What is Middle Class? Modern viewpoint is that middle class is a group of people with an inherent typical consumption behavior. Such a behavior is manifested not only through consuming ordinary market goods or services, but also political products and services. In other words, it’s not about how much you really earn, or what’s your real social class is, but what you consume and how you do that. It’s a lifestyle.
There are several society models created for simplicity. In Marxism, there’s no middle class as it can only exist due to excessive financial resources and is comprised of many social layers, including high-paid workers, elite’s service layer, sales force, etc. Modern capitalism created middle class in opposition to the Marxist model and in support to its financial capitalism model. That creation became possible also thanks to mass production relocation to the third-world countries and, thus, revenue redistribution in favor of more developed countries.
Middle Class Behavior
Living of middle class members is mostly predetermined in terms of how they perform and what they do. Most of advertising is aimed at them, along with ordinary education system, having in mind the only intention – to increase consumption and eliminate other possible values that may lead to consumption decrease. This makes this group to be the foundation stone for modern (capitalist) government stability and existence.
Problems Associated with Middle Class
Today, one of the major issues is that middle class’s source of subsistence is not always adequate to its real (de facto) earnings. The concept of this class emerged when its main formation source was profit redistribution in the Western society and colonies and third-world countries exploitation. But crisis in 1970s brought a new problem – those resources turned to be not enough. The crisis brought an understanding that middle class had to grow and that crediting would become its only possible cause.
That led to a historically famous program of Reaganomics. Its main purpose was not only economics liberalization, but also consumption stimulation by the means of crediting. On the other hand, its pitfall was the simple fact that the credit had to be paid back. It was rather complicated to get a new credit unless the previous one had not been yet returned. Mortgages used to be the only exception to that rule, but they were still taken into consideration for creditworthiness assessment.
Consequently, it was hard to stimulate demand under such circumstances if at all possible. When a person takes credit for a short period of time, as the result the demand doesn’t grow but falls as they then have to return not only the principal amount, but interest as well.
Debts Going High
Crediting model started to transform. Refinancing has become very common alongside credit to pay off the previous debts. At first, a small amount was returned with the new credit, but later those portions grew higher for real estate collaterals or other assets or securities.
Under such a pattern, debt grows fast and high. In order to counterweight its accumulation, credit cost has to become lower. That’s what has been happening in the US, the FRS discount rate has dropped from 14% in 1981 to almost 0 in nowadays.
In 2008, when the rate has first gone to the near to 0 mark, an average household accumulated debt in the US has already been 130% (compared to 65% before Reaganomics). Thus, it has created a serious problem which has not yet been solved. Anyway, if the debts have to be paid back, if no more credits are taken, what will happen to the middle class?
Death of the Middle Class
As it is widely known, adjusted households income is still on the level of 1960s (when there were no such big debts). If middle class members start to lower their consumption (that’s practically unavoidable), their earnings (comparatively low) will start to decline, as wages will decline and production will be abandoned.
In theory, it means 1950s flashback with all the structural income changes it will bring. But there was no middle class at that time. People were used to live poorly without consumption propaganda around them. Even if production is taken back home, it will not help as it only will create workplaces, but not grow income. If it could lead to the income growth, it would become unfavorable (thus losing any sense at all).
No middle class will be left because there are no resources for that. The EU situation is even worse as people there are less prosperous (in whole).
What will governments do with that? The only observable measures are governmental financial restrictions becoming more and more severe, along with government control over public (cattle J ). But the economic model is not changing. No control is able to substitute structural reformation. The main question remains: When will these changes take place and what they are going to be like?