Where Are You in the Economic Strata?

Its a summer Friday, which means that not a lot is going on. Indulge me while I go off on a bit of a digression.

Why? I have been thinking about various groups of people and how they benefit (or not) from society. What their participation levels are in government, the economy, and local communities. It is something I think about from time to time from a macro perspective. Perhaps its the Paul Ryan VEEP selection and all the insufferable Ayn Rand chatter that dredged this up.

Regardless, I have come to a few conclusions about this, and perhaps you might find my contextualization and random connections of interest.

When thinking about economic strata in the United States, I find it helps to break it down to six different levels. Broad classifications like RichPoor and Middle Class simply don’t cut it any more. From top to bottom, I find it looks something like this:

Top 0.1% — The mega wealthy, billionaires and 100 millionaires. They are small in actual number, but attract disproportionate mind share from public & media. Money simply does not restrict any activity or desire of this group (Sorry, top 1%, but you simply don’t have the goods for this strata).

Wealthy: Yes, the ordinary traditional wealthy. These folks who have a net worth north of $5-10 million dollars. They typically accumulate their money by owning their own businesses, or by being senior in public companies. Finances are a responsibility, not a burden to this class.

Comfortable Middle Class (formerly known as Upper Middle Class) are professionals in various field who make a good living, own their own homes (often outright) have savings, retirement accounts, good health insurance, etc.

Stressed Out Middle Class (formerly known as “Middle Class”): are the people may be making a decent to pretty good living, but no longer feel financially secure. Perhaps their jobs are at risk. They constantly stress about losing their health care insurance. They have little in the way of savings or retirement accounts. They are one major health event or divorce away from bankruptcy.

Working Poor: Performing menial jobs for not enough money to make ends meet. Receiving some form of government assistance. Still believe in the American Dream, though somewhat less than a decade ago. Much less economic mobility than prior generations.

Impoverished: Dead broke, no hope, ignored by politicians and society at large. Almost zero economic mobility.

What do these various strata mean for the long run? To be blunt, I am not sure.

During my last trip to Europe, I was aware of how modest the stress levels were, despite the EU crisis, the looming recession, collapse of the Euro, etc. Their extensive safety net meant that there was not a  ”Stressed Out Middle Class” or even a “Working Poor.” If you have health care, retirement, education, unemployment and day care paid for by the state — and a 70+% tax rate — you don’t sweat minor issues like continental recessions.

In Helsinki, we got into a fascinating conversation within a small group of locals about that tax rate. The national and local income tax, real estate taxes, state sales tax, and then the VAT tax mean that a 70% tax rate (versus gross income) was pretty typical. That seemed astonishingly high to me. But someone pointed out that once you add in the costs of health care, student loans, retirement investments, etc. — all the things state pay for with that 70% rate — an American making less than $100k ended up with about the same 30% net as the Finns do.

The difference is we have more stress than they do.

There is a reason that the Nordic countries consistently rank as the happiest places in the world in annual surveys. Then again, the iPad — along with myriads other innovations — was invented in the US. Perhaps those stress levels have something to do with that . . .

This post was originally published at The Big Picture and is reproduced here with permission.

6 Responses to "Where Are You in the Economic Strata?"

  1. Simple Mind   August 18, 2012 at 2:02 pm

    I raise my hand as a member of the Stressed Middle Class! Thank you for the injection of reality.

  2. Valli Genevieve   August 19, 2012 at 7:03 pm

    As a member of the stressed middle class, i would so trade my stress and constant anxiety for a 70% tax rate and a sense of security that if and when I fall, something will be there to catch me.

  3. Carlos   August 21, 2012 at 7:40 am

    If you don't want revolutions you need social cohesion. You achieve it through wealth redistribution.

  4. spider   August 21, 2012 at 11:15 am

    Ritholtz, who I usually like, didn't go to Europe. He went to fantasy land. In the real world Spaniards, Portuguese, Greeks, Irish, and probably many others are totally stressed out. In the real world, the European safety net – even in France – is under terrific stress because the government – even with a 70% tax rate – cannot meet demands.

    In the real world, the untermenchen, the bottom 50, 60, or 80 per cent, are constantly under stress (except for brief interludes), and constantly protesting. Often violently. That's the way of the world. If you're not rich or very talented or lucky you are screwed.

  5. glasshouses   August 22, 2012 at 1:00 am

    I think what is missing here is that the 70% tax rate doesn't allow the average European to have all the consumer goods Americans think they absolutely must have to live the good life. The Stressed Middle Class is mainly stressed because they won't be able to make their two car payments, their premium cable subscription, their smart phone subscription, their house payment and their home improvement loan (that they actually spent on going out to dinner several times a week and other things that they can no longer remember buying.) As with households, as with governments, its not the income its the spending, and Americans are addicted to it. Europeans settle for a whole lot less to get their peace of mind.

    • spider   August 22, 2012 at 9:52 am

      They settle for less because they have to. Because they can't afford more. They've – wisely – chosen a safety net over consumer goods but that too is becoming too expensive since it depends upon their ability to sell their goods and services to the rest of the world which – increasingly – most of them don't have. And that's said without addressing the problems of economies based on endless population and economic growth in an increasingly stressed and very finite environment.