloney that capitalism is a magical hands-free machine that will elevate their standard of living if they do nothing. It doesn't work that way, as every businessman and entrepreneur understands. You have to negotiate. You have to push. They push, and you push.

Studies have shown that the ideal point in negotiation is often precisely where both parties feel a bit, but not too, unhappy. Right now the rich and corporate interests are rolling in it, happy as clams, and everyone else is suffering. That's because one side is pushing and the other side is not.

So how do workers and professionals (whom I count as workers... the white/blue collar distinction is increasingly meaningless) push?

The old way was unions, but that's definitely shown its age. We need some new ideas.

Lowering our expectations is not a particularly productive idea.

Edit 2: I also think using government to push is fair game.

Why? Because the rich and corporations do it. They take corporate welfare, bailouts, special infrastructure investments, government contracts, and benefit hugely from publicly funded R&D.

But they want you to refuse to use the government as a lever because... it works!

So capitalists really ought to be socialists, at least for now. Only give up a lever in a negotiation if the other party on the other side of the table also gives up that lever. The rich want you to be principled libertarians while they munch at the government trough.

Uh, they do say that all the time.

I tend to agree with the other poster: our expectations are too high. It's a product of having witnessed one of the greatest runups in wealth (and debt) we've ever seen in history.

A 2500 sqft house, two (or three) cars, regular vacations to Europe or the warm south, maybe a summer house, boats, motorcycles and other toys...these things are now expected by the "middle class". It's completely out of whack with history and the rest of the planet.

So whether you choose to lower your expectations or not has no bearing on what will actually happen. We're going to have a deleveraging run where the average Westerner is, as a whole, poorer than the generation before us.

One managed to land a six-figure job in Kentucky, one of the lowest cost of living places that was largely passed over by the housing bubble. The major reason he's well-off is that his house was affordable and he went to a lower priced university and didn't need much in the way of student loans. He lives in a ~2000 sq. ft. house that cost about $175k when he bought it. Where I live that house would be $400k, and it's not even a major city. Median incomes where I live are no higher.

Another had a liquidity event. Another owns a hugely successful online company.

The vast majority -- vast majority -- of the peers I know do not live anything like what you describe. These are not slackers either. These are hard working, highly educated professionals. Many of them routinely pull 60 hour work weeks doing things like computer programming, business, marketing, and high-end interior design for wealthy clients.

I honestly have no idea how people making the median family income can live, unless they live in horrible neighborhoods or in the middle of nowhere.

I didn't say "Earth to Planet Trust Fund" just to be snarky. There is a culture of people who grew up with wealthy parents, had mostly paid for rides to places like MIT, and earn six figures, and really do have kind of a "why do they not eat cake?" view on this stuff. In my experience they're not bad people. They're just insulated and ignorant. They have absolutely no idea what they're talking about if they think their situation is anywhere near normal.

Again, public enemy #1 here is the housing bubble, which from an income/value ratio point of view is still in effect. #2 is the cost of college. The former has increased somewhat in quality since the previous generation, though not enough to justify a quadrupling (or more) in cost. The latter hasn't increased much in quality at all, but the cost has skyrocketed.

In the UK, our parents' generation paid zero. They got given grants...

That includes the elite, politician-farming universities.

The current government just tripled the fees, after one coalition partner promised to abolish them in the campaign. That's why students ended up trashing (actually the other partner's) HQ in 2010.

And, that other couple aside, we're by far the most extravagant people in our friend group (designers, developers, creative class all). Only a couple of our middle class friends own anything, much less expect to own two houses and cars.

The specter of wide swathes of middle class people who "expect" two houses and cars and European vacations is simply a strawman argument, conjured up to "prove" that these people "deserve what they get."

In 2006, 40 percent of home sales were for "second homes", with the typical buyer having a household income of $80,000.

>"tatsuke95's comment is ridiculously out of proportion"

I'm glad you think it's out of proportion, based on your personal anecdotes about your friends (except for two, but you've defined them as upper middle class, so they don't count!).

But the "wide swathes" of indebtedness, bankruptcies, defaults and deleveraging in the US says otherwise. Where have you been for the past five years? Those are facts. It occurs when people "live beyond their means", which is nearly synonymous with having too high expectations: you want more than you earn. Do you think it's the rich people living beyond their means? Is it the poor people buying cars and houses they can't afford? No, it's the middle class.

Note: the views casually related above may or may not represent the actual considered opinions of the management.

We do have the incentive. And we will extract that wealth. But it takes time, since "they" currently have the political power.

What you describe is what is happening in the real world. Reform everywhere so they get the pensions and benefits, but nobody after them will. This is happening both publicly and privately. Even unions are stiffing new members.

We'll have the last laugh, though. Eventually the boomers will need to divest. At that point they'll find out we don't have the money to buy their assets.

Hadn't thought of that. Might be quite funny...

I suppose they'll just give it to their offspring. So for now... kill rich kids? Just brainstorming here.

Much like our southern neighbours, our soon-to-be-retirees don't have much in savings, and the vast majority of their net-worth is tied up in their homes. Unlike the US, we haven't had a housing price adjustment yet. So these boomers are counting on having the current value of their home as their future retirement fund. But as we've learned, that number may as well be fairy dust until someone hands you a cheque.

So what happens when these boomers go to retire, and they find out nobody can afford (or wants) to buy their $500,000 McMansion? When every boomer actually has half, or worse, the amount of money to retire as they thought?

Goldman buys them all up at a bargain rate and rents them to those of us who can afford to not live in the global megaslum?

You are describing the upper echelon of lawyers and execs.

Also, no other Toys - I have a weight set (power rack, olympic weights, heavyweight bench, etc) that ran me 1300 brand new, other than the car and the house that is our most expensive purchase... ever. I could have sworn once we reached a six figure income we'd be "well off." I guess that is a dream.

But there were/are a generation of blue-collar, "middle class" people out there living the life I describe. I know some of them. They aren't lawyers and execs, they're public servants, unionized factory workers and such, most of whom make less money than me. Their boomer parents were middle-class wealthy, and their expectations are higher. Only the economy no longer supports it. So they fulfilled these expectations via copious amounts of debt. Then everything broke.

Go read the article I linked to. We are richer than our parents. We own more and bigger houses and cars than they owned.

To fix your analogy: "Next quarter's numbers will be higher, and shareholders are just going to accept 10% growth rather than 20%. Expecting 20% growth forever is unrealistic."

If you want to argue that growth should have been higher than it actually was, or that somehow the evil vampire squid is holding us back and making us into serfs, go ahead and make that argument. But you still need to square your argument with the fact that we are consume more than ever.

Also, wrt growth, the argument I would make is that for much of the last 30 years, most of the economy's growth has not been shared with the middle class. Some of this is undoubtedly structural - the technology revolution has put a higher premium than ever on those with highly developed skills/education and there are certainly workers who have just been left behind. But if you look at the data, the wealth gains over the last 30 years have pretty overwhelmingly been concentrated in the VERY top of the income distribution (I hate to use the rhetoric of the Occupy movement just because it is very inflammatory to a lot of people, but it really is a top 1% phenomena). If this inequality could be mostly explained by education/skills, you'd expect something more like the top ~20% to be vastly pulling away from the bottom 80% of the distribution.

This has been true for a very long time, but people were filling it in with debt. Then everything got over-extended and collapsed.

Please go read the source I linked to, which shows that growth has not stalled for the bottom 20%, nor the middle 20%.

https://www.google.com/search?hl=en&gl=us&tbm=nws...

Minimum wage hasn't kept up with inflation.

Debt financed consumption.

You're trying too hard. This stuff isn't that complicated.

I rather like the AEI. It serves a purpose. Kind of like a honeypot.

You're right that minimum wage hasn't kept up with inflation. You're also right that debt financed (a lot of) consumption. But it doesn't follow that those earning minimum wage drove consumption by acquiring debt.

As yummyfajitas links above show, those earning minimum wage are a tiny percentage of overall wage earners. In other words, minimum wage earners aren't going to move the needle much. Double minimum wage (and magically don't have that affect employment levels) and consumption isn't going to go up all that much, simply because there aren't that many people earning minimum wage. For that reason, it is a bit of a silly metric to base an argument on.

Whereas OP includes values (eg smartphones vs cars), thaumaturgy also says they don't have the cash.

No reasonable person can deny wage stagnation, rising unemployment, increasing costs (education, food, housing, and transportation).

yummyfajitas gets argumentative, citing some libertarian fallacies.

specialist refutes yummy.

liber8 gets pedantic, forgetting original point.

The average price of a new car in 1980 was $7,200 [1]. In 2010, it's $28,400 [2]. That's an almost 300% increase.

Federal minimum wage in 1980 was $3.10 [3]. In 2010, it's $7.25, a 130% increase. That's lagging pretty far behind new car prices.

You point out that fewer people are earning minimum wage now than in 1980, but I would counterpoint that more people are unemployed now than in 1980 -- by almost double in terms of the real numbers of unemployed people (but "only" a rate increase from 7.1% to 8.4%) [4].

Although car ownership did increase from 1980 to 2010 [5], total new passenger car sales actually fell from 1980 to 2010 [6], which is closer to what the original article was actually discussing, and would support the conjecture that there are simply more cars on the road now than in 1980.

Further, the inflation-adjusted income of people aged 25 to 34 has stayed roughly level from 1980 to 2010 [7], which pretty well jives with so much of what I've read everywhere else that shows a tremendously overall weakened buying power amongst the youth demographics -- which, again, was what the article was trying to be about.

So, in summary: the price of a new car has gone up a lot but wages have not, especially if you're young. I'm pretty confident that this might be a factor in why young people aren't buying new cars.

[1]: http://www.thepeoplehistory.com/1980.html -- might not be a good source, I'm open to suggestions for something better.

[2]: http://www.ehow.com/facts_5977729_average-cost-new-car.html; this number seemed high to me, but http://www.usatoday.com/money/autos/2010-07-12-carprices12_S... corroborates it.

[3]: http://www.infoplease.com/ipa/A0774473.html

[4]: http://www.nidataplus.com/lfeus1.htm

[5]: http://en.wikipedia.org/wiki/Motor_vehicle#United_States -- because I questioned the partisanship of your source.

[6]: http://www.bts.gov/publications/national_transportation_stat...

[7]: http://nces.ed.gov/fastfacts/display.asp?id=77

(1) The variety of mid-high end luxury cars (i.e. $50k+), and the number of such cars sold, far exceeds the choices available in 1980. For example, you now have a variety of choices if you want to drop >$50k on a pickup truck. (2) We simply have more disposable income to spend on cars. That we’re so rich we can afford to spend a higher minimum wage multiple on a frivolous expense isn’t really a bad thing.

This of course also overlooks the fact that today, right now, you can buy a brand new car for about $7,200. (I just bought a Ford Ranger for about that, but there are numerous other choices in that range as well.) Even these very cheap cars are so much better in every tangible and intangible metric than even “decent” 1980's cars that it’s laughable. Step up to cars in the $15k range, and you’re able to buy cars that are better in just about every way, except for upholstery, than even luxury cars in from 1980.

Unfortunately I don't have the time to do the research and math myself to tease out these relationships.

The employment to population ratio is the same as it was during the 80's, and was considerably higher until the recent recession. In contrast, the fraction of people earning min wage has fallen.

http://research.stlouisfed.org/fred2/series/EMRATIO

Further, adjusting wages (rather than total comp) for inflation is a gratuitous statistical fallacy. One of the biggest drivers in "inflation" is an average of the price of the expanding basket of goods called "health care" [1]. For most people, this is paid for out of non-wage compensation.

[1] I.e., an MRI + laparoscopic spine surgery today costs more than back pain in 1980.

And that is clearly not the case. According to government statistics [1], nearly one-third of those lacking health care coverage in the United States are young adults. The unemployment rate among this cohort is over 15 percent, and much higher if one looks at U6. And those who are employed are collecting lower wages which are not offset by higher benefits: less than 25 percent of young workers are provided health insurance through their jobs as compared with over 57 percent for the rest of the labor force.

Put simply, breaking down aggregate statistics into demographic chunks gives a much better picture of what is really happening. Younger works have it really hard these days. Older (employed) people are still doing OK and they are the ones pulling up the aggregate income figures. But for young people -- the focus of this article -- the data supports Thaumaturgy's argument that younger people these days are simply poorer.

[1] http://money.cnn.com/2012/04/16/pf/health-care-young-adults/...

If inflation-adjusted compensation were down, this fact would pose a paradox and suggest we are incorrectly measuring inflation - however, the paradox is easily resolved by looking at total comp.

Their "income" figures are equally shoddy since they include government transfers through programs like food stamps as part of the "market income" of poorer people by calculating the value of these products and services as if they were bought using salary. Leaving aside the morass of problems with the way this approach leads to grossly inflated aggregate income and is clearly intended to deflect from more accurate claims that most market wages are stagnant, their approach is totally off-topic in any discussion about the state of the labor market: what kind of jobs are available to young people; what those jobs pay in salaries and benefits; and what people can afford to purchase given those incomes.

You should also ask yourself why the authors go through such contortions to count things like rentals as purchases and IMPLY that housing is clearly affordable when there is a perfectly straightforward and universally-applicable measure of real estate affordability in the rent/buy ratio? The only reason the AEI does not use this statistic is that it is inconvenient, showing that housing costs have risen significantly across the United States in response to the housing bubble which started in the 1990s, Prices have still not collapsed even close the levels enjoyed by previous generations. So housing is NOT more affordable for people today than in the past. It is in fact significantly more expensive pretty much everywhere except Las Vegas:

http://money.cnn.com/real_estate/storysupplement/price_to_re...

Finally, since you explicitly make the claim that health care coverage has improved in your MRI/backpain comment and suggest that this is what people are spending their money on instead of cars and houses, it is interesting that the AEI paper explicitly excludes health care costs in its panegyric on how well-off American workers are, noting that "we exclude from consumption out-of-pocket health expenses because they are not closely tied to well-being." In other words, they realized that including basic health care expenses as income makes people relatively worse off now as compared to the past.

On a final point -- it is worth commenting that your other link to the labor participation rate shows the exact opposite of what you claim: the average labor participation rate is visibly much higher throughout most the 1980s than at present, except for a brief crash during the 1982 recession. If 2008 was anything like 1982, the participation rate now would be well into the 60s again and growing.

See table 1 & 2. Housing consumption is measured in terms of square footage, number of rooms, fraction of homes owning a car, and other similar objective properties.

I didn't claim housing was "more affordable" (whatever that means), I claimed people have more of it.

At worst your argument and sources conflate wages and income and standard of living in order to make insinuations that are statistically wrong. At best they can be interpreted as making the fairly non-controversial claim that the AGGREGATE standard of living in America has improved over the last 30 years, despite the fact that there has been a clear reduction in the relative purchasing power and affluence of younger Americans over the last 10 years.

To cite just one example as evidence that you need to read AEI "research" more carefully, you can find the authors mention the mid-1980s inclusion of mobile homes and trailer parks as new forms of "housing consumption" in the first paragraph on page 15. I give them some credit for mentioning this, since it should be obvious even to the uninformed that aggregate measures of "housing consumption" are going to go up when you find new forms of housing to count half-way through your survey.

As far as the reputation of the AEI goes, it stopped having any when it fired David Frum for being too far left [1]. Mainstream economists find the institute laughable [2], and even conservative economists like Bruce Bartlett mock its employees as "scholars" (his quotes) [3]. Poor quality ideological broadsides like the one cited above are the norm rather than the exception. Charles Murray's "The Bell Curve" is broadly derided for racism, while Kevin Hassett and James Glassman are ridiculed in the mainstream media for backing pump-and-dump schemes like "Dow 36,000" and for seeming to be unaware of such basic economic concepts as discounted cash flow.

[1] http://www.washingtonpost.com/wp-dyn/content/article/2010/03... [2] http://delong.typepad.com/sdj/2011/10/the-uncertainty-argume... [3] http://capitalgainsandgames.com/blog/bruce-bartlett/1601/gro...

"You should also ask yourself why the authors go through such contortions to count things like rentals as purchases..." <- Misrepresentation. The authors attempt to measure consumption of housing, as does thaumaturgy. You are the only person discussing real estate investments.

"Their "income" figures are equally shoddy since they include government transfers through programs like food stamps as part of the "market income" of poorer people..." <- Misrepresentation. The authors explicitly distinguish between earned and unearned income.

To cite just one example as evidence that you need to read AEI "research" more carefully, you can find the authors mention the mid-1980s inclusion of mobile homes and trailer parks as new forms of "housing consumption" in the first paragraph on page 15. <- Misrepresentation. The "re-definition" was done by the government, not the AEI. It's also irrelevant, since I compared square footage in 2009 to 1989 (i.e., both stats are after the redefinition).

You're probably right, but that doesn't lead to a conclusion that the effect is caused by the economy.

In absolute dollars, cars are more expensive than they used to be, but for your dollar, you get much more car. That is, there are more features (stereo, A/C, power everything), more safety (both structurally as well as ABS, better restraints, etc.), more reliability, and much greater life expectancy [1] from a modern car. In short, it's a better investment.

If you've got enough money to meet the minimum threshold for buying a new car, you're going to get more for your money than you did in 1980. But that minimum threshold has definitely been raised. Part of this is from consumer demand; part of it (particularly in areas related to safety or emissions) is government mandated.

So it looks to me like the car market just evolved itself out of the reach of many young people.

[1] We just got a new car for the wife, trading in her old car at 200,000 miles. My car has 128,000 and is still running strong. In this age those numbers are expected; back then, a 200K mile car would be a minor miracle.

http://en.wikipedia.org/wiki/File:US_incarceration_timeline-...

Incarceration rates: it's a hockey stick! Incarcerated people are all unemployed, and most of them, if in the job pool, are likely to be in the minimum wage or similar bracket.

The equivalent of a $3.80 minimum wage in 1980 is also nearly $9 today with inflation, so the group of true "minimum wage" workers is much larger for yet another reason.