If 100% or near 100% financing is required to keep these neighborhoods stable (loans over $400,000 for houses in the $400,000-$450,000 price range), then in what sense are they neighborhoods of the "upper and middle classes"? Does our current definition of "middle class" (not to mention "upper class") include having insufficient cash assets to make even a token down payment on a home?
Tanta, I have been asking this question for years, but usually I would get blank looks in response.
Much of the trappings of economic prosperity in this country are illusory.
It's just common sense.
Also, our entire financial system has become complex and illusory beyond belief. Read Joseph Tainter's "Collapse of Complex Societies."
When the average investor can no longer understand all of the byzantine contortions that you blog about so helpfully... when everything is just acronyms and nobody can agree on what is obviously about to happen even as we all know what is going to happen... a financial system (and a society) has become unsustainably complex.
Does our current definition of "middle class" (not to mention "upper class") include having insufficient cash assets to make even a token down payment on a home? Yes
What is the utility of this kind of thinking? Thinking?
Tanta,the utility of denial is that it allows people,particularly children to emotionally survive circumstances that would otherwise destroy them.The problem with Denial is that it allows destructive behaviour to continue to incredible extremes while denying any responsibility.It is a survival mechanism in children who are nearly powerless to change their circumstances,and horrifically destructive in adults.
I think there is a large divide now in the "middle class". The upper and lower halves seem to be moving more to the extremes; what was a comfortable true 'middle class' a few decades ago is no more.
the abandonment of expensive entitlements and special conditions for public sector workers, including generous early retirement and pension benefits for half a million rail workers, which he believes make France uncompetitive.
so Sar's solution is for everyone to work harder, which will make them happier? mmmm, ok
Wasn't there a poll a while ago where a huge number of people identified themselves as being in the middle-class? I seem to remember their incomes ranged from $30k to $120k. The point being that people like to think they're middle class, even if their income would indicate otherwise. Considerations of debt load and liquid assets probably weren't even considered.
To be wealthy...you have to at some point...given up something of great value in exchange for dollars.
Debt has enabled people to reap benefits BEFORE that sacrifice.
Being able to rationalize taking on debt the way that a lot people have been doing lately...to me...harkens back to one simple concept...entitlement.
Children now are mostly incompetent cowards. No one is allowed to fail anymore, and no one is ever taught to take responsibility for and LEARN from their mistakes. "everybody's a winner".
These are incredibly necessary lessons that parents insist that "their children will never have to endure the tragedy that they did" are all but lost now. Being bullied teaches you to stand up for yourself and others, failing teaches you that your actions have consequences, and hard work helps to make concrete that abstract concept of "money".
All of this is self-correcting in time....but...as one poster alluded to previously generational dynamics insures that we as species are slow learners. We always seems to make the same mistakes that freshly removed previous generations have just finished learning. There was a time when I was bored to death reading about history, I couldn't have been more wrong. I think it should be much more emphasized. Especially the last 80-100 years.
There's a novel out there somewhere about a future dystopia where "the luxuries are cheap and the necessities are dear."
That's what we've had going for 25 years now. As others have said, it's a smoke-screen over the fact that we've been getting poorer and poorer all that time.
Back in the early 80s, when "yuppie" was a new word, one commentator opined that buying expensive beer and wearing expensive clothing was a good way for a young professional to obscure the fact, even to himself, that he couldn't afford a house.
Our economic innovation over the past ten years was to throw out the rulebok of financial responsibility so that he could buy a house -- even if he couldn't afford one. And to encourage him to do it.
When you look at all the investment ads on TV urging you to invest for th future, substitute "gamble" for invest; because an investment is a gamble, and what they're telling you is that there's no way to a secure old age unless you gamble. Only, of course, you'll never lose. Not with the knowledgeable, responsible, commission-paid salesment of the American investment industry at your side. Yeah -- I'm on commission, and I'm here to help.
Children now are mostly incompetent cowards. No one is allowed to fail anymore, and no one is ever taught to take responsibility for and LEARN from their mistakes. "everybody's a winner".
Speaking as an educator, this is not exactly true. Children and education in our society have become incredibly bimodal. The bottom group is indeed like what you describe. But the top group is incredibly competitive; it ignores and looks down upon the "self-esteem movement". I interview for Dartmouth and the field is incredibly complicated. I have witnessed students with publications in major scholarly journals get rejected. These kids know failure, but only because the goals are set by themselves, not the educational system.
I am simply fascinated by how much cognitive dissonance you can see in one very short newspaper article. I submit that the writer's and editor's inability to see this tells us something about how far away we really are from a meaningful understanding of the housing bust.
Being able to rationalize taking on debt the way that a lot people have been doing lately...to me...harkens back to one simple concept...entitlement.
My biggest gripe with the educational system is how much it has participated in two related phenomena:
Encouraging people to think that there is One Simple Answer to an incredibly complex problem, and that this answer, once memorized and repeated on the test, now means that the student Knows Stuff.
Encouraging people to confuse the mere expression of fervently held opinion with either analysis or persuasive writing. Somebody spent too much time telling a lot of people that other people care about their opinions qua opinions.
From this I deduce that the world has Gone Badly Downhill since I was a student. And you guys need to know that! Really! You do!
The myth of the American middle class has a long history. I grwe up in a very working class family. Yet my mother constantly referred to us as "middle class". She didn't appreciate her pia son "coorecting" her by pointing out that we were NOT middle class but working class. What's different today is that in the past there was a reaqsonable hope of risng to the middle class through affordable education and real economic growth. Now, education is less available because of cost and we all know what kind of job opportunities are available to people without a "good" education. The wonder is that there is so little social unrest as a result of these circumstances.
Middle Class: 1-2 Wage Slave parents with desk jobs. Public school leading to a small private or large public university followed by wage slave employment.
Upper Middle Class: 1-2 Gainfully employed parents in high status desk jobs. Enough cash to spare your children the indignity of public school socialization. Harvard/Yale/Wesleyan undergrad. Direct line to high paying job in finance or permission to spend 5-10 years developing your creative talents.
That's the dividing line. It's sensibilities not money. All those people in McMansions across America because they could earn or be loaned ridiculous amounts of money due to leverage does not make them upwardly mobile. They'll be back in raised ranches and buying 4 door Fords before they know it. The guy who loses his job on wall-street will have the connections/cash to pick up elsewhere.
It's obvious that those damned poor people get all the breaks while the heavily indebted, over-spending middle class get's screwed. It's downright depressing. Let's go shopping.
"Metro Phoenix homes in neighborhoods where prices range from $400,000 to $450,000 now have the highest foreclosure rate. . . ."
That is because incomes in "The Valley" don't support this kind of housing prices for very many. You need a fraud economy like that of Manhattan and Silly.con Valley to support high home prices for a large percentage of homebuyers. When the fraud can no longer be supported these areas will fall into deeper depression than the rest of the country.
Boomers may have passed their peak earning years but given they were able to purchase homes at prices that were far more affordable before the housing bubble started in earnest after 2000 they're not in as bad a shape financially as you might think. Rather, it's younger buyers whose wages haven't risen nearly as much as home prices have that are finding themselves hurting trying to even buy a modest, older home.
a) live within your means
b) avoid the two-income trap as a family
I read the books by this one super-cheap guy from Washington State (forgot his name now). His books are titled Cheap Tricks and The Two Income Fallacy (or similar). OK, sometimes you have to be creative to avoid needing two wage earners in a family, but that's still a lot better than two people having to work. OK, I'm also old fashioned and want my wife to be a stay-at-home Mom.
One of the basic "Cheap Tricks" is always: if you're looking for good schools stay in cheap neighborhood and go private or drive your kids to a better school. - That's way better (and cheaper) than buying into an expensive neighborhood.
"The myth of the American middle class has a long history. I grwe up in a very working class family. Yet my mother constantly referred to us as "middle class".... What's different today is that in the past there was a reaqsonable hope of risng to the middle class through affordable education and real economic growth."
What's also different is that wage and age security is gone. My working class parents had a union, benefits, and old-age pensions and medical insurance that kept them secure until they died.
To get that kind of security in old age, today's middle-class knowledge worker would have to scrimp and save all his life and in the end -- live not even as well as my parents did, with their miniscule house payment and subsidized state education that sent my sister and I off to college and back with minimal expenditure and debt.
The middle class wasn't a myth, for 20 or 30 years. It just needed the societal and governmental support that have now been coopted again by the wealth class.
RE: daveNYC:
My boyfriend & I have a combined annual income of $130K. Cars are paid off, mortgage payment is minimal. Due to inflation of the cost of necessities such as food, utilities, gasoline, health insurance,etc. we are the working poor in Atlanta.
I think it takes an annual income of at least $200K to be middle class these days.
Many of today's American 'middle class' are going to experience sobering reality with pain over next few yrs as their assets and standard of living depreciate and goes down respectively
Then perhaps they'll ask what were the golden yrs of America's middle class ?
"I'm also old fashioned and want my wife to be a stay-at-home Mom."
YIPES! I was raised in a family where women had careers. Both of my grandmothers were college-educated, and one was an immigrant who came here as a child. In fact, education was always seen as the way to do better than ones forebearers. The idea of a "stay-at-home mom" was sort of seen as something that the poor people did because, well, because they had no education and raised lots of babies indstead. Funny how now we think it is a virtue but in the late 50's and early 60's this was the thought pattern in my circles.
By the time I got to college, I thought it odd if a woman was there to get an "MRS" as we liked to call it. And, frankly, the thought of NOT going to college never entered my head, and I didn't suffer from having women in my family that were teachers, managed a factory, and did trusts at a major bank. In fact, it made me very, very proud...especially considering some of them could barely speak English as a child.
So, O-Joe, the problem isn't some form of "old-fashioned" retrojected attitude into the past, but simply having people live within their means in the present. I think you missed the point.
Good link on debt and middle class - most interesting:
"A common but misplaced assumption is that the growth in debt among middle-income families those with incomes roughly between $25,000 to $70,000 a year is the result of over-consumption through increased credit card debt. Rather, growth in debt is primarily due to heavier borrowing for investments in homes or education, both of which saw dramatic price increases in recent years. "
Also interesting counterpoint, but notice that their definition of how well the middle class is doing hinges on housing appreciation. Oops:
"On average, U.S. households spent 14.4 percent of their income on debt payments in 2004, not much different from the 14.1 percent they spent in 1995. The bulk of what we've borrowed hasn't paid for groceries or big-screen TVs but for housing - which, again, has appreciated strongly in the last decade. . . ."
Unlike Europe, its striking ( pun intended) that the USA hasn't had signficant sections of population proud of being called and self-labeling themselves are WORKING class for at least 2 perhaps 3 generations. Working class as in "can kiss my ass", "Hero is something to be". How many people even know of "Ballad of Joe Hill" let along get together to sing it - the very image of that happening is ludicrous. The culture, the brass bands, the clubs, the (self)-educational circles just don't exist.
So, with the working class label eliminated from common parlance and retreating to purely academic circles most of those that words like family history, education, manual/industrial labour, wage rates, overtime payments( and similar exempt /non-exempt worker legal distinctions ) would be classified as working class self-identify as middle class.
I can't blame the journalists for continuing that short hand - but yeah its lost all meaning.
Of course I blame those Fabian, methodist wesleyan working class movements for being so mealymouthed about class distinctions instead of the stern ones of lumpens, proletariat, petite-bourgeoise, bourgeoise etc that Marx introduced ( cue dotcommunist)
What I find interesting is that it doesn't sound like there are any dissenting opinions here; Readers of Tanta/CR are likely to be well above average in their understanding of economic forces at work in our society and more in line with the views of mainstream finance, yet everyone here seems to look with disdain at the American consumer's precarious, debt-ridden plight and illusory incessant pursuit of luxury goods. And all feel its unsustainable Yet today, as we 'celebrate' Black Friday, we're bombared by the mainstream media about how debt is not only common but ok, and shopping supports our businesses so we should continue doing so.
So -barring the obviously beleagued housing sector- is anyone here encouraged by the US's 'consumer economy?' Is there anyone that sees a positive and/or sustainable side to this grim reality that's painted? And if not, why isn't there more of an outcry at this unsustainable situation?
I think that this is what, in large part, made the current political regime so successful. They sold the idea that they really represented your class when, as now we see, they did anything but because everyone was now upper-middle class...as if you could consume your way into some class.
The class tokens of distinction have lost meaning. What good is it to have a Coach bag when they are hawked at every mall and all you need is a credit card to get one? I thought the idea of luxury goods meant that they were, to some degree, unobtainable?
And this is the cruel bread and circus of the present age. The illusion that you've made it when the only thing you've done is put yourself into debt and become a wage slave to the burden. Who the hell needs a 4000 sq ft house? An 80K station wagon? 120 dollar sneakers? Well, you do it that's what you think being upper-middle class is and consumption defines it.
I have to stop now or it will become a tanta-length post
Is there anyone that sees a positive and/or sustainable side to this grim reality that's painted?
Well, the positive side is that this is a rich country problem, isn't it? Consuming in and of itself isn't a problem, it's how you pay for the consumption that is. And leverage isn't a bad thing if the leverage is used correctly. In fact, I'm a firm believer in good debt that allows liquidity to work better for you.
But is putting a 42 inch LCD HDTV a good use of leverage? Is buying a house 2x bigger than you need one? Is there any excuse for a Hummer? Or a Porche Cayenne?
My parents used debt effectively and have never carried a credit card bill for more than 90 days in their whole lives. They've had everything they've ever wanted and they were very working class. They consumed prudently, splurged here and there, bought a modest but nice house in a good area, and alway drove a new car every 4 years (my dad's one vice). They also put two of us through college. My mom was a teacher and my dad an school department admin. I consider those public jobs very working class...although I'm sure now people think that they are middle class.
So you tell me what you think. Is anything wrong with this lifestyle? I think it is the American Dream, personally.
Does our current definition of "middle class" (not to mention "upper class") include having insufficient cash assets to make even a token down payment on a home? Things seem to have changed since I did Econ 101.
It's possible (and I know of several cases) that mid- to upper-class people put no money down on overpriced homes at very low interest to plow what they would have put on a down payment into equities. Anyone with some market and economic savvy (or a good adviser) could see that this was a wise thing to do. Now, the true upper-middle and possibly middle income classes can refinance at reasonable interest rates (and using low-tax capital gains to pay down the mortgage if needed). The result is money coming out of equities and a curtailment in spending. Only the truly overextended, foolish, or "green" will lose their homes. There must be a lot of these types in Phoenix.
But the top group is incredibly competitive; it ignores and looks down upon the "self-esteem movement". I interview for Dartmouth and the field is incredibly complicated.
I'm also in higher ed and am not as impressed as you. Too many of these "competitive" kids are like trained seals. They haven't got an original thought in their heads, much less any subversive ones. Few of them have done any actual work that wasn't expressly meant to pad their college applications or job resumes.
They are coldly, terrifyingly efficient in the use of their free time. Fascist leaders of tomorrow, if you ask me.
Encouraging people to confuse the mere expression of fervently held opinion with either analysis or persuasive writing. Somebody spent too much time telling a lot of people that other people care about their opinions qua opinions.
Damm I feel like charlie brown being dragged along by his kite. It is scary to confront one's own inadequacies.
I make around 80000 a year and realestically can not afford more than what I wouldconsider a starter home in Colorado Springs. However I can livein a great neiborhood renting for less than the purchase of said starter home. Homes in the ghetto here are 150000 come on.
The other thing I see here in CS and this is off topic but pertinent to the near future here. Most homes are tri-levels. Good luck getting up and down stairs as the boomers age. My father died recently from cancer and we had hell getting him in and out of the house because of a sunken living room. Nobody planned for the future here it will come back to bite them.
So, O-Joe, the problem isn't some form of "old-fashioned" retrojected attitude into the past, but simply having people live within their means in the present. I think you missed the point.
ipodius
Maybe you missed the point. My wife has what I think is called here higher education and still puts her calling as wife and mother higher than that of managing a factory or teaching at school. You may still call us poor or un-educated for that, if that makes you feel better.
Just about anyone could buy a 400k home during the past several years. And the writer is saying that because they bought said house, they are by definition, middle-class. Not true.....what I think might be true is that many of these folks were trying to become a member of the middle class by gambling....making a bet they could realize big dollar gains in fairly short order.
Middle class (to me) means assets, above average income job, and debt that is low compared to income. A "real" middle class buyer would have put 20-50% down, picked up a fixed rate loan, and settled in for a few years.
There is a place for speculation in all economic activities.....and unfortunately, the vast majority of people are not smart/experienced enough to recognize that when you bet the farm, there is a good chance you could lose it. I first noticed this when a teenager growing up in a farming community. Some farmers were fat and happy, started trading in commodities, and learned the hard way what the term margin call really meant. Same in stocks, real estate....you name it. Hard telling what the "next great opportunity" will be.
Well, the biggest shoe in Phoenix that is about to drop is the retreat of 200K recent immigrants due to lack of house building. These folks will leave and the bottom will fall out of the lower end housing. But only until rising rents start encouraging investors. Til then, free fall.
As for the 400k house in Pahoenix. Yup, overpriced middle class wannabe got cheap easy financing with the promise that you could refi in a couple years and put off that nasty reset deal. Humph, no reset avoidance. Then just walk away, especially if the big new job didn't materialize. This pattern worked for nearly a decade (1995-2005)- so it quickly became the model.
Think people!! Was this a housing bubble? Yes! But how much inflation is on the way!!! Look at the collapse of the dollar!!! WE HAVE TWO or THREE MORE YEARS OF 7-10% INFLATION ON THE WAY!!!
Yes folks, inflation. So bonds will once again become worthless, and what are people bidding up frantically? Bonds. Lol- whatever Wall Street prescribes for itself, inflation is coming to eat it alive, and us too.
Good Luck, because...
Someday this war's gonna end...
Jay Butler self proclaims that his profession is that of a professor at ASU who teaches the economics of real estate; in reality he is unaware that he is now viewed by some people here as a clown...a lot people around here think this guy is goofy.
I think the song "Tears of a Clown" might be appropriate Saturday Rock material in honor of him.
If you want to see just what type of jokester he is, go back and read through his news releases for January through June 2007 found here:
You can't get much funnier than his "isn't this a great market!" mantra.
What is really sad is that his incompetence is not just contained to himself. I can say without hesitation that I will forever be naturally biased in my consideration to hire one the students of his programs. They may not be defective, but they sure were built in a defective environment.
Goose, gotta reflect he party line to get ahead, especially in a place like ASU- were you expecting something like reality from them? They hired Prescott and thought they got a good deal;-} I have never thought much of ASU's programs because they never think much beyond the coventional.
Our real homegrown Nobel from Arizona left for Virginia just before he won- because we didn't support him in Tucson.
Always late and a dollar short- Arizona's history.
Well, we've pretty well demonstrated that "middle class", at least here in the US can mean anything or, more to the point, nothing at all.
I always thought the French had an interesting way of breaking it all down in Proust's day; it all depended on what your relationship was to work. If you worked for someone else, you were working class. If you had your own business, however humble or exalted, you were of the Bourgeoisie. A nice refinement was if, in your enterprise, you took the considerable profits and others did the work, you became of the Grands Bourgeoises. Everything above that involved aristocracy or royalty who, at that time at least, couldn't rightly be said to work beyond the varying demands of noblesse oblige. To be fair, that sometimes did involve a great deal of work.
All very tidy. We haven't anything remotely like it here and now.
Middle Class? Call it what you like - it's meaningless.
I'm a strong believer in
a) live within your means
b) avoid the two-income trap as a family >>> O-Joe
C'mon O-Joe, are you trying to wind us all up?
Totally agree that living within your means is essential, and I think that is an idea America will come around to, albeit the hard way.
But I don't see how "avoiding the two-income trap" fixes anything. Countries where women rarely work tend to do less well economically, as they are only utilising half their resources (the smart half). Think just about any Middle East country...
And with today's rates of divorce around the world, would you not want your daughters to be self sufficient and able to land on thier feet if things don't work out?
Dan, the middle class is a surprisingly durable cross racial lines construct. It is just the fact the it no longer exists as it once did. That fact has made a whole bunch of people rich as they fed off the anxieties generated by that decline. As for me, I am probably middle class, but when I measure my wealth by world standards, I am rich.
I shudder to think about how rich I am when I convert to say the standards of Newton and convert my (in modern terms) miniscule amount of silver and gold that I own into pounds sterling. One day's pay for my converted into silver would have paid for a servant for over one year in 1600. That is something to contemplate if you are feeling poor today;-} Contemplate that Dickens 20 pounds per year man of 1850 would cost just under $2000 in FRN's and we still are rich.
Think about it, but then maybe a few old dimes might make a good investment in dinner in a couple of years...
As for biggest shoe to drop, I who agree that the 200k immigrants (most of the here illegally) who left because iof the downturn in the housing industry is putting the slap down on the local economy. But that shoe will sound like a bowling ball hitting the floor if the legislation penalizing the businesses that hire illegal immigrants is perceived to be enforced when/if it goes into effect.
Tanta said: "1. Encouraging people to think that there is One Simple Answer to an incredibly complex problem, and that this answer, once memorized and repeated on the test, now means that the student Knows Stuff..."
Thank God, there's none of that here on this blog.
Housing in my area (that is similar to the $400k-$450k homes in Phoenix) is only around $275k-$325k. Since the salaries for public school teachers, technical writers and Taco Bell managers aren't also 45% higher in Phoenix than in Raleigh, that's a problem---for the middle-class of Phoenix, but not for the middle-classes in areas where housing is more reasonably-priced. Which are never mentioned here except as a sarcastic remark ($75k for a house in some farming community nobody's ever heard of).
Nationwide, the $200k-$300k range is the sweet-spot where the plurality of housing sells. But "the disappearance of the middle-class" or "the widening gulf between the haves and the have-nots" makes a better story.
Nationwide, the $200k-$300k range is the sweet-spot where the plurality of housing sells. But "the disappearance of the middle-class" or "the widening gulf between the haves and the have-nots" makes a better story.
I see the same thing in much of the Midwest... tolerably well paying middle class jobs and decidedly lower housing costs. There are a few isolated islands of silliness (where housing prices have bubbles to near coast-like bubbliness) surrounded by an ocean of modestly priced middle America.
But that doesn't change the story for those on the coasts and they are the largest cohort of the market... Something like 60% of the Res RE value in America are in NE US (DC-Boston), Florida and California. If that sector of the market is sick it will effect the health of the rest of the body.
Women entering the workforce was merely a way to extend the lifecycle of the Credit cycle.
It's all through real estate. Each generation has plundered the preceding generation beyond "normal economic growth" by raising land prices. Land prices were reflected into wages, and wages drove labor offshore over the past 20-30 years.
Government became a progressively greater force for redistribution to account for the shrinking amount of real productivity, maintaining an illusion of income distribution by using debt promises which can't possibly be fulfilled.
The true cause of it all is the positive feedback effect of debt. That's why we had a cultural taboo against debt.
Reading the comments, it seems that many people don't understand the Big Picture or the real drivers of what's happening.
According to the National Association of Home Builders, the average home size in the United States was 2,330 square feet in 2004, up from 1,400 square feet in 1970.
No more middle class? Please. Certainly hard to find evidence of hardship in housing stats. Question: After the X million foreclosures, what will the average home size in the US be?
Until recently many buyers were willing to pay a premium for owning a new home where the bathrooms, kitchen, and bedrooms have never been used. But that premium is vanishing and is even reversing in favor of existing homes in parts of Florida, Las Vegas, California and other over-built areas throughout the nation.
WHAT? FL, Vegas and Cal overbuilt?! Say it ain't so, Captain Obvious!
Maybe another reason why new homes are declining in value is because people are finally realizing that (a) there's too much goddamn space to fill up with Stuff and also (b) older houses are built better.
People are realizing that they maybe don't need a home they can yodel in.
"Nationwide, the $200k-$300k range is the sweet-spot where the plurality of housing sells."
Those of us living in riduiculous markets may have forgotten, but $250,000 is still a hell of a lot of money, and far too much for most working/middle class people to carry if anything changes in the economic picture - higher interest rates, lower employment, higher energy prices, etc.
Tanta said: "1. Encouraging people to think that there is One Simple Answer to an incredibly complex problem, and that this answer, once memorized and repeated on the test, now means that the student Knows Stuff...""
Back in the early '70s I took Econ 1A as a requirement. The teacher was a John Denver look-alike whose name I have long forgotten. These were the first days of floating currency, of high gold and silver prices, of the stratospheric Swiss franc, and inflation. All sorts of popular nostrums for "fixing it" were in the air, and people would bring them up in class.
The prof's answer was to stalk around the room proclaiming, repeatedly, "There are no simple answers for complex economic problems. THERE ARE NO SIMPLE ANSWERS FOR COMPLEX ECONOMIC PROBLEMS."
All the other stuff from that class -- cost-push inflation, demand-pull inflation, terms you don't hear anymore -- are long gone. But I still remember his mantra, because he said it in every class.
He's probably still teaching community college while his "betters" are ruining the country.
My biggest gripe with the educational system is how much it has participated in two related phenomena:
Encouraging people to think that there is One Simple Answer to an incredibly complex problem, and that this answer, once memorized and repeated on the test, now means that the student Knows Stuff.
Encouraging people to confuse the mere expression of fervently held opinion with either analysis or persuasive writing. Somebody spent too much time telling a lot of people that other people care about their opinions qua opinions.
From this I deduce that the world has Gone Badly Downhill since I was a student. And you guys need to know that! Really! You do!
Tanta,
Have you read George Saunder's "The Braindead Megaphone"? It speaks to this growing tendency in our culture.
The intelligence-knob is turned down to 0 and the volume-knob is turned up all the way.
My pop has shared this insight with me over the past couple years. He has no economic training and did not go to college but its pretty simple.
Basically, its that the cost of things is no longer dictated by, you know, "the market", in other words, the price other people are willing to pay. If I want a house I need to calculate what I can afford, then go find a house in a reasonable price range and haggle until it gets to that price. If the realtor wants to charge $800,000 on a house but people are only willing to pay $500,000, that house is not worth $800,000.
No more. Now it is how much debt can you pick up to "pay" for it. It no longer becomes about the sticker price but the monthly payment. I cannot afford a $800,000 house and I can't afford a typical mortgage but if you gimmick it up enough to get the monthly payment down then I can swing it!
And obviously everyone who hands out debt is very happy to oblige because lots of money can be made. It's the same thing with cars, too. Car prices are no longer whats on the windshield, its what the gimmick price you pay monthly is.
The middle class definition hasn't in all these years changed much. It's about owning a house in a nice neighborhood, car for you and the missus, 2.3 kids, whatever. What has changed is how those things are acquired.
Re: stay at home spouses. I think we are at the point where it may pay for one spouse - need not be the wife - to stay home. I think we are past that point if children are involved, and approaching that point if they are not.
The one who stays home has a lot to contribute. By cooking (a loaf of home-baked bread costs about a quarter), cleaning, maintenance, repairing, gardening a quite substantial financial contribution can be made (i.e. the family lifestyle has to change - eating out becomes very rare). There's also research to be done on insurance, vacations, purchases. Stay at home could easily save thousands of dollars by doing the research that two incomes have no time for. If kids become teenagers, having one spouse as a stay at home should mean that a third car is absolutely not needed.
But, this shouldn't be a division where the stay-at-home has less power. In fact, it could well be that the stay-at-home is "the general," the one armed with the research, the big picture overview, the planning - who sends out the working spouse to bring in the income.
This scenario doesn't work, though, if the family still maintains a two-income lifestyle, eating out, driving around a great deal, and neglecting the coupon-clipping and research that can make it pay off.
Is there class in America? Seriously. And not so seriously. We have a middle class? Are we confusing class with wealth?
I recommend taking another look at Veblen's "Theory of the Leisure Class" and see how it stands up. As I remember it may not be accurate, but it still is funny reading a crotchety old man who hates dogs. BTW- that's where "conspicuous consumption" was coined.
Once again, O-Joe misses the point. There is nothing inherently "old-fashioned" about a spouse (I'll also emliminate the sexist notion of the "wife" from his post)staying home. It's a choice, and one's attitude to it is, in itself, an expression of social class. To make a big deal of it as if it is some sort of virture, or to imply that people that don't are in some way raising their children in an inferior manner...well...I won't go there.
My best friends decided that the husband was going to stay home when their children were small because she made much more money than he did. And the reason was very much economic...they did the numbers with child care, taxes, expenses, auto, etc and it didn't work out. In fact, they saved money by his not working in the end.
And they never discuss it or think that it had any inherent virtue or made parenting any easier. It just worked out better logistically and economically. My niece, on the other hand, had both parents working, went to day care, and is one of the best students, athletes, and is very sociable, shares freely, and well-adjusted. My brother thinks it's because she was socialzed with others from birth. So there you go.
Goose, that enforcement will be showy and ineffective to start. In the long run it will be savage and effective. What it will reward is those who strip their assets fastest and head south with a nice newer shiny truck full of appliances and goods for their updated casa on the ranchero.
Not that I am cynical, mind you, but during the great depression we exported hundreds of thousands of long term illegal immigrants to make room in the job market for the okies and arkies. The other driving factor is that while most of the men are here, a tremendous number of family are still at home, and will not be sending money to support those here not working. Without housing, Phoenix instantly becomes a much poorer place.
Just contemplate how much money was circulating through from the hot housing market, and what has been perceived as the hot commercial market. Those jobs will shortly be gone, and gone for quite a while, and meanwhile, the landlord wants his rent. The crowds of daylaborers looking for something to do is illustrative. They will only endure a couple of weeks of comparative unemployment before it becomes attractive to leave here for elsewhere in the USA (or Canada!)or to return home. The history of the west is one of huge booms followed by crushing busts. Guess which we are starting right now?
Sue said, "I think we are at the point where it may pay for one spouse - need not be the wife - to stay home."
This is absolutely true to a point. Assuming the spouse staying home earned less than the cost of childcare and "extras" then this works. In my case, if my wife and I had another child we would be better off financially if I stayed home (yes, she is the "breadwinner"). I'll avoid the question of whether the stay-at-home spouse would be wasting their talents and/or education by staying home.
yes, it might pay for the mother to stay at home while kids are young if at the same time she can earn good money.
i already achieved it! as potential first time buyers hurt by this crazy housing bubble (of course, still renting) I didn't want my family to be also hurt by the social security "tax on the young". Dropping out will save us about half a million (I assume here I'll break before we retire, 40 years from now).
So I convinced my husband to find ways to earn money out of payroll (investment income was the only thing that came to my mind). Hopefully we will be both, not only myself, out of wage slavery pretty soon.
Totally support welfare, but cannot pay for maintaining the standard of living of less than 25% of the population that owns 66% of the assets. I honestly resent specially housewives that never contributed, working wives get between 10% and 20% more than a non working wife as SS benefits.
Also subsidizing health insurance for the old when kids that are the priority for me are not or might not get coverage is kind of insanity. Why do old people talk about "entitlement mentality" when talking about the young? That is pretty funny!
Very interesting. I was canvassing in an VERY upscale (> $1M) neighborhood in Tucson last Fall and I was very surprised to see all the "For Sale" signs.
I'm surprised by the number of 'working class' people I meet who insist on displaying a 'middle class' 'lifestyle'.
If you depend on a paycheque once or twice a month to make ends meet, you are (by definition) working class. That some working class folks are able to spend beyond their means is the American Dream (for those selling the Dream).
Many Americans have been sold the idea that you are as you appear, which is not (in the opinion of Ralph Waldo Emerson) virtuous.
This is not going to end well for many who currently consider themselves middle-class, including those who consider that even middle-class is not good enough for them, and insist that they are 'upper' middle-class.
The usefulness (utility) is simply this: that at the essence of every con-game is a plausible and desire/fear laden misdirection. It is universally one which gives the mark, rube or shearable sheep something for nothing via a once-in-a-lifetime opportunity to reap the rewards of insider secrets with little or no risk.
Realtor and/or Loan Shark to, well most anyone who would listen: "Sure. You only earn $45k, but you can leverage your good name to purchase a $400K house (NINJA style).
"With 20% appreciation - and I can see that going on forEVER - you'll enjoy an additional $80K a year in MEW. Then you can spend as the President recommended and to protect our way of life. You can consolidate your credit cards with tax advantaged deductable interest, take that fabulous cruise vacation, and buy the luxury items you know you deserve.
"Hey! It's a new economy and deficits don't matter because it's different now.
"Look. To prove it, look around you. All the smart people are doing this to have the best the American Dream has to offer. And, they never have a dime of out-of-pocket closing costs. Best of all, you can refi every couple of years, enjoy lower rates and smaller payments at the same time!"
Or some similar twaddle to facilitate the mortgage-backed-Monty.
As a general observation we're probably over-entertained. In the specific realm of financial history, we are without question, under educated.
People who stay at home with their kids are "wasting their talents" only if they define themselves solely by their work-related skills.
If it gives you a warm 'n happy feeling to think of an epitaph reading "She Sold Insurance", or maybe "Beloved Office Manager", then yeah, you're "wasting" something.
If 100% or near 100% financing is required to keep these neighborhoods stable (loans over $400,000 for houses in the $400,000-$450,000 price range), then in what sense are they neighborhoods of the "upper and middle classes"? Does our current definition of "middle class" (not to mention "upper class") include having insufficient cash assets to make even a token down payment on a home?
Tanta, I have been asking this question for years, but usually I would get blank looks in response.
Much of the trappings of economic prosperity in this country are illusory.
It's just common sense.
Also, our entire financial system has become complex and illusory beyond belief. Read Joseph Tainter's "Collapse of Complex Societies."
When the average investor can no longer understand all of the byzantine contortions that you blog about so helpfully... when everything is just acronyms and nobody can agree on what is obviously about to happen even as we all know what is going to happen... a financial system (and a society) has become unsustainably complex.
Does our current definition of "middle class" (not to mention "upper class") include having insufficient cash assets to make even a token down payment on a home? Yes
What is the utility of this kind of thinking? Thinking?
Tanta,the utility of denial is that it allows people,particularly children to emotionally survive circumstances that would otherwise destroy them.The problem with Denial is that it allows destructive behaviour to continue to incredible extremes while denying any responsibility.It is a survival mechanism in children who are nearly powerless to change their circumstances,and horrifically destructive in adults.
I love it Tanta, you are the only one to get right to the point. Pride!!!
I think there is a large divide now in the "middle class". The upper and lower halves seem to be moving more to the extremes; what was a comfortable true 'middle class' a few decades ago is no more.
the abandonment of expensive entitlements and special conditions for public sector workers, including generous early retirement and pension benefits for half a million rail workers, which he believes make France uncompetitive.
so Sar's solution is for everyone to work harder, which will make them happier? mmmm, ok
Answer - Boomers have passed their peak earning years and are living in denial!
The difference is the size of revolving total debt 'serviced'.
Lower middle class has X revolving debt.
Upper middle class has X^3 revolving debt.
All, like this administration track net of cash in to cash out and ignore the total debt.
"Don't worry be happy".
Manage cash only and forget about the possibility of becoming illiquid, much less insolvent.
Wasn't there a poll a while ago where a huge number of people identified themselves as being in the middle-class? I seem to remember their incomes ranged from $30k to $120k. The point being that people like to think they're middle class, even if their income would indicate otherwise. Considerations of debt load and liquid assets probably weren't even considered.
To be wealthy...you have to at some point...given up something of great value in exchange for dollars.
Debt has enabled people to reap benefits BEFORE that sacrifice.
Being able to rationalize taking on debt the way that a lot people have been doing lately...to me...harkens back to one simple concept...entitlement.
Children now are mostly incompetent cowards. No one is allowed to fail anymore, and no one is ever taught to take responsibility for and LEARN from their mistakes. "everybody's a winner".
These are incredibly necessary lessons that parents insist that "their children will never have to endure the tragedy that they did" are all but lost now. Being bullied teaches you to stand up for yourself and others, failing teaches you that your actions have consequences, and hard work helps to make concrete that abstract concept of "money".
All of this is self-correcting in time....but...as one poster alluded to previously generational dynamics insures that we as species are slow learners. We always seems to make the same mistakes that freshly removed previous generations have just finished learning. There was a time when I was bored to death reading about history, I couldn't have been more wrong. I think it should be much more emphasized. Especially the last 80-100 years.
required 9th grade reading...Nationwide
I suspect there no longer is a middle class in the US. There is just a pretend middle class sustained by debt and cheap asian manufactured products.
Yes, mal 9:32, Tainter's book is an excellent one.
And now you're cranky...
Hey Arbo,
Is this your lineage?
Arbogast (general) - Wikipedia, the free encyclopedia
There's a novel out there somewhere about a future dystopia where "the luxuries are cheap and the necessities are dear."
That's what we've had going for 25 years now. As others have said, it's a smoke-screen over the fact that we've been getting poorer and poorer all that time.
Back in the early 80s, when "yuppie" was a new word, one commentator opined that buying expensive beer and wearing expensive clothing was a good way for a young professional to obscure the fact, even to himself, that he couldn't afford a house.
Our economic innovation over the past ten years was to throw out the rulebok of financial responsibility so that he could buy a house -- even if he couldn't afford one. And to encourage him to do it.
When you look at all the investment ads on TV urging you to invest for th future, substitute "gamble" for invest; because an investment is a gamble, and what they're telling you is that there's no way to a secure old age unless you gamble. Only, of course, you'll never lose. Not with the knowledgeable, responsible, commission-paid salesment of the American investment industry at your side. Yeah -- I'm on commission, and I'm here to help.
Right.
Children now are mostly incompetent cowards. No one is allowed to fail anymore, and no one is ever taught to take responsibility for and LEARN from their mistakes. "everybody's a winner".
Speaking as an educator, this is not exactly true. Children and education in our society have become incredibly bimodal. The bottom group is indeed like what you describe. But the top group is incredibly competitive; it ignores and looks down upon the "self-esteem movement". I interview for Dartmouth and the field is incredibly complicated. I have witnessed students with publications in major scholarly journals get rejected. These kids know failure, but only because the goals are set by themselves, not the educational system.
Well, I doubt I'm any crankier than I usually am.
I am simply fascinated by how much cognitive dissonance you can see in one very short newspaper article. I submit that the writer's and editor's inability to see this tells us something about how far away we really are from a meaningful understanding of the housing bust.
Yes agree unless you're an enterprising independent consultant that knows how to get the right gigs that pay very good $$$
Being able to rationalize taking on debt the way that a lot people have been doing lately...to me...harkens back to one simple concept...entitlement.
My biggest gripe with the educational system is how much it has participated in two related phenomena:
From this I deduce that the world has Gone Badly Downhill since I was a student. And you guys need to know that! Really! You do!
The myth of the American middle class has a long history. I grwe up in a very working class family. Yet my mother constantly referred to us as "middle class". She didn't appreciate her pia son "coorecting" her by pointing out that we were NOT middle class but working class. What's different today is that in the past there was a reaqsonable hope of risng to the middle class through affordable education and real economic growth. Now, education is less available because of cost and we all know what kind of job opportunities are available to people without a "good" education. The wonder is that there is so little social unrest as a result of these circumstances.
Middle Class: 1-2 Wage Slave parents with desk jobs. Public school leading to a small private or large public university followed by wage slave employment.
Upper Middle Class: 1-2 Gainfully employed parents in high status desk jobs. Enough cash to spare your children the indignity of public school socialization. Harvard/Yale/Wesleyan undergrad. Direct line to high paying job in finance or permission to spend 5-10 years developing your creative talents.
That's the dividing line. It's sensibilities not money. All those people in McMansions across America because they could earn or be loaned ridiculous amounts of money due to leverage does not make them upwardly mobile. They'll be back in raised ranches and buying 4 door Fords before they know it. The guy who loses his job on wall-street will have the connections/cash to pick up elsewhere.
From this I deduce that the world has Gone Badly Downhill since I was a student.
this must have something to do with the fact that you had to walk uphill both ways.
It's obvious that those damned poor people get all the breaks while the heavily indebted, over-spending middle class get's screwed. It's downright depressing. Let's go shopping.
"Metro Phoenix homes in neighborhoods where prices range from $400,000 to $450,000 now have the highest foreclosure rate. . . ."
That is because incomes in "The Valley" don't support this kind of housing prices for very many. You need a fraud economy like that of Manhattan and Silly.con Valley to support high home prices for a large percentage of homebuyers. When the fraud can no longer be supported these areas will fall into deeper depression than the rest of the country.
Pain will spread as fraud unwinds.
Jas
Boomers may have passed their peak earning years but given they were able to purchase homes at prices that were far more affordable before the housing bubble started in earnest after 2000 they're not in as bad a shape financially as you might think. Rather, it's younger buyers whose wages haven't risen nearly as much as home prices have that are finding themselves hurting trying to even buy a modest, older home.
I'm a strong believer in
a) live within your means
b) avoid the two-income trap as a family
I read the books by this one super-cheap guy from Washington State (forgot his name now). His books are titled Cheap Tricks and The Two Income Fallacy (or similar). OK, sometimes you have to be creative to avoid needing two wage earners in a family, but that's still a lot better than two people having to work. OK, I'm also old fashioned and want my wife to be a stay-at-home Mom.
One of the basic "Cheap Tricks" is always: if you're looking for good schools stay in cheap neighborhood and go private or drive your kids to a better school. - That's way better (and cheaper) than buying into an expensive neighborhood.
O-Joe
"The myth of the American middle class has a long history. I grwe up in a very working class family. Yet my mother constantly referred to us as "middle class".... What's different today is that in the past there was a reaqsonable hope of risng to the middle class through affordable education and real economic growth."
What's also different is that wage and age security is gone. My working class parents had a union, benefits, and old-age pensions and medical insurance that kept them secure until they died.
To get that kind of security in old age, today's middle-class knowledge worker would have to scrimp and save all his life and in the end -- live not even as well as my parents did, with their miniscule house payment and subsidized state education that sent my sister and I off to college and back with minimal expenditure and debt.
The middle class wasn't a myth, for 20 or 30 years. It just needed the societal and governmental support that have now been coopted again by the wealth class.
RE: daveNYC:
My boyfriend & I have a combined annual income of $130K. Cars are paid off, mortgage payment is minimal. Due to inflation of the cost of necessities such as food, utilities, gasoline, health insurance,etc. we are the working poor in Atlanta.
I think it takes an annual income of at least $200K to be middle class these days.
Here's One Simple Answer: we just came off the peak of the greatest credit cycle ever.
$450K houses in Phoenix are absurd.
Jack Welch...
On Hi ceo pay vs wage slave
"hey, no ones holding a Gun to there Head"
Many of today's American 'middle class' are going to experience sobering reality with pain over next few yrs as their assets and standard of living depreciate and goes down respectively
Then perhaps they'll ask what were the golden yrs of America's middle class ?
Answer in link and chart below
Introducing This Blog - Paul Krugman Blog - NYTimes.com
"I'm also old fashioned and want my wife to be a stay-at-home Mom."
YIPES! I was raised in a family where women had careers. Both of my grandmothers were college-educated, and one was an immigrant who came here as a child. In fact, education was always seen as the way to do better than ones forebearers. The idea of a "stay-at-home mom" was sort of seen as something that the poor people did because, well, because they had no education and raised lots of babies indstead. Funny how now we think it is a virtue but in the late 50's and early 60's this was the thought pattern in my circles.
By the time I got to college, I thought it odd if a woman was there to get an "MRS" as we liked to call it. And, frankly, the thought of NOT going to college never entered my head, and I didn't suffer from having women in my family that were teachers, managed a factory, and did trusts at a major bank. In fact, it made me very, very proud...especially considering some of them could barely speak English as a child.
So, O-Joe, the problem isn't some form of "old-fashioned" retrojected attitude into the past, but simply having people live within their means in the present. I think you missed the point.
Good link on debt and middle class - most interesting:
"A common but misplaced assumption is that the growth in debt among middle-income families those with incomes roughly between $25,000 to $70,000 a year is the result of over-consumption through increased credit card debt. Rather, growth in debt is primarily due to heavier borrowing for investments in homes or education, both of which saw dramatic price increases in recent years. "
Drowning in Debt
Also interesting counterpoint, but notice that their definition of how well the middle class is doing hinges on housing appreciation. Oops:
"On average, U.S. households spent 14.4 percent of their income on debt payments in 2004, not much different from the 14.1 percent they spent in 1995. The bulk of what we've borrowed hasn't paid for groceries or big-screen TVs but for housing - which, again, has appreciated strongly in the last decade. . . ."
http://www.heritagetidbits.com/archives/2007/11/actual_facts_on_trade_and_the.htm
Unlike Europe, its striking ( pun intended) that the USA hasn't had signficant sections of population proud of being called and self-labeling themselves are WORKING class for at least 2 perhaps 3 generations. Working class as in "can kiss my ass", "Hero is something to be". How many people even know of "Ballad of Joe Hill" let along get together to sing it - the very image of that happening is ludicrous. The culture, the brass bands, the clubs, the (self)-educational circles just don't exist.
So, with the working class label eliminated from common parlance and retreating to purely academic circles most of those that words like family history, education, manual/industrial labour, wage rates, overtime payments( and similar exempt /non-exempt worker legal distinctions ) would be classified as working class self-identify as middle class.
I can't blame the journalists for continuing that short hand - but yeah its lost all meaning.
Of course I blame those Fabian, methodist wesleyan working class movements for being so mealymouthed about class distinctions instead of the stern ones of lumpens, proletariat, petite-bourgeoise, bourgeoise etc that Marx introduced ( cue dotcommunist)
-K
What I find interesting is that it doesn't sound like there are any dissenting opinions here; Readers of Tanta/CR are likely to be well above average in their understanding of economic forces at work in our society and more in line with the views of mainstream finance, yet everyone here seems to look with disdain at the American consumer's precarious, debt-ridden plight and illusory incessant pursuit of luxury goods. And all feel its unsustainable Yet today, as we 'celebrate' Black Friday, we're bombared by the mainstream media about how debt is not only common but ok, and shopping supports our businesses so we should continue doing so.
So -barring the obviously beleagued housing sector- is anyone here encouraged by the US's 'consumer economy?' Is there anyone that sees a positive and/or sustainable side to this grim reality that's painted? And if not, why isn't there more of an outcry at this unsustainable situation?
I think that this is what, in large part, made the current political regime so successful. They sold the idea that they really represented your class when, as now we see, they did anything but because everyone was now upper-middle class...as if you could consume your way into some class.
The class tokens of distinction have lost meaning. What good is it to have a Coach bag when they are hawked at every mall and all you need is a credit card to get one? I thought the idea of luxury goods meant that they were, to some degree, unobtainable?
And this is the cruel bread and circus of the present age. The illusion that you've made it when the only thing you've done is put yourself into debt and become a wage slave to the burden. Who the hell needs a 4000 sq ft house? An 80K station wagon? 120 dollar sneakers? Well, you do it that's what you think being upper-middle class is and consumption defines it.
I have to stop now or it will become a tanta-length post
Is there anyone that sees a positive and/or sustainable side to this grim reality that's painted?
Well, the positive side is that this is a rich country problem, isn't it? Consuming in and of itself isn't a problem, it's how you pay for the consumption that is. And leverage isn't a bad thing if the leverage is used correctly. In fact, I'm a firm believer in good debt that allows liquidity to work better for you.
But is putting a 42 inch LCD HDTV a good use of leverage? Is buying a house 2x bigger than you need one? Is there any excuse for a Hummer? Or a Porche Cayenne?
My parents used debt effectively and have never carried a credit card bill for more than 90 days in their whole lives. They've had everything they've ever wanted and they were very working class. They consumed prudently, splurged here and there, bought a modest but nice house in a good area, and alway drove a new car every 4 years (my dad's one vice). They also put two of us through college. My mom was a teacher and my dad an school department admin. I consider those public jobs very working class...although I'm sure now people think that they are middle class.
So you tell me what you think. Is anything wrong with this lifestyle? I think it is the American Dream, personally.
Does our current definition of "middle class" (not to mention "upper class") include having insufficient cash assets to make even a token down payment on a home? Things seem to have changed since I did Econ 101.
It's possible (and I know of several cases) that mid- to upper-class people put no money down on overpriced homes at very low interest to plow what they would have put on a down payment into equities. Anyone with some market and economic savvy (or a good adviser) could see that this was a wise thing to do. Now, the true upper-middle and possibly middle income classes can refinance at reasonable interest rates (and using low-tax capital gains to pay down the mortgage if needed). The result is money coming out of equities and a curtailment in spending. Only the truly overextended, foolish, or "green" will lose their homes. There must be a lot of these types in Phoenix.
Greenspan says he has no particular regrets. The subprime mess, he says, is over.
Greenspan Has No `Regrets' as Housing Slump Deepens (Update2) - Bloomberg.com
Wow, just wow.
But the top group is incredibly competitive; it ignores and looks down upon the "self-esteem movement". I interview for Dartmouth and the field is incredibly complicated.
I'm also in higher ed and am not as impressed as you. Too many of these "competitive" kids are like trained seals. They haven't got an original thought in their heads, much less any subversive ones. Few of them have done any actual work that wasn't expressly meant to pad their college applications or job resumes.
They are coldly, terrifyingly efficient in the use of their free time. Fascist leaders of tomorrow, if you ask me.
Damm I feel like charlie brown being dragged along by his kite. It is scary to confront one's own inadequacies.
I make around 80000 a year and realestically can not afford more than what I wouldconsider a starter home in Colorado Springs. However I can livein a great neiborhood renting for less than the purchase of said starter home. Homes in the ghetto here are 150000 come on.
The other thing I see here in CS and this is off topic but pertinent to the near future here. Most homes are tri-levels. Good luck getting up and down stairs as the boomers age. My father died recently from cancer and we had hell getting him in and out of the house because of a sunken living room. Nobody planned for the future here it will come back to bite them.
So, O-Joe, the problem isn't some form of "old-fashioned" retrojected attitude into the past, but simply having people live within their means in the present. I think you missed the point.
ipodius
Maybe you missed the point. My wife has what I think is called here higher education and still puts her calling as wife and mother higher than that of managing a factory or teaching at school. You may still call us poor or un-educated for that, if that makes you feel better.
O-Joe
Just about anyone could buy a 400k home during the past several years. And the writer is saying that because they bought said house, they are by definition, middle-class. Not true.....what I think might be true is that many of these folks were trying to become a member of the middle class by gambling....making a bet they could realize big dollar gains in fairly short order.
Middle class (to me) means assets, above average income job, and debt that is low compared to income. A "real" middle class buyer would have put 20-50% down, picked up a fixed rate loan, and settled in for a few years.
There is a place for speculation in all economic activities.....and unfortunately, the vast majority of people are not smart/experienced enough to recognize that when you bet the farm, there is a good chance you could lose it. I first noticed this when a teenager growing up in a farming community. Some farmers were fat and happy, started trading in commodities, and learned the hard way what the term margin call really meant. Same in stocks, real estate....you name it. Hard telling what the "next great opportunity" will be.
Well, the biggest shoe in Phoenix that is about to drop is the retreat of 200K recent immigrants due to lack of house building. These folks will leave and the bottom will fall out of the lower end housing. But only until rising rents start encouraging investors. Til then, free fall.
As for the 400k house in Pahoenix. Yup, overpriced middle class wannabe got cheap easy financing with the promise that you could refi in a couple years and put off that nasty reset deal. Humph, no reset avoidance. Then just walk away, especially if the big new job didn't materialize. This pattern worked for nearly a decade (1995-2005)- so it quickly became the model.
Think people!! Was this a housing bubble? Yes! But how much inflation is on the way!!! Look at the collapse of the dollar!!! WE HAVE TWO or THREE MORE YEARS OF 7-10% INFLATION ON THE WAY!!!
Yes folks, inflation. So bonds will once again become worthless, and what are people bidding up frantically? Bonds. Lol- whatever Wall Street prescribes for itself, inflation is coming to eat it alive, and us too.
Good Luck, because...
Someday this war's gonna end...
Jay Butler self proclaims that his profession is that of a professor at ASU who teaches the economics of real estate; in reality he is unaware that he is now viewed by some people here as a clown...a lot people around here think this guy is goofy.
I think the song "Tears of a Clown" might be appropriate Saturday Rock material in honor of him.
If you want to see just what type of jokester he is, go back and read through his news releases for January through June 2007 found here:
http://www.poly.asu.edu/news/
You can't get much funnier than his "isn't this a great market!" mantra.
What is really sad is that his incompetence is not just contained to himself. I can say without hesitation that I will forever be naturally biased in my consideration to hire one the students of his programs. They may not be defective, but they sure were built in a defective environment.
Goose, gotta reflect he party line to get ahead, especially in a place like ASU- were you expecting something like reality from them? They hired Prescott and thought they got a good deal;-} I have never thought much of ASU's programs because they never think much beyond the coventional.
Our real homegrown Nobel from Arizona left for Virginia just before he won- because we didn't support him in Tucson.
Always late and a dollar short- Arizona's history.
Someday this war's gonna end...
I think what he meant by middle class is "white" class.
Well, we've pretty well demonstrated that "middle class", at least here in the US can mean anything or, more to the point, nothing at all.
I always thought the French had an interesting way of breaking it all down in Proust's day; it all depended on what your relationship was to work. If you worked for someone else, you were working class. If you had your own business, however humble or exalted, you were of the Bourgeoisie. A nice refinement was if, in your enterprise, you took the considerable profits and others did the work, you became of the Grands Bourgeoises. Everything above that involved aristocracy or royalty who, at that time at least, couldn't rightly be said to work beyond the varying demands of noblesse oblige. To be fair, that sometimes did involve a great deal of work.
All very tidy. We haven't anything remotely like it here and now.
Middle Class? Call it what you like - it's meaningless.
Dan, the middle class is a surprisingly durable cross racial lines construct. It is just the fact the it no longer exists as it once did. That fact has made a whole bunch of people rich as they fed off the anxieties generated by that decline. As for me, I am probably middle class, but when I measure my wealth by world standards, I am rich.
I shudder to think about how rich I am when I convert to say the standards of Newton and convert my (in modern terms) miniscule amount of silver and gold that I own into pounds sterling. One day's pay for my converted into silver would have paid for a servant for over one year in 1600. That is something to contemplate if you are feeling poor today;-} Contemplate that Dickens 20 pounds per year man of 1850 would cost just under $2000 in FRN's and we still are rich.
Think about it, but then maybe a few old dimes might make a good investment in dinner in a couple of years...
Someday this war's gonna end...
Of course I meant "not the smart half". Jeepers, O-joe you've got me all muddled up!
Allen M,
As for biggest shoe to drop, I who agree that the 200k immigrants (most of the here illegally) who left because iof the downturn in the housing industry is putting the slap down on the local economy. But that shoe will sound like a bowling ball hitting the floor if the legislation penalizing the businesses that hire illegal immigrants is perceived to be enforced when/if it goes into effect.
I ilke the new format, Tanta. Instead of three pages of description and justification, you just write,
"This sucks! Why is it here?!"
Tanta said: "1. Encouraging people to think that there is One Simple Answer to an incredibly complex problem, and that this answer, once memorized and repeated on the test, now means that the student Knows Stuff..."
Thank God, there's none of that here on this blog.
Housing in my area (that is similar to the $400k-$450k homes in Phoenix) is only around $275k-$325k. Since the salaries for public school teachers, technical writers and Taco Bell managers aren't also 45% higher in Phoenix than in Raleigh, that's a problem---for the middle-class of Phoenix, but not for the middle-classes in areas where housing is more reasonably-priced. Which are never mentioned here except as a sarcastic remark ($75k for a house in some farming community nobody's ever heard of).
Nationwide, the $200k-$300k range is the sweet-spot where the plurality of housing sells. But "the disappearance of the middle-class" or "the widening gulf between the haves and the have-nots" makes a better story.
Sebastia
Nationwide, the $200k-$300k range is the sweet-spot where the plurality of housing sells. But "the disappearance of the middle-class" or "the widening gulf between the haves and the have-nots" makes a better story.
I see the same thing in much of the Midwest... tolerably well paying middle class jobs and decidedly lower housing costs. There are a few isolated islands of silliness (where housing prices have bubbles to near coast-like bubbliness) surrounded by an ocean of modestly priced middle America.
But that doesn't change the story for those on the coasts and they are the largest cohort of the market... Something like 60% of the Res RE value in America are in NE US (DC-Boston), Florida and California. If that sector of the market is sick it will effect the health of the rest of the body.
This is all part of the long-term Credit cycle.
Women entering the workforce was merely a way to extend the lifecycle of the Credit cycle.
It's all through real estate. Each generation has plundered the preceding generation beyond "normal economic growth" by raising land prices. Land prices were reflected into wages, and wages drove labor offshore over the past 20-30 years.
Government became a progressively greater force for redistribution to account for the shrinking amount of real productivity, maintaining an illusion of income distribution by using debt promises which can't possibly be fulfilled.
The true cause of it all is the positive feedback effect of debt. That's why we had a cultural taboo against debt.
Reading the comments, it seems that many people don't understand the Big Picture or the real drivers of what's happening.
Sebastian, ever heard of Cleveland?
According to the National Association of Home Builders, the average home size in the United States was 2,330 square feet in 2004, up from 1,400 square feet in 1970.
U.S. Home Size — Infoplease.com
No more middle class? Please. Certainly hard to find evidence of hardship in housing stats. Question: After the X million foreclosures, what will the average home size in the US be?
Answer: 2,330 sq ft.
Expired
Until recently many buyers were willing to pay a premium for owning a new home where the bathrooms, kitchen, and bedrooms have never been used. But that premium is vanishing and is even reversing in favor of existing homes in parts of Florida, Las Vegas, California and other over-built areas throughout the nation.
WHAT? FL, Vegas and Cal overbuilt?! Say it ain't so, Captain Obvious!
Maybe another reason why new homes are declining in value is because people are finally realizing that (a) there's too much goddamn space to fill up with Stuff and also (b) older houses are built better.
People are realizing that they maybe don't need a home they can yodel in.
"Nationwide, the $200k-$300k range is the sweet-spot where the plurality of housing sells."
Those of us living in riduiculous markets may have forgotten, but $250,000 is still a hell of a lot of money, and far too much for most working/middle class people to carry if anything changes in the economic picture - higher interest rates, lower employment, higher energy prices, etc.
Tanta said: "1. Encouraging people to think that there is One Simple Answer to an incredibly complex problem, and that this answer, once memorized and repeated on the test, now means that the student Knows Stuff...""
Back in the early '70s I took Econ 1A as a requirement. The teacher was a John Denver look-alike whose name I have long forgotten. These were the first days of floating currency, of high gold and silver prices, of the stratospheric Swiss franc, and inflation. All sorts of popular nostrums for "fixing it" were in the air, and people would bring them up in class.
The prof's answer was to stalk around the room proclaiming, repeatedly, "There are no simple answers for complex economic problems. THERE ARE NO SIMPLE ANSWERS FOR COMPLEX ECONOMIC PROBLEMS."
All the other stuff from that class -- cost-push inflation, demand-pull inflation, terms you don't hear anymore -- are long gone. But I still remember his mantra, because he said it in every class.
He's probably still teaching community college while his "betters" are ruining the country.
Please. I still can't even figure out why people want those stupid huge TVs.
My biggest gripe with the educational system is how much it has participated in two related phenomena:
From this I deduce that the world has Gone Badly Downhill since I was a student. And you guys need to know that! Really! You do!
Tanta,
Have you read George Saunder's "The Braindead Megaphone"? It speaks to this growing tendency in our culture.
The intelligence-knob is turned down to 0 and the volume-knob is turned up all the way.
My pop has shared this insight with me over the past couple years. He has no economic training and did not go to college but its pretty simple.
Basically, its that the cost of things is no longer dictated by, you know, "the market", in other words, the price other people are willing to pay. If I want a house I need to calculate what I can afford, then go find a house in a reasonable price range and haggle until it gets to that price. If the realtor wants to charge $800,000 on a house but people are only willing to pay $500,000, that house is not worth $800,000.
No more. Now it is how much debt can you pick up to "pay" for it. It no longer becomes about the sticker price but the monthly payment. I cannot afford a $800,000 house and I can't afford a typical mortgage but if you gimmick it up enough to get the monthly payment down then I can swing it!
And obviously everyone who hands out debt is very happy to oblige because lots of money can be made. It's the same thing with cars, too. Car prices are no longer whats on the windshield, its what the gimmick price you pay monthly is.
The middle class definition hasn't in all these years changed much. It's about owning a house in a nice neighborhood, car for you and the missus, 2.3 kids, whatever. What has changed is how those things are acquired.
"Women entering the workforce was merely a way to extend the lifecycle of the Credit cycle."
Yes I know, same unintended consequence of outlawing slavery.
All those freed slaves just ripe for exploitation by the free market.
I understand what you are getting at, but please...
Re: stay at home spouses. I think we are at the point where it may pay for one spouse - need not be the wife - to stay home. I think we are past that point if children are involved, and approaching that point if they are not.
The one who stays home has a lot to contribute. By cooking (a loaf of home-baked bread costs about a quarter), cleaning, maintenance, repairing, gardening a quite substantial financial contribution can be made (i.e. the family lifestyle has to change - eating out becomes very rare). There's also research to be done on insurance, vacations, purchases. Stay at home could easily save thousands of dollars by doing the research that two incomes have no time for. If kids become teenagers, having one spouse as a stay at home should mean that a third car is absolutely not needed.
But, this shouldn't be a division where the stay-at-home has less power. In fact, it could well be that the stay-at-home is "the general," the one armed with the research, the big picture overview, the planning - who sends out the working spouse to bring in the income.
This scenario doesn't work, though, if the family still maintains a two-income lifestyle, eating out, driving around a great deal, and neglecting the coupon-clipping and research that can make it pay off.
Is there class in America? Seriously. And not so seriously. We have a middle class? Are we confusing class with wealth?
I recommend taking another look at Veblen's "Theory of the Leisure Class" and see how it stands up. As I remember it may not be accurate, but it still is funny reading a crotchety old man who hates dogs. BTW- that's where "conspicuous consumption" was coined.
I highly recommend the stay at home lifestyle. I'm a stay at home parent with one dog and no kids.
It beats working, which I've tried, but found to be ultimately unfullfilling.
I'm hoping O Joe is right about the future. I'd hate to have to go back to that way of life.
Once again, O-Joe misses the point. There is nothing inherently "old-fashioned" about a spouse (I'll also emliminate the sexist notion of the "wife" from his post)staying home. It's a choice, and one's attitude to it is, in itself, an expression of social class. To make a big deal of it as if it is some sort of virture, or to imply that people that don't are in some way raising their children in an inferior manner...well...I won't go there.
My best friends decided that the husband was going to stay home when their children were small because she made much more money than he did. And the reason was very much economic...they did the numbers with child care, taxes, expenses, auto, etc and it didn't work out. In fact, they saved money by his not working in the end.
And they never discuss it or think that it had any inherent virtue or made parenting any easier. It just worked out better logistically and economically. My niece, on the other hand, had both parents working, went to day care, and is one of the best students, athletes, and is very sociable, shares freely, and well-adjusted. My brother thinks it's because she was socialzed with others from birth. So there you go.
It's an economic thing, not a virtue.
Goose, that enforcement will be showy and ineffective to start. In the long run it will be savage and effective. What it will reward is those who strip their assets fastest and head south with a nice newer shiny truck full of appliances and goods for their updated casa on the ranchero.
Not that I am cynical, mind you, but during the great depression we exported hundreds of thousands of long term illegal immigrants to make room in the job market for the okies and arkies. The other driving factor is that while most of the men are here, a tremendous number of family are still at home, and will not be sending money to support those here not working. Without housing, Phoenix instantly becomes a much poorer place.
Just contemplate how much money was circulating through from the hot housing market, and what has been perceived as the hot commercial market. Those jobs will shortly be gone, and gone for quite a while, and meanwhile, the landlord wants his rent. The crowds of daylaborers looking for something to do is illustrative. They will only endure a couple of weeks of comparative unemployment before it becomes attractive to leave here for elsewhere in the USA (or Canada!)or to return home. The history of the west is one of huge booms followed by crushing busts. Guess which we are starting right now?
Someday this war's gonna end...
Sue said, "I think we are at the point where it may pay for one spouse - need not be the wife - to stay home."
This is absolutely true to a point. Assuming the spouse staying home earned less than the cost of childcare and "extras" then this works. In my case, if my wife and I had another child we would be better off financially if I stayed home (yes, she is the "breadwinner"). I'll avoid the question of whether the stay-at-home spouse would be wasting their talents and/or education by staying home.
yes, it might pay for the mother to stay at home while kids are young if at the same time she can earn good money.
i already achieved it! as potential first time buyers hurt by this crazy housing bubble (of course, still renting) I didn't want my family to be also hurt by the social security "tax on the young". Dropping out will save us about half a million (I assume here I'll break before we retire, 40 years from now).
So I convinced my husband to find ways to earn money out of payroll (investment income was the only thing that came to my mind). Hopefully we will be both, not only myself, out of wage slavery pretty soon.
Totally support welfare, but cannot pay for maintaining the standard of living of less than 25% of the population that owns 66% of the assets. I honestly resent specially housewives that never contributed, working wives get between 10% and 20% more than a non working wife as SS benefits.
Also subsidizing health insurance for the old when kids that are the priority for me are not or might not get coverage is kind of insanity. Why do old people talk about "entitlement mentality" when talking about the young? That is pretty funny!
I'm young and still angry!!!
Very interesting. I was canvassing in an VERY upscale (> $1M) neighborhood in Tucson last Fall and I was very surprised to see all the "For Sale" signs.
To be wealthy...you have to at some point...given up something of great value in exchange for dollars.
Or you could be born to wealthy parents.
Re: To be wealthy...you have to at some point...given up something of great value in exchange for dollars.
Or you could be born to wealthy parents.
Steve J. | Homepage | 11.23.07 - 6:13 pm | #
Or you could rip off many people with the support (explicit or implicit) of those in power.
I'll avoid the question of whether the stay-at-home spouse would be wasting their talents and/or education by staying home.
Of course they're wasting their talents! But, you don't have children for logical reasons
I'm surprised by the number of 'working class' people I meet who insist on displaying a 'middle class' 'lifestyle'.
If you depend on a paycheque once or twice a month to make ends meet, you are (by definition) working class. That some working class folks are able to spend beyond their means is the American Dream (for those selling the Dream).
Many Americans have been sold the idea that you are as you appear, which is not (in the opinion of Ralph Waldo Emerson) virtuous.
This is not going to end well for many who currently consider themselves middle-class, including those who consider that even middle-class is not good enough for them, and insist that they are 'upper' middle-class.
The usefulness (utility) is simply this: that at the essence of every con-game is a plausible and desire/fear laden misdirection. It is universally one which gives the mark, rube or shearable sheep something for nothing via a once-in-a-lifetime opportunity to reap the rewards of insider secrets with little or no risk.
Realtor and/or Loan Shark to, well most anyone who would listen: "Sure. You only earn $45k, but you can leverage your good name to purchase a $400K house (NINJA style).
"With 20% appreciation - and I can see that going on forEVER - you'll enjoy an additional $80K a year in MEW. Then you can spend as the President recommended and to protect our way of life. You can consolidate your credit cards with tax advantaged deductable interest, take that fabulous cruise vacation, and buy the luxury items you know you deserve.
"Hey! It's a new economy and deficits don't matter because it's different now.
"Look. To prove it, look around you. All the smart people are doing this to have the best the American Dream has to offer. And, they never have a dime of out-of-pocket closing costs. Best of all, you can refi every couple of years, enjoy lower rates and smaller payments at the same time!"
Or some similar twaddle to facilitate the mortgage-backed-Monty.
As a general observation we're probably over-entertained. In the specific realm of financial history, we are without question, under educated.
Coda: If we're all upper middle class, we're also the receptical of the toxic mortgage waste stream.
People who stay at home with their kids are "wasting their talents" only if they define themselves solely by their work-related skills.
If it gives you a warm 'n happy feeling to think of an epitaph reading "She Sold Insurance", or maybe "Beloved Office Manager", then yeah, you're "wasting" something.
Boomers ? Most of the homes sold with 100% financing were to young families and illegal aliens. Most boomers had substancial down payments.
This post isn't a year old yet, but I think it is one of the best in the last two years.
And it marked a turning point for me, where Tanta came out and said
"we're all subprime now".
Not very brave today, but it was then.