Debt And The Demise Of The Middle Class

Unfortunately for those at the top who've benefited immensely from speculative bubbles, speculative bubbles don't create a vibrant middle class--they push what's left of the middle class off a cliff.

What exactly is the Middle Class and what unique role does it serve in the economy? Given that the Middle Class is constantly invoked by politicos and economists, you'd think the status quo had a solid understanding of the Middle ClassAlas, it isn't that simple.

The conventional view defines the middle class by income, education or type of labor being performed. These are all superficial attributes and ignore what actually differentiates the working class from the middle class. Yes, the middle class tends to earn more, have higher educational credentials and perform white-collar labor rather than blue-collar labor.

But getting a higher education credential and increased pay doesn't automatically provide a middle class role in the economy, nor does performing white-collar work. None of these automatically moves the individual up the social mobility ladder from near-zero ownership of capital (working class) to meaningful ownership of productive capital (middle class).

As I explained in The Top 10% Is Doing Just Fine, The Middle Class Is Dying on the Vinethe middle class is fundamentally a means of transforming labor into capital via savings and investment. The traditional ladder of social mobility from the working class to the middle class is one of capitalizing work: time and savings are invested in higher education, in effect capitalizing future labor by increasing productivity.

In other words, what separates the working class from the middle class is the middle class is able to transform their labor into capital while the labor of the working class only funds consumption. The working class is defined not by credentials, type of labor or credentials but by limited access to the means to transform their labor into capital.

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Disclosures: None.

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