Thursday, November 01, 2007

The return of spirited debate

The otherwise lovely Peanut Butter Burrito has again taken exception with my bourgeois rantings, and I feel compelled to respond. For easy reference, her comment to my last post about the definition of "middle-class":
Wow, wow. I could not disagree more. When the bottom limit of the highest income quintile (for households, not individuals) is $90K, and the bottom limit of the top FIVE PERCENT is $160K, then no, a million dollars does not leave you in the middle class. (I realize there's a income-wealth issue here, but I'm willing to bet the vast majority of those $1-10M folks in the article are indeed making $100K + a year.)

It may mean that your McMansion only has 4 bedrooms instead of 10, and you have a really nice car and fancy suits and handbags instead of bathing in champagne, but you're still rich. I mean, the article also talks about how yacht sales are up. (And people borrow against their home all the time! Can't do that if you're a mere renter.)
Some good points, but I think still it's conflating income and wealth and too dismissive of geographic distinctions.

My family lives in a neighborhood in Orange County where property values have more than quadrupled since 1995 (my family moved there when the market had almost hit bottom in 1994). We've watched people move in and out of the neighborhood, and you can walk down the street and see how many years someone's been living in a house by their car. Nissan? Bought it in the 90s. Toyota? Bought it in the 90s (sometimes the 80s). BMW? Bought it in the 2000s. People's income isn't quadrupling as their house values are, so those who got in early are disproportionately less wealthy than the new residents, yet their net worth puts them in the same general class (especially since technically, they have more equity!).

My parents bought their house in Orange County with two jobs, three dependents, a household income definitely under $90k, and some belt tightening. In the intervening 12 years (10, really, since the market has plateaued for a while now), just appreciation on the house, combined with VERY conservative retirement savings, would have popped them over $1m, even without any increases in salary. Not a designer suit or fancy handbag in sight.

Taking your numbers, making between $90k and $160k puts you in the top 20%-to-5% of American households, right? But the Cost of Living Index for American cities (I'm looking at 2004-05) says that the composite index value for L.A. is fully 50% higher than the vast majority of major American cities in the central part of the country (for New York, it's 100% higher). Someone in L.A., in the national 20%-to-5% income range, is not living in the 20%-to-5% lifestyle range. That is to say, considering only the national metrics on income and lifestyle, someone with an "upper-class" income is living a "middle-class" lifestyle because of local costs.

And while I don't have income figures for L.A., I would anticipate that the income range for the 20%-to-5% group in L.A. itself is shifted well upward from the $90k-to-$160k range.

I see two problems with the picture that's being painted by the article. One is the range that's being applied. I do believe that people with net worths of $10 million are rich and buying yachts. But the people with $1 million most certainly are not. $1 million used to be this breaking point of wealth, where above that, you could just lump all the rich people together, whatever they made and wherever they lived. But that's just not realistic anymore, and the bottom end needs to be moved up. Borrowing against the equity in your home can only get you so far before the disconnect between your equity and your actual income puts a cap on how much you can realistically pay per month when taking that loan (although one other lesson of California is that people have no freaking idea how to live within their means, hello foreclosures market).

The second is, as you suggested briefly, the income-wealth distinction. Unless they're already retired, people generally want their net worth going up, to protect them in the future. Until you've hit a point where (1) your net assets are both so large and so liquid that you can live on them in whole or in part, or (2) because of age, health, or attitude you just don't give a damn anymore, your net worth is not the determining factor of your lifestyle, your income is. And any law student who's been picking a market knows that salary goes way farther in Milwaukee than it does in Manhattan.

It's not like I'm saying the people in the article are poor, or even that they aren't at the upper range of the middle class. But their so-called "middle-class values" aren't some cultural phenomenon, they're a response to reality. They don't necessarily decline to insulate themselves because of their values (as the article suggests), they also can't afford to. They don't choose to work because of some cultural ethos, they have to pay their mortgage.

2 comments:

Trevor said...

In America "middle class" means pretty much everyone who is rich enough not to be poor, minus a handful of people with fuck you money. Given the enormous concurrent spikes in income inequality, housing prices, and higher education costs, it should surprise no one that fuck you money is well north a million dollars at present.Class, and especially "middle class," has always been about much more than income. It's about (1) a set of cultural values and assumptions and (2) one's relationship to capital in a kind of Marxist sense. People of a certain sensibility who work for a living are middle class, even if they are by many standards fantastically rich. In fact, it's a real hallmark of that middle class sensibility to adjust to higher income by just consuming more expensive goods - the fancy houses, suits, and cars Andrea talks about. The headline of the article, to be accurate, should really be "Increasing numbers of middle-class people are millionaires", not the other way around.

Ken Basin said...

Love that last point, think it's dead on.