The middle class, widely used in political discourse and a favorite topic for every politician, is something that we hear about all the time. Coming from a post-communistic country where everyone was equally middle class, but dirt-poor, I was always perplexed. What do politicians and pundits even mean when they talk about the ‘middle class?’
Defining, for example, what the aspirations and expected living standard of the middle class are, is close to impossible. Should only a single vacation, or going on holidays both in summer and winter, be a sign of the middle class? Is owning a house, a car, providing college education for the kids, or having an insurance coverage and a good pension scheme be a good sign of belonging to the middle class? Or is it perhaps a mix, or even all of these, or maybe some other metrics not considered earlier? The whole process of agreeing to a definition of the middle class is quite a subjective matter – a near impossibility.
Even if we managed to come to an agreement on these issues, more questions are coming up quickly. Among other things, definitions of ‘middle class’ will highly affect those very people grouped in this category by government-imposed barriers. Government interventions in the housing and insurance markets, for instance, have become a recipe of disaster in predicting “middle class preferences.”
In the modern world, with the help of data and technology we can measure many things, even try to predict, and yet if we tried to do a simple modeling we can quickly run into a myriad of problems. Counter-intuitively, the more we try to expand the model including new variables the more we part with reality.
If the approach looking at “middle class aspirations” is deeply flawed, let’s take a look at income, wealth, and consumption. The middle class, defined in any of these approaches, by definition, cannot grow nor shirk as it sits in the middle of the income, wealth, or consumption ladder. If we take a step further and look at the income, wealth or consumption of the middle class in either nominal or relative terms, new problems with such measurements arise.
Nonetheless, we hear a lot of doom-and-gloom from the Left on the supposedly shrinking middle class. Especially after the crash of 2008, in the name of fighting against inequality, the likes of Robert Reich, Michael Moore, and Bernie Sanders have made this a bedrock of political debates and agendas.
However, as scholars like Antony Davies have shown, although it is true that the middle class is shrinking, this is due to their increase in wealth and them rising to higher income brackets. Contrary to Reich’s claim, Donald Boudreaux points out that when talking about wages, we have to take into consideration all the other compensations. Put simply, overall wages have not stagnated – they have risen in reality. And although it is true that it is harder and less frequent for someone to become a millionaire coming from the lowest quintile than vice versa, income mobility is real, all the while self-made billionaires are on the rise.
Definitions do matter. Coming to an agreement on what the middle class is by developing a definition which is precise and value-free is impossible. Culture changes and economies transform, which means old vaguely defined definitions change with it.
Regardless of its definition, why should we care if the income of the ‘middle class’ has stagnated or even fallen or whether the ‘middle class’ has shrunk at the end of the day, so long as the people that were formerly considered ‘middle class’ live more prosperous than in the past? The poor individual of today, after all, lives a better life than the richest nobility mere centuries ago.
As Margaret Thatcher once asked her political adversaries, do we want the gap between the rich and the poor to disappear if that means that the income of everybody is low? Or do we want to have a better standard of living for everyone rather than focusing on how random “classes” are doing in comparison to one another?
Simon Sarevski is an intern at the Austrian Economics Center. He holds a Bachelor’s degree in financial management from Ss. Cyril and Methodius, and is involved with European Students for Liberty.