What’s the dividing line between MIDDLE CLASS and RICH?

Parent Cafe
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<p>On CC the dividing line between middle class & rich is, " if you complain about being full pay at your kids school, you aren’t rich".</p>

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<p>A weaker overall economy is detrimental to the wealthy because:</p>

<p>a. Their investments, to the extent that they are tied to the overall economy, will do worse.
b. Crime may increase, resulting in less personal freedom (unwilling to go out due to fear of crime, or government limitations on personal liberties ostensibly to control crime) and higher spending on security.
c. Economically struggling non-wealthy people may become more hostile to the wealthy, resulting in political changes that are unfriendly to the wealthy.</p>

<p>However, this does not necessarily mean that all of the top 1% or 0.1% see that overall economic growth (as opposed to themselves grabbing a bigger share of the economy) is in their self-interest.</p>

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<p>The 10th, 30th, 50th, 70th, and 90th percentiles of household income in the US are approximately $12k, $30k, $50k, $80k, and $145k. They aren’t anywhere near the super-low-Gini example that you give.</p>

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<p>I disagree with the top 1% do worse. For someone who doesn’t believe in trickle down economy, guess what, the policy since 2009 helps the top 1%, see article below.</p>

<p><a href=“http://www.cnbc.com/id/101892595”>http://www.cnbc.com/id/101892595&lt;/a&gt;

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<p>I find the many mentions of “poor people in Africa” in this thread especially disheartening given that this week, the US hosted leaders of 50 African nations, to dispel the notion that the continent’s an impoverished monolith: <a href=“http://www.whitehouse.gov/us-africa-leaders-summit”>http://www.whitehouse.gov/us-africa-leaders-summit&lt;/a&gt;&lt;/p&gt;

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<p>@ucb,

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<p>Of course I am aware the gini coeff is higher than that. I was simply pointing out that a 4th quintile cutoff needs some actual numbers supplied to make the argument meaningful.</p>

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<p>So, DrGoogle, well, but…but…the reason is…because, well… </p>

<p>This economy has been very good to the evil rich. Funny how that happens, right? If you’re poor, you probably got poorer. If you’re rich, you probably got richer. Kind of makes you think the rhetoric doesn’t match reality.</p>

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<p>Here is a compilation of data of wealth in the US with historical and 2010 numbers. Many numbers use the mean which doesn’t really give a great picture but it is interesting all tha same. There are some global numbers too.</p>

<p>In addition 2010 is not the best year to look at as it is not really representative of today’s values. But here it is.</p>

<p><a href=“Who Rules America: Wealth, Income, and Power”>http://www2.ucsc.edu/whorulesamerica/power/wealth.html&lt;/a&gt;&lt;/p&gt;

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<p>Most of the figures and statistics that you see published regarding income inequality are based on market income (salaries, dividends, interest, etc.). Basically, what household’s income is before government involvement.</p>

<p>But then government takes actions in two ways that result in less income inequality. First, taxation, where the lower income households pay either no or little tax; and, second, income transfers (such programs as food stamps, medicaid , welfare, unemployment insurance, etc.). The income figure that results after taking these two items into account is disposable income.</p>

<p>So, if you use market income to measure income inequality, then you are not taking into account any actions that government takes to level the playing field. </p>

<p>If a household has market income of $10,000 a year, but we, as a society, have provided $25,000 a year in medical assistance, food assistance, earned income tax credits, cash, etc.,then when measuring income inequality the more accurate figure to use for that household’s income is $35,000.</p>

<p>If you do not make this adjustment, then any steps we take as a society to level the playing field will not be reflected in the information that is being presented.</p>

<p>We could have a government that, through taxation and government transfers, results in every household having the exact same income, but the only way you would know that was by looking at disposable income, not maket income.</p>

<p>The primary reason that most of what is published uses market income instead of disposable income is that using market income results in a a much stronger case regarding how bad income inequality is. It is not accurate, but in makes a better case for the author. The popular press would use market income for their articles (to sensationalize the issue), while the academic press would use the more accurate disposable income for their articles.</p>

<p>The Minneapolis Federal Reserve prepared a paper a few months ago that touched on the difference between market and disposable income. At one point in the article, they used both market and disposable income and then did two comparisons regarding the change in income inequality over time:</p>

<p>First, in Figure 1, a calculation was done using the ratio of the 95th percentile (very high income) households vs. 50th percentile (median household income), to see how the ratio of income of the high income households changed from 1967 to 2012, compared to the median household income. They did this both using market income and disposable income. Using market income you see of a large increase in the income of the top income households compared to the median income households, but, when you adjust for taxes and government transfers, using disposable income shows an entirely different picture </p>

<p>Second, in Figure 2, they looked at the ratio of the 50th percentile income (median income) to the 20th percentile income (lower income), to see how the lower income members of society compared to the median, from 1967 to 2012. Using market income, it would appear that the lower income households got much poorer compared to the median income households. But, when you adjust for taxes and government income transfers, there has not been much of a change in income between the 20th percentile and the 50th percentile.</p>

<p><a href=“http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=5312&”>http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=5312&&lt;/a&gt;&lt;/p&gt;

<p>You can draw your own conclusions, but it appears that the bottom line is that a lot of what you read in the popular press and statistics quoted by politicians do not reflect the impact of government programs on income inequality, as well as the impact of our progressive tax system on income inequality, and when you do reflect these two items the picture changes.</p>

<p>Sorry for being long winded (and I know that I am going to regret having written this). </p>

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<p>How much inequality is the right amount? Is there another country we can look at and say “They figured out government, we want our country to look like theirs?” </p>

<p>In the event of free commerce, people will be paid what they’re worth. Of 'course we don’t have that because too many people feel it’s too disorderly. But say we had free commerce, would whatever the natural inequality is be good with everyone? If not why not? What is the cost of the orderliness we have, does it increase or decrease inequality? If we could know what the natural inequality is, would it be most proper to modify inequity to that level? </p>

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<p>Dadinator, I like your post. I think you gave a lot of thought to what you wrote. </p>

<p>I dont buy it but that is ok. </p>

<p>I will just say that these programs that help those that dont have much market income seem to be under attack. Kind of odd.</p>

<p>So my biggest problems…</p>

<p>Using the top 5 percent…</p>

<p>The income growth is in the top 1 percent…</p>

<p>The second big problem is the definition of market income.
“The focus is on two measures of income. The first is labeled market income, which includes wages, salaries, business and farm income, interest, dividends, rents and private transfers (such as alimony and child support), of all household members. This is a measure of income that would be available to the household, absent any government intervention.”</p>

<p>Lol! The wealthy people I know dont give a @@@@ about most of the above. They care about capital gains! They care about estate taxes!</p>

<p>Who is that guy that who is being forced to sell the Clippers? ;)</p>

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<p>I think of the question of where the dividing line lies as hinging on how quickly a person can access money and what they could use it for. This is how I think of it (YMMV):</p>

<p>Seriously rich (aka ultra wealthy, really rich, etc)
Could put their hands on $50,000 within an hour or two. Might have to shift some things around, e.g. transferring between accounts, but it wouldn’t hurt. Could be done for a spur of the moment purchase or an exciting investment.</p>

<p>Rich
Could access $50,000 within a week or two, perhaps by taking out a home equity loan, cashing in some stocks or borrowing from relatives who could afford it. Could be used for something substantial like the purchase of a second home or a new car, but wouldn’t be done without some serious discussion.</p>

<p>Middle class
Could access $50,000 within a month but it would hurt. Perhaps money from a combination of sources-taking a second mortgage, draining the college fund and/or IRA or borrowing from friends and relatives who couldn’t easily afford it. Would use the money only for a major emergency, such as a serious medical or legal issue.</p>

<p>Poor
Could never, ever, put their hands on $50,000, no matter how serious the emergency.</p>

<p>One of the differences between these groups apart from income is the backup system available to them. Someone wealthy is likely to come out of college with more resources than someone middle class-more borrowing potential (no or little student loans), greater resources (a car or savings account), and people around them who could help them out in times of opportunity or trouble (relatives who could invest in a new business or provide a safety net, allowing the graduate to bounce back more quickly from financial trouble).</p>

<p>Again, this is just how I think of these groups so anyone is free to disagree.</p>

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<p>Well… 40 percent cant come up with $2,000 in a month so the US must have plenty of poor people.</p>

<p><a href=“http://madamenoire.com/418607/come-2k-emergency-study-finds-40-americans-cant/”>http://madamenoire.com/418607/come-2k-emergency-study-finds-40-americans-cant/&lt;/a&gt;&lt;/p&gt;

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<p>^There’s a table in the article sax linked listing countries with varying inequality, Sweden with least inequality, South Africa most. The US around bottom 1/3 closer to South Africa. We were in Scandinavia in January. People looked quite happy there. I’d be content if the US makes it to somewhere top half.</p>

<p>dadinator, thank you for bring up disposable income. I am not sure if it makes a big difference relatively speaking. Sweden, the most equal society income wise is also a country with a good deal of safety net. If we were to compare disposable income, I would think Sweden will run away from us even more in terms of equality.</p>

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<p>They’re lying or they think that the question is about if you have $2000 in your checking account or something. </p>

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<p>You can always sell a kidney-- just kidding</p>

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<p>^^Maybe in China.</p>

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<p>My opinion, the number one thing we could do to prevent poverty is to provide door to door birth control, free clinics in poor areas. Pay young girls on a monthly (or whatever) basis not to get pregnant. Discourage it loudly, go for it like we did against smoking.</p>

<p>Of course I realize this would never fly, but it would work. The fastest way into poverty is having kids when you are young and single. </p>

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<p>The birth rate among all teenagers has dropped and continues to drop. Still higher among teens of color (a shorthand for poor teens, unfortunately) but lower every year.
<a href=“http://www.cdc.gov/features/dsteenpregnancy/”>http://www.cdc.gov/features/dsteenpregnancy/&lt;/a&gt;&lt;/p&gt;

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While I agree that free birth control is a good thing (because society pays far more for unwanted babies!), but I do not think that paying young girls not to get pregnant would work even if you could pull it off. I know more than a few girls who got pregnant in high school, and they did it trying to find happiness and fulfillment that they didn’t feel they could otherwise attain. These are girls who don’t see themselves going to college, who don’t have an aspiration towards a trade, they feel they have nothing to look forward to in society and are hoping that a child (or at least the next child) will give them enough happiness to make life bearable. And heads up: years in, a lot of them claim it has! Buying them out of this pit requires not only a big chunk of money but also a means of giving it to them without stigma - if they were excluded or “lesser” because they were getting free money, then all of a sudden that baby starts to look more appealing than the money!</p>