The US Middle Class Is Doing Fine. Why Are They So Worried?

and dying in this community. Well is it too much to have them working, paying, live and dyeing a couple of decent rooms in a bath. There's George Bailey, the dutiful savings and loan manager in It's a Wonderful Life and the very model of middle class aspirations, A classic since n I still watch it every December. Ever since the post war economic boom, middle class workers aspiring for

a better life had been the backbone of the US economy. Sure, we'd all love to be billionaires, but a nice home, a stable job, with a bit left over to put away for the future. Middle class is what a lot of Americans have aimed to be. Every politician right and left claims to be a champion of it. Our economy doesn't work as well or grow as fast. Want a few prosper at the expense of a growing middle class and ladders for folks who want to get into the

middle class. Pop culture is squarely aimed at it and pokes fun at it. I need cash, folk, food and cattle, like posters, beer and grass. Time for me to join the middle class. That's Homer Simpson, who somehow supports a family of five on a nuclear power plant workers salary. And then there's all the companies who have long courted the middle class for its disposable income. It's only good

common sense. I be stuck with one expensive car when you can enjoy all the fun and freedom of too fine for its For generations, though, racial discrimination and the persistent wealth gap have kept many Americans of color on the outside. Here's a clip from Still a Brother in n documentary about black middle class Americans. Black to live in a tree line street. I'd like to have a summer home on the lake. I like to wear some from brothers. All Americans, and I am an American think

this way. For people working their way up, It's not always easy to get into the middle class, and for those who do not always easy to stay there. And now here comes inflation and a shaky housing market and a possible recession to make it even harder, which raises the question is being comfortably middle class still comfortable or is the idea losing its mean? My colleague Sean donnan has been wrestling with these very questions, and he's here with some answers. Happy to have Sean donn in here.

He has Bloomberg Senior economics writer Sean You and our colleagues Alex Tanzi, Claire Valentine, and Ariel Low have written a big story about the middle class and what they're facing in this kind of very tumultuous period. I kind of wanted just to start out by asking you what is the middle class? Because it's kind of a mushy thing. We all have a feeling of what it is, but as is a writer about economics, how do you define it? Yeah? No, absolutely,

you're right. It's an amorphous thing and it's something that we all have a different definition of in a lot of ways. We set out to try and put some hard boundaries on it. So what we did is we worked with a group of economist University of California, Berkeley, who have some really great work tracking both income and wealth and America. That second part is really important because we don't often talk about it in the mainstream media. When we're talking about the middle class, we often think

about income what people earned in any given year. And on the income side, there's about a hundred million people who we think of as the middle class between somewhere between a hundred forty five thou dollars a year and a hundred and eighty thousand dollars a year paraddle, not

per household parattle. All right, So if you're making forty dollars a year, give or take that somewhere around like twenty three two an hour depending on how many hours you work in vacation and all that kind of stuff, and it gets you into the middle class, right, I mean, and there's actually fifty percent of the country, there's more than a hundred million people who are going to make less than you at that level. That gets you into like the income level of middle class. Right. But if

you lose your job, you could fall out. So middle class has another peep absolutely, And that's the whole thing that over the years we've talked a lot about this idea of the hollowing out of the middle class is stagnant middle class, and we've really been focused on income. What we've often missed is the wealth side of things, and that's all the stuff that you own, whether it's that equity that you have in your home, whether it's your retirement savings, whether it's the portion of your car

that you own. It may even be your TV. But to get into the middle class, it's people who earned between forty five thousand and a hundred and eighty thousand dollars a year. And it's people who also, and this is the important have between a hundred thousand dollars in savings and assets and a million dollars in assets. So it gives you that cushion so that if you lose your job, you don't necessarily fall out because you have

something to fall back. And I think we can all agree that one of the key definitions of being middle class is economic security. Right, It's a level of I can deal with emergency payments and maybe hard car repairs cost a lot and we all have struggled to pay them.

But at the same time, I have some savings. I feel like you know, worst comes to worst, I may be able to sell my home, you know, and I may have the assets that are there if I can tap into that equity in the home as many people did during the pandemic when you saw this huge boom in in mortgage refinancing, and I can use that money to pay for my kids education, I can do home repairs with that money. I also have retirement savings that I can lean on. But that wealth component is really important.

And what's really important to think about in terms of the economic health in the middle class is what's happened to that wealth component, particularly over the last ten years or so. So now you've we've defined the middle class and these are some pretty difficult economic times. We've got high inflation, housing values are you know, uh influx? How is the middle class feeling? Are they feeling like they could wind up losing it all? So there's two answers

to that. The first is how are they doing? What does the data tell us in terms of how are they doing? And then we also went out and we did some polling to ask how are they feeling? So on the how are they doing part, some people may not want to hear this. This may not fit with the dominant narrative, but the American middle class, based on the wealth data in particularly that we have, has never

been richer than it was earlier this year. In March of this year, the average wealth of those hundred million people in that middle class topped at at around three thousand dollars. That's three dollars in net worth. That's a hundred and twenty thousand dollars more than it was in January when President Trump came into office. And it's something

that's accelerated over the last couple of years. During the pandemic as a resolved, largely because of housing prices and also the stock market boom that we had until this year. So people were just earning a lot on their investments, they were seeing their savings rise, they were able to contribute more to four own case, their houses were going up. It was just good times, absolutely until March of this year.

And then what happened is the Federal Reserve started fighting back against inflation soared raising interest rates, and we've seen the slowing in the economy that's come since then, and that has had an impact on wealth as the stock market has turned and also as property values have started to turn as well. And today, according to these economists at the University of California, Berkeley and their calculations, the American middle class is worth about twenty five thousand dollars

less than it was in March of this year. And that is a bigger and just to put that in perspective, that's a big that's about a seven percent decline, and it's a bigger decline that we saw during the pandemic just a couple of years ago, and it's in fact the biggest decline we've seen since the Great Recession. So if you ask then the middle class about how are they feeling well, they will tell you that their personal circumstances are pretty good. And that's what this pull with Harris.

We went out and over a month we asked questions to people in that specific target demographic that I talked about the forehand around the country. And what we found was you asked them about the personal circumstances, and they're feeling pretty good. There's gotta be a butt in here someplace, and there is a big butt in that and that is that you asked them about how the next year is going to be in then feeling a little shaky, right because they're starting to see it. People are starting

to look at the four O one case. They may look at Zillo and look at what their property valuation is doing, and they're starting to see that turn. And in fact, when you then ask them about the broader economy, the words that come up are things like anxious, stressed, depressed. Just in fact told us that they were feeling optimistic about the U. S economy. So we have this kind of paradox when it comes to the middle class right now.

The numbers tell us earlier this year they were richard than they had ever been on average, and yet now they're feeling pretty anxious about how things are turning. Sean one person you spoke to is Tom Malie, and he fits what you're described. Tom is uh seventy one year old retired autometrist. He lives in the suburbs of Columbus, Ohio, and he's lived there for years. He spent twenty five years in the military, working as an autometrist in the military,

and then went into private practice. He has three grown sons. He is that classic empty nester. In fact, he retired right on the eve of the pandemic let's listen to how Tom describes what he's feeling like right now. My wife and I retired about three years ago. Our goal was to travel and be entertained. This is deja vu

all over again with the inflation. My generation started our careers in the late seventies early eighties, when inflation at one point was and uh, we're reliving this one more time. So inflation plus taking out required minimum distributions and a probably lost that's rather disconcerting. So as you hear there, Tom's at a different stay age in his life. He's

later on in his life. He's enjoying his retirement. He is also looking out at the lives that his kids are are are living, and he has eight grandkids between his three sons, so he's thinking through. He's thinking further down the line in terms of what life is going to look like for them. I'm not sure that even all my sons and spouses are well educated and earning a good living. I'm not really quite sure they can afford to put their children through advanced degrees like I

was able to do with my own children. That is a concern that weighs heavily on me. I want to bring in one other person you spoke to, and her name is Gayl Bennington. So Gail is a retired psychologist. She is married to a retired public school teacher and basketball coach. They lived just outside of Lansing, uh Michigan

in Michigan. And she's an interesting character in that she will tell you that she started cutting back spending in the pandemic and she's just living her pandemic life now and that's her kind of new reality, sort of adjusted for inflation, if you will. Let's listen to what she had to say. I've always been like this too. I think you just have to worry about where your money is going, and so I never really spend anything without being quite aware of is this the best deal I

can get? Is there any way that I can save money doing this? And frequently do I really need this or do I just want it? So our Tom Mainlee and Gayl Bennington typical of what you found when you reached out through the Pole and when you started talking

to people about their experiences. No. Absolutely, So Tom and Gail, like other respondents to the Pole, are really interesting in particularly when he gets to talking about their kids and the future of the Daisy and this is something that we've talked about a lot in America in terms of views of the middle class. Okay, it's one thing to be in the middle class, but what do I expect my kids? And it was like the American dream was, you know, the cliches every generation, the parents want their

children to do better than they did. Absolutely. Now I think this gets into a little bit into partisan politics. So Tom is a Republican, Gail is a Democrat, and they have a different take on where the economy is going. We see that in the polls Republicans tend to be more pessimistic than Democrats, who are much more optimistic about

what lies ahead. But both Republicans and Democrats tend to be actually in this middle class Cohort, tend to be really quite optimistic about the future they see for their kids and the expectation that their kids are going to do better. And in fact, Gail is really interesting and that she's got a daughter. She will tell you that she grew up and they were fairly frugal growing up.

They lived in a middle class suburb of Lansing, but that they were probably at the bottom end in terms of income because her husband was a public school teacher rather than a manager at a big company, and that they lived a fairly frugal life, and in fact their

matter is a twenty four year old biomedical engineer. And Gail laughs because her daughter now is earning more than her husband ever did as a public school teacher, as a twenty four year old engineer, and by the way, is spending a lot more and a lot more freely than her mother ever did. And so Gayl will say, you know, we're at this good place in life where

we're going to survive. We've got enough stashed away for retirement, we've got our home, and we're not going to be a burden to our daughter, who, by the way, is already enjoying a better life than we ever did. From my daughter, I think that she will end up being the kind of person where if she wants something, she'll be able to get it. And I've never felt like that, even though I probably could. I mean I could, I could just go out and get something if I wanted it.

I could just go out for dinner if I wanted to. But I don't do that. I'm always aware of I have a budget. I have a strict budget, and and so I think that's being middle class, always being aware of and I really spend this money when we come back.

My conversation with Sean Donning continues, it's a chance to forget that we're a lower middle class neighborhood living under the flight path of the Orlando Airport and trick people, trick people into thinking we're a scary, upper middle class neighborhood that people would want to visit and get candy from. I'm back with Sean Donning. That clip from the sitcom Fresh Off the Boat, where the character lewis played by

Randall Park is touching on our complicated feelings about home ownership. Sean, earlier, you mentioned something really important, which is one of the things that allows the middle class to build wealth, to feel good even in uncertain times, is that they own

a home. And the thing that you and our colleagues founding in reporting and writing this story is that homeownership seems to be the cornerstone of the middle class, absolutely, and it's you know, about two thirds of American households live in a house that they own, but that has a huge impact on the wealth of a family, right And we've just seen what is a remarkable period in terms of wealth accumulation, mainly because of that property wealth.

In two thousand and twelve, Americans had about nine trillion dollars in home equity across the country. This is middle classes of all folks. This year that's topped out above twenty nine trillion dollars. We've added twenty trillion dollars in wealth just associated with property in the last decade, which is a remarkable number, and that is what is behind that wealth of the middle class. To a large extent, about thirty six percent of the net worth of the

middle class is tied up in property. Is that home equity. Then you get retirement savings and other things, but that's the biggest component of wealth for folks in the middle class. The big question we have now, and we see this really especially among younger Americans and folks who are lower income, is that you have this divide in America between a renter class and a homeowner class. And that may in fact be the most pertinent class division in America, both

now and going forward. And the other but since there's always one of them, is that even people who own a home, we're able to buy it at a lower price, perhaps years ago they also have concerns because so much of their wealth is in their homes that their housebound. The things you see in a recession, and economists will tell you this, is that you see mobility slow down.

People stopped moving. And one of the reasons, especially when housing prices turned down, and we saw this in two thousand and eight and two thousand and nine when we had the housing crash, then is the value of the homes dips below what you may own on a loan. We're less at a risk of that now, But what we are at a risk of is this perceived wealth, this paper wealth, taking a big hit and affecting how

people behave in the economy. And secondly, if someone is transferred for work and Tom Maylie ran into this with one of his sons, all of a sudden, they may be going from a low interest rate mortgage to a much higher interest rate mortgage and that may change their lifestyle, the type of home they can afford, and so on. Also, difficult to take money out of the house in the form of a home equity loan if you hit a rough patch because those interest rates are really high to

absolutely so. One of the things that we saw during the pandemic was an enormous boom in refinancing a lot of people lowering their monthly payment but also taking out some of at equity and using that essentially to keep up in a lot of respects. And we're going to see that change. Another person quoted in the story is Brandy Romero, and she talks about this kind of conflict between owning a house and not being able ever to move from that house. Yeah. No, So Brandy Romero is

really interesting. She moved from Louisiana with her huts and now five kids a few years ago. Uh. They live in Wyoming, just outside Casper, Wyoming, and she's got literally millionaires uh and a YouTube star moving in around the corner and building big houses. And she's in her home and they bought it recently, and they're starting to wonder whether this may be the last home they ever buy, and how they're gonna make ends meet going forward. Brandy

is a member of that middle class. She's also at night driving uber and Lyft to try and make ends meet. Earlier in the show, we heard from some older people. Our senior producer Katherine Fink went out to talk to people in their twenties and third means about this idea of home ownership, whether they own a home or if they think they'll ever be able to afford one. I don't own a home, so I think a middle class people often rent and don't own a home. So I've

seen myself there. It took a while of saving. It also took basically moving. I used to live in the Bay Area and groove to a place where I was able to buy a home at some point, but it's not happening in any near future. I would have to switch careers and not go to school. Yeah, I'm twenty five and I still lives at my parents place because where I want to move is too expensive for me to realistically govern. So it's either going to a bad

place or staying with my parents. By a house in the way that I am now, we would take like three or four lives, So I will need to see what I can do to to make that happen. You know how I describe the economic and social classes in this country. The upper class keeps all of the money, pays none of the taxes. The middle class pays all of the taxes, does all of the work. The ploorer there just to scare the get out of the middle

class becomes showing up at those jobs. I'm back with Sean Donna and that, of course, there was a legendary George Carlin capturing those tensions between those at the bottom in the middle and those at the top, so searing. I guess the big question now is what is the future of the middle class um When of the economists he spoke to at Berkeley, Gabriel Zuckman says that maybe the idea of the middle class is a notion that

has come and gone. Yeah, And Gabriel makes a really interesting point as well, which is that wealth has kind of protected the middle class since the nineteen eighties and the growing wealth. So in the nineteen eighties wealth, the average wealth of American households is about three times a

year's worth the salary right year's income. Recently that's gone up above six times, and if you think about that, you start to think about, Okay, how that has insulated the middle class in particular, who have really benefited most from this property boom and this growing wealth that we've seen.

How that has insulated them from some of the harder realities that we've seen in terms of stagnant media incomes, the way the economy has changed, and so and Gabriel's point is we're coming to the end of that era possibly, and that's the big test in the years ahead. So we're entering this prolonged period of inflation almost certainly going to result in recession. The Federal Reserve and other policymakers are trying to get their arms around it, throwing every

tool they've got. How is that going to affect this wealth that is kind of the backbone of the American economy. So this is this interesting economic moment that we're at. Inflation attacks the income of the middle class, and it attracts the paycheck that you get to fight that inflation. When you raise interest rates, you're affecting asset prices, the stock market, you're affecting the property market, and so on.

And so we're at this curious moment where to fight the inflation that's attacking American middle class paychecks, the Federal Reserve is actually going to be destroying some of that wealth of the American middle class by slowing down the property market, by slowing down the stock market and so on. And that wealth is gonna go down for some time. How long we don't know. That depends on the resilience

of the American economy. That depends on how long it takes to to bring inflation down closer to where the FED wants it to be the kind of healthy levels. But that's the episode we're going into for the American middle class. You know, my paycheck may go further at the grocery store, but my home is going to be

worth a little bit less than it was. Sean, what about people who are at the bottom who are trying to work their way into the middle class, hoping to get to that you know, bottom wrong of the middle class, and are having a really difficult time doing that because

wages are just not keeping up with inflation. So one of the things we've seen in the pandemic is arise, an increase in inequality, and a lot of what's been behind that has been the burden that has been felt by folks and lower income jobs and how they've been hitting the pandemic. We've seen incomes rise coming out, but we haven't gotten away from this basic structural issue in the US economy, which is, if you were in the top one percent in this economy, you have had a

great couple of decades. If you're in the bottom ten perc the bottom actually in the US economy, you've been struggling and you're going to continue to struggle for some time. Just some numbers to think about. At the beginning of our conversation, we talked about the wealth of that middle class and how they were wealthier than they had ever been in March of this year. That wealth was thousand dollars on average for that hundred million people in the

middle class. You take that to the two point five million people, that much more elite group who are in the top one percent, their average wealth in March of this year was almost twenty million dollars. You look at the bottom fifty five million people almost their average wealth was just twelve thousand dollars this year. The reality is

we still have this fractured economy. That middle class may be strong, the path in the middle class is still incredibly difficult because there are still a lot more people than there are in the middle class sitting below them in that bottom fifty of the US economy. Yeah, we

have corporate profits that are really high. A lot of that money is going to shareholders in the form of stock by bags and um we're minting a whole lot of billionaires, and yet some of that profit could potentially be going to increase wages, which would then elevate people possibly into the ranks. Yeah, we briefly had that conversation coming out of the pandemic about maybe this was labor's moment, maybe people wages were going to rise. The problem is

they haven't kept up with inflation. And we know that corporate profits have outstripped inflation in a lot of regards. So the middle class, that bottom of the economy have borne the brunt of inflation and companies have continued to mint those profits. Now, we'll see what happens as we go forward, as the economy slows down, as the FED slows things down economy, what happens to corporate profits. In a traditional recession, you would see those get squeezed and

people at the top gets squeezed as well. But the sad fact of the American economy is when times get tough, it's usually people at the bottom of the economy who suffer most, and it's that pathway to the middle class that gets broken. Is the idea of the middle class still a relevant thing. Is it something that we should be thinking about as a real segment of the economy more than you know, a notion likes me right about this? That's an enormous question. It's a really hard question to answer.

But I think one of the things we need to remember is that the American middle class and the idea of it, while it's been celebrated in popular culture, while it's been celebrated in economics and so on, has always been a morphous. It's always been self interested, and it's

also often been kind of exclusionary. You know, that middle class in American popular culture is a pretty white middle class through the years, and we know that some of the key components of it, such as housing wealth, that not all parts of the American population, the black population in particular, have had the same access to that over the years. So it may be time for us to kind of park that idea and move on and think

more specifically about people's circumstances. That idea of renter versus homeowner, that idea of college graduate versus high school graduate, uh, that idea of a rural American versus an urban American, uh, and so on. But you know, we may want to have that debate, but I think Americans for a long time are going to be identifying as middle class, are going to have this aspiration to join the middle class because at the end of the day, it's a pretty

good place to be. Sean, thanks so much for coming on the show. Thanks for listening to us here at The Big Tech, the daily podcast from Bloomberg and I Heart Radio. For more shows from my Heart Radio, visit the i Heart Radio appp podcast, or wherever you listen. Read Today's story and subscribe to our daily newsletter at Bloomberg dot com. Slash Big Take, and we'd love to hear from you. Email us with questions or comments to Big Take at Bloomberg dot net. The supervising producer of

The Big Take is Vicky Burgalina. Our senior producer is Katherine Fink. Our producers are Moe Barrow and Michael Falerro. Hilda Garcia is our engineer. Original music by Leo Sidrin. I'm West Kasova. We'll be back tomorrow with another Big Take.