Guest Post by Nick Giambruno
The American middle class is dying.
In 2015, it dipped below 50% of the population for the first time since data collection started on the issue. It’s now an official minority group.
Meanwhile, nearly half of Americans don’t have enough money to cover a surprise $400 expense. Many are living paycheck to paycheck, with little to no cushion. And US homes are less affordable than they’ve been in decades—possibly ever.
I’ll tell you why this is happening and how to secure your spot among the “haves” in a moment. But first, let’s take a look at the America that was.
The Largest Middle Class in World History
The late 1950s was the golden age of America’s middle class.
This isn’t nostalgia talking. The US really did have robust Main Streets and thriving small businesses.
Back then, the US produced three-quarters of the world’s cars and airplanes. Americans produced most of the world’s steel and built the majority of the world’s skyscrapers.
Plus, the US stock market held the bulk of the world’s total stock market capitalization.
All this productivity gave the average American an unusually high standard of living.
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Around then, a husband could support his family on an average income. He and his wife likely owned their own home, as well as their car. They had multiple children—and didn’t think much of the cost of having more. Plus, they had money to save.
The Bleak Situation Today
Compare that to the average family today. Both spouses likely have to work—whether they want to or not—just to afford the same basic lifestyle.
Plus, it now costs well over $200,000 to raise a child, on average. And that doesn’t even include college costs. Back in 1960, it cost roughly $25,000.
This hefty price tag is one of the main reasons middle-class families are having fewer children… or none at all.
In short, the average American’s standard of living has taken a huge hit over the past generation or so.
For example, consider a typical high school teacher’s financial situation.
In 1959, the median annual salary for a US high school teacher was $5,276, according to the Department of Labor. Meanwhile, the median US home value was $9,627, according to the US Census Bureau.
That means a teacher made enough money each year to cover over half of the price of a middle-class home. Or 55%, to be exact.
Take a minute and think… How does your annual income compare to the price of your home? I’d bet many people make far less than 55%.
Today, the median purchase price of a US home is $241,700. To maintain the 1959 income-to-home price ratio, a high school teacher would need to make $132,935 annually.
Of course, the average high school teacher doesn’t make nearly that much. Not even close. He or she makes around $48,290—just enough to cover 36% of the median home price.
It All Went Downhill in the ’70s
The high school teacher’s predicament is only one example of a broader trend. In fact, circumstances are actually worse than it lets on.
As you can see in the chart below, the median income-to-home price ratio is just a hair above 20% now. That’s a historical low. And a far cry from the 58% peak it hit in the late 1950s.
Notice that the downtrend starts in the 1970s. More on that shortly…
Clearly, home prices have risen much faster than income levels since 1970.
Of course, Americans haven’t stopped buying homes. They’ve just gone deeper and deeper into debt to do it.
That debt has helped hide the slump in the average person’s standard of living.
Cars are another large expense for Americans. Debt has helped camouflage a big price increase there, too.
Americans are now over $1.1 trillion in auto debt. This figure has skyrocketed 2,954% since 1971.
Americans have also racked up more than $1 trillion in credit card debt. This debt explosion also started in the early 1970s. Credit card debt is up 14,281% since 1971.
The Work-Wage Divide
So why are Americans going deeper and deeper into debt?
It’s simple: The cost of living for the average middle-class family has risen dramatically faster than its income.
Since 1971, there’s been a dramatic—and growing—split between work and wages. As the next chart shows, the average person’s real wages have more or less stagnated since the early 1970s.
With higher expenses and stagnating wages, people have made up the difference with debt.
What Happened in 1971?
It’s no coincidence that things started to go downhill for the middle class in the early 1970s. August 15, 1971, to be exact.
This is the date President Nixon killed the last remnants of the gold standard.
Since then, the dollar has been a pure fiat currency. This allows the Fed to print as many dollars as it pleases. And—without the gold standard to hold it in check—it does precisely that.
The US money supply has exploded 2,075% since 1971.
There’s an important lesson here: The Federal Reserve is the mortal enemy of the common man.
The Four Tenets of Lasting Wealth
Eventually, I think this trend will lead to a genuine crisis. And it won’t be pretty.
In the meantime, a perfect storm of economic pressures will further hollow out the middle class. Tens of millions of Americans will be kicked down the ladder.
As Doug Casey puts it:
Most middle-class people will end up joining either the upper or lower classes—mostly the lower—and that’ll be a moral disaster for the country.
If you want to firmly establish yourself in the world of the “rich,” I recommend…
- Owning hard assets like physical gold, silver, and certain real estate.
- Owning the highest-quality, elite businesses. Think businesses with attractive dividend yields—even better if you buy these standouts at bargain prices.
- Holding some speculative investments. They can leapfrog your wealth. Think transformative technologies like cryptocurrency and blockchain, the booming cannabis industry, and natural resource stocks.
- Protecting what you’ve earned from taxation, inflation, and other forms of confiscation by internationalizing your assets. This reduces the threat any one particular government poses to your wealth.
These are the four tenets of lasting wealth. They’re time-tested strategies. And they work.
After sorting out the chaff you end up with this: The wages of middle class americans has only marginally declined, relative to the 1950’s based upon the value of Federal Reserve Notes only. However the prices of most goods is much higher now, except for commodities, especially medical services and supplies, college and housing. Much, but not all of the stratospheric rise in cost of the latter is due to artificially low interest rates and cheap credit which puts millions of people into markets that they have no business being in. Bring back 6% 30 yr mortgages with 20% down payments and there would be very few new home buyers. Take away subsidized student loans and dumbed down curricula and there would be much fewer college students. Of course the medical industry is much more complicated but has been basically fucked up since LBJ imposed medicare and medicaid. In the 1950’s nobody went without basic medical care and it was inexpensive.
Not to mention onerousvregulation driving up the cost of everything
Z – the price of many things is lower today relative to 1959. Also, interest rates are very similar. The mortgage rate in 1959 was 5%, more or less same as today.
I recently watched a home video of my family on my mom’s side from 1959. What sttod out was this: very few gizmos, one car to a family, one TV, no accumulation of “things”, small houses, family came first, frugality and being happy with what they had.
Compare that to today: multi cars per family, big houses, lots of gizmos, many TVs, mobiles, etc., a pursuit of expensive clothes, etc. And acquired via debt. People can still live frugally, but will not do so.
Re the cost of education and healthcare: the costs of education are high largely because of demand, as you point out, and also because it cannot be automated easily. Re medical care, there are many issues, and I am no expert. But issues include inability to automate out doctors, nurses, etc., and the ever increasing number of treatments available.
And the cost of extending life for a few months has blown out dramatically – the bulk of lifetime medical expenses occur in the last 6 months of life, and are largely incurred by society and not by those dying. That needs to change – pay for your own end of life expenses, or die quickly. Spending hundreds of thousands to very marginally extend a person’s life, with no good quality of life, damages the entire society.
At least the author recognizes that the middle class is doomed, which is correct, and offers some actions that can be taken. This collapse is far from over.
“also because it cannot be automated easily.” Disagree on that one. Online courses could almost make colleges disappear, don’t you think?
It’s not the quality of learning that matters, it’s whether employers will recognize the credential. I think we’re still a long way off from that.
Food and electronics are cheaper due to automation, economies of scale and improvements in technology. Cars are about the same, although they are much more advanced today relative to their 50’s counterparts.
As for the rest, it’s all about cheap credit. The reason houses were small 60 years ago is because people had to save for years to come up with enough of a down payment to purchase one. Of course in most households, women did not work outside the home, mostly for social norm reasons so household income was less than today.
While there was layaway back then, most people did not have even revolving credit accounts, much less credit cards, lines of credit and the rest that financial institutions give out like candy.
Personally I think the 50’s sucked for the most part. It was a time of mass conformity and a sick society of social climbers and hypocrites. The Beats were right. There was nothing good about the squares.
I have to disagree, food is very expensive. Have you been to a grocery store lately?
“Today, the median purchase price of a US home is $241,700. To maintain the 1959 income-to-home price ratio, a high school teacher would need to make $132,935 annually.
Of course, the average high school teacher doesn’t make nearly that much. Not even close. He or she makes around $48,290—just enough to cover 36% of the median home price.”
36% doesn’t sound right at all.
All thanks to the Fed and Congress. John
19.98% ?
That’s what I came up with also.
To put it even more simply– the Trillions of fiat currency pumped into our economy by the Fed has devalued the dollar and the value of our labor. Costs are higher but in proportion to the total money volume while overall human labor productivity ( in terms of sweat and blood- not automation) can only increase marginally, if at all.
Volume of money= less value of money+ less value of labor It really is the evil jew bankers who have enslaved us to work harder and harder to keep our heads above water instead of building a better life as in the 1950’s.
All thanks to the FED. John
“So why are Americans going deeper and deeper into debt?” —— article
A)– They are being good citizens by following the example of their government.
B)– They never intend to repay (via bankruptcy)
C)– SMOD. So, Fuckit.
D)– 90% of the population are stoopid morons.
E)– 90% of the population has decided to become devoutly Christian —- “Let us eat and drink, for tomorrow we die!” …. 1 Cor 15:32
Careful Stucky with intentionally misleading by mis-quoting scripture. Paul clearly intends that verse, in context, to be the thinking of the non-Christian, the ones who do not share the salvation from th Resurrection and Living God and whose endeavors n life are fruitless and frivolous.
That is correct, Jivelin, you win the alert reader award for today. So much of what is written today is just so much bullshit that somebody needs to study why people even bullshit so much. This article makes it sound like everybody was all hunky-dory back in the 50’s. He said the middle class will defect to the upper classes or lower classes. That is anticipating his selling point, that you too can defect to the upper classes by following his proven road to riches. Yeah.
We can summarize the article thus:
1. Middle class is growing poorer since the 70’s
2. Look at how a blue collar worker like HS teachers have declined in wealth since home prices have increased. (If he had used Picasso prices as a standard, we’d all be fucked right now.)
3. There is a way to save yourself and exit the dying middle class successfully by buying my sure way to wealth.
“Well, in our country,” said Alice, still panting a little, “you’d generally get to somewhere else—if you run very fast for a long time, as we’ve been doing.”
“A slow sort of country!” said the Queen. “Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”
Stucky knew that. He was just moving the stick around to enhance the aroma.
Thank you, overthecliff. Good to know there are still some intelligent people here.
No shit, Sherlock.
The household income to home value ratio is a key factor in determining the health of an economy. I would look at such stats in the mid-aughts where very modest houses in “hot” markets on the coasts would cost $300-$400k, with median household incomes of less than $100k and shake my head. How can these people afford it? I knew that obviously, it was not sustainable and trouble was brewing, but had no idea of the magnitude of downside of the so-called backstops (CDO’s, etc.) that could possibly cause a bad meltdown to grow exponentially.
Now, I am concerned even more regarding the trouble that is ahead because of the impact of stop-gap “remedies” that were applied since 2008, especially after reading all of the well-informed and crafted pieces that are continually posted here. It is gonna be baaaaad!
If a large enough portion of the population can’t get ahead by simply working hard, I believe there will be a big problem…like bad leaders voted in by angry lower class. Think about what they will be willing to vote for.?
In 2001, I bought a nice extended cab GMC Sierra for around 21k. Today they are out of reach.
And what was the economic environment in 2001 – anybody, anybody, Beuller?
$60,000 isn’t to bad.
You couldn’t get a lot of things in 1959:
Good Pot
Good Beer (just awful stuff like Miller and Schlitz)
Decent sex toys (you basically had to lathe your own).
Good pornography (except for underground snuff films).
Good music (wasn’t invented until the 60’s)
The Pill. That’s a big one.
No power steering, but thin radial tires and untempered glass, death machines…
Although a DUI was a courtesy drive home from the Sheriff, a big plus.
And air conditioning. We didn’t have that in either house or car
“Death Machines”? I don’t think so. Have you ever seen a new car or truck after it has hit a deer? There’s easily $10000 of damage, as high as $15000. FUCKING JUNK!
Have you ever seen a 1958 Cadillac after it has hit a deer? I have, and it looked just like it did before it hit the deer, except for the fur Grandpa had to pick out of that heavy ALL METAL grill.
You are correct cept for the tempered auto glass. That shit has been around since the late 20’s although the early versions tended to partially de-laminate over time.
And education costs nothing beyond curiosity and time. An Internet connection and a local library are adequate to supply the rest. It is the credential that is costly. The same can be said for most of the other things people think that they need in life.
A deeply satisfying life based on solid relationships, acquired skills, and opportunities exist for those with the capacity and drive. Economic success in a country like the US is all but a given to anyone that desires that outcome with the correct frame and grit.
Using the example of teachers is a form of bottom feeding. Teachers do not ‘work’, they offer a credential in exchange for a guarantee of low input for mediocre return. Short hours, small life investment for retirement, customers who cannot make a choice to buy their product, etc. I have nothing against good teachers but having sent three children through a mix of public/private schools and having gone myself I know that they are a rarity. Most teachers today are place holders, their communication skills- the thing you would expect to be their strength- are poor. If it weren’t for the work we do with our children on our own time they would know virtually nothing about history, writing, literature, philosophy, woodworking, biology, physics, home economics or applied mathematics. And that includes the so-called AP courses.
There is a reason that there is a low return for low inputs in all things.
The reason the Middle Class has declined is due to the total collapse of our industrial base. I remember as a kid there were all sorts of industry up and down the Ohio Valley- Coal, Coke, Steel, Glass, Brick, Cement, Chemicals, Shoes, Furniture; etc., and I could go on and on. People who had little education had good paying jobs for life, and communities were clean, vibrant, and full of local businesses who catered to these people.
Here we are 50 years later and the hinterlands have completely gone to shit. No jobs, decaying communities, demoralized people, and most businesses are big box stores selling Chinese-made junk.
Who destroyed all of this? Not the foreigners but other Americans who allowed this and actively encouraged it; mainly Americans who lived in Big Cities who ran the Government and the Banks. I don’t see anything changing, and it’s going to get much worse. Sooner or later there’s going to be a shooting war right here in America, and it will be the angry people out to kill the traitors. There will be many, many casualties. I hope I live to see it. Just remember what some European character had to say:
” A single death is a tragedy, a million deaths is a statistic.”
Pretty sure that was Stalin.
Nice cover when you’re the guy responsible for close to 50 million dead.
Corporate America became crony capitalist members of the up and coming circle jerk that is Wall Street to K-Street to Capitol Street and as productivity increased the average working American never really got a share of that increase . Then the lack of economic protective moves for the tax base (working Americans) there is no money to increase teachers salaries and other government service employees . Where did it all go wrong , it was a gradual mission creep do more get less ! Then the money printing and those who get first use of the funny money .
The article mentions protecting your future by investing wisely ? Yet it points out average Americans don’t have $400 bucks for an emergency . Other reports speak of the looming pension shortfalls and a whisper now and then of what a royal screwing a 401 k winds up as to who benefits the most . FYI it’s not the individual investor that put up all the cash , all the risk , all losses incurred but only reaps 30% of the gains . I wonder what circle jerk group thought that up where average people control their investments competing with “FLASH TRADES” that happen in a millisecond .
There are so many root causes to the demise of the American middle class but constantly blaming the higher working persons wages is a fraction of the real issues that sent us as a nation circling the drain .
The distance between the 1% that gained and gamed government and the economy and that hollow shell that was middle America has become a Grand Canyon . The have nots are getting restless and I sincerely doubt the badge wearing minions just doing a job can prevent the desperate in our society from real harsh revenge .
They can and will find a way to eat those they see as perpetrators of their ultimate failure and hunger .
When the EBT cards or section 8 vouchers fail , watch out
Also remember 40% of Wal Mart profits come from EBT cards now . That alone should be a glaring message to anyone still able to think past their next meal !
A lot of immediate survival will be STAYING OUT OF IT (riots, mobs, public spaces) for a while. You don’t need six years of survival food, most of the dying will be done in the first three to six months, after the stores are emptied and the warehouses drained. Those who put aside NOTHING will probably die in the first week or two; as they desperately search for food, they will resort to crime to feed their families, and the provident / authorities will defend themselves.
Those who had a week or two of food (if not victimized by the foolish) will then find no resupply, and it will be their turn for desperation.
By three to six months, the situation will be so different (Kunstler’s “Made by Hand” perhaps? Chaos? Warlords and territories?) that those who can provide for themselves will continue, and those who cannot (or at least provide needed services to those who can) will perish.
It will be ugly, innocents will perish and the ruthless may prevail for a bit, but things will likely settle down after a while and reality will set in. What part of reality are you prepared to be a vital part of?