On our .6% definition of "wealthy"

I've long thought the dividing line within the US for "rich" and "middle class" was a little insane.  The concept that only 2% of a population - the approximate percentage of people in the US making $250,000 or more a year, which has previously been the standard in public discussions - means that the "middle" in "middle class" tops out at 98% of the population.

By definition the "middle class" is the class that exists between "rich" and "poor."  In 2011, there were 46.2 million people living in poverty in the US. This is approximately 15% of the population. If the US treated classes as a bell curve, one would assume something close to 46.2 million people, or another 15%, would also be rich.  That would give a total population of 92.4 million on the extremes, and a middle class of approximately 208 million people, or 70% of the population.

A pretty standard bell curve, even if the extremes are quite low.

But if we assume "rich" is someone who earns $250,000 / year, that limits the "rich" category to 2.85 million, or 2% of the population.  Suddenly, there's no bell curve.  Just a curve on one end and a little tiny dip on the other.

Now, Congress has decided that "rich" is even smaller.  Only .6% of the population, or 965,000 households, will be "rich" enough to justify an increased tax level.  The news - and as a consequence my facebook feed - is touting this as a victory for the US. The NYT has a headline proclaiming: "Senate Passes Legislation to Allow Taxes on Affluent to Rise."  It's accompanied by this picture of Joe Biden,  which a friend captioned as "Biden for Vice-President or Biden for Messiah?"

Photo by Alex Brandon/Associated Press

But how can we possibly have a "middle class" that is, essentially, everyone in the country who isn't poor?  Because when less than a million people in our country are "rich," - and the country has 300 million people in total - you're essentially saying everyone is middle class unless they're poor.

By definition, this doesn't make sense.  But as a policy choice, it could have devastating consequences.

Classes exists not out of some absolute, static reality but out of relativity to others. This doesn't mean that they don't have some objective basis, but rather that once a minimum threshold is met, there is a relative scale to wealth and poverty. Those who are "rich" or "wealthy" have an "abundance" in comparison to the rest. Someone is poor because they are lacking in wealth or have little of it.  It's not that they have an abundance or a little amount in absolute or global terms.  It's that in relation to others, they have an abundance or little.

Someone in a country where 98% of the population lives on less than $300 / month could be rich by making $500 / month. In a country where 98% of the population makes $750 / month, someone making $500 / a month is poor.  That is how class systems work; it's relative to the others in a society.

As I said, we do have some objective definitions of poverty. There is an "absolute poverty line," that is global in reach and is currently established by the World Bank as those people who live on $1.25 USD (purchase power parity) a day. But there are few people in the US to whom this would apply.

The US Census Bureau instead uses a complex set of "family thresholds" to determine poverty, which engages both an objective and a relative notion of poverty. At the heart of our understanding is apparently the "economy food plan," which is "the least costly of four nutritionally adequate food plans designed by the Department of Agriculture."  Since a survey in the 1950s found "that families of three or more people spent approximately one-third of their after-tax money income on food," the poverty line was placed at three times the cost of meeting the economy food plan for a family of 3.  It was then adjusted for other types of families. This gives us an objective basis (poverty is the ability of a family to eat healthily) while also a relative scale (to not be poor you need to make 3x this amount because the average family uses 1/3 of their income on food).

Because poverty is not an absolute phenomenon - at least not principally in the US - there's no need for our society to accept that 15% of the population is poor.  We have some power to control how much of our society is poor and rich by developing standards that fight poverty so that our bell curve is, well, curvier.  We could easily justify .6% of the population as rich if we also have a poverty rate of .6% of the population.  This suggests a society that is in balance, and to an extent, fair.*

But why are we as a society so willing to accept poverty while so determined to limit the concept of wealth just so a small percentage of our population can enjoy a better tax bracket?  We limit wealth so that the tax burden is limited under an idea that all those people - the people currently between the top 2% and the top .6% of our population - are "just regular, middle class folks" while never taking the concrete steps necessary to reduce the 15% poverty rate to just .6% of our population so that those people - the poor - can truly become "just regular, middle class folks."  (And the solution can't simply be that we lower the poverty line to .6% if we don't reduce the factual reality of poverty.)

I am regularly told by my conservative friends that we need to cut spending to fight the deficit and that this is the best answer as it limits the "theft" that occurs when the government "takes from the middle class to give to the poor." This philosophy, though, intentionally protects the "haves" while increasing the burden on the "have nots" by creating an understanding of "rich" and "poor" that accepts poor while not recognizing rich.

In doing so, we create a false perception that "we're all in this together," and by "we" we mean those who aren't poor. The poor, though, aren't in this with us. They are the "lazy," "stupid," "47%" "takers." We demonize them rather than recognize that poverty exists only because it is in relative relation to the rest of us  - meaning relative to both the middle class and the rich. By failing to recognize a "wealthy class," we create a belief that our "poor class" exists by choice rather than as a factual reality of its relationship to the rest of us.

This belief in their "choice" - rather than their relative existence - means we're less likely to undertake the steps necessary to reduce that poor class as a percentage of our population.

It is that failure to recognize the relativity of poverty - and of wealth - that leads to so much insanity in our society. In perhaps one of the craziest reaches of our society's tendency to govern by "truthiness," CNN notes that "some people who make a lot of money don't feel rich. After all, the cost of living say in New York eats up a lot more money than it does in Boise."

First, why can't we take account of the difference in cost of living when drafting tax legislation?  Why can't we say, for instance, determine the city that has the median standard of living and adjust the percentage out from there to take account of the differences across the US?  This may mean that someone in Des Moines, Iowa who makes $230,000 / year pays a higher rate than someone in NYC because we recognize that wealth and poverty are, in fact, relative and not absolute concepts?

Second, regardless of whether one feels rich - because, afterall, many who are statistically rich live well beyond their means and may as a result be living paycheck to paycheck - there is an objective reality to it.  We can't continue to govern our policy based on whether something feels rights; we have to start governing based on whether something is right.

Cutting spending, the "solution" I keep hearing from conservatives, can only ever be one part of a solution to our deficit, but it's unfortunately the part that will most grievously harm the 15% of the population we recognize as being poor.  If we really want to solve our problems, we need to have a better, clearer vision of what "rich" and "poor" are; they are the relatives in our scale of our reality.

But by being relative, there is likely to be some symmetry between their existence. We need to ensure that the expectation is symmetry is reflected in our policy choices.

I have a background and degrees that means that a significant percentage of my friends would classify as "rich" under the 2% scale. Very few will classify as "rich" under the new standard, and many more would classify as "rich" if we adopted a 15% of the population classification.  So I understand that several will be outraged at what I suggest. To those friends, I want to say congratulations. You are part of the solution to our country's woes.  It also happens that you're already rich,** even if you don't feel it.


* I do recognize the existence of the "Pareto efficiency," which finds that 80% of a population's wealth will generally be held in the hands of 20% of the population. 

**Unless, of course, you live in NYC, in which case whether you're rich or not is up for debate.

What We're "Entitled" To

Bill O'Reilly made an international spectacle of himself (again) when he proclaimed last week's election was about the end of "traditional America" because the "white establishment is now the minority" and "voters . . . feel that the economic system is stacked against them and they want stuff." You are going to see a tremendous Hispanic vote for President Obama. Overwhelming black vote for President Obama. And women will probably break for President Obama's way. People feel that they are entitled to things and which candidate, between the two, is going to give them things?

You can watch the clip here:

He then came back to address this and claim he was just stating facts and providing an analysis.  In what may be an example of the greatest lack of self-awareness to ever air from US media, he lamented the fact that media had become ideological when claiming that his analysis was just stating of facts.

So, there are a few things Bill needs to understand. First, "women" aren't a racial group.  So "women" were part of the "white establishment" before, unless you're admitting that by "white establishment" you're really only talking about are rich, white men - and women should be damned. 

But setting that aside, in one fell swoop, O'Reilly said something very poignant and accurate and something very, very inaccurate. First, the accurate part: people, particularly but not exclusively black, Hispanic and female Americans, feel the economic system is stacked against them. There's not much to dispute there.  The "Occupy Wall Street" movement isn't, as Fox repeatedly tried to claim, some fringe group of hippies who hate showering and wish the US would just throw away capitalism.  The movement captured people's attention because so many people feel they do not actually have an opportunity for economic growth.  They feel they have limited power and opportunity to actually make a difference in their economic status because the economic system is stacked against them.

Some of that is racially based, and we need to be honest about that.  During this recession, the gap between black and white households nearly doubled, with whites making 22 times more wealth than blacks.  There was an average household networth of $110,729 for whites in 2010, while blacks averaged only $4,995 and Hispanics only $7,424. So unless you really believe that blacks are less intelligent, less educated and less motivated, then there is little to say other than there is a systematic problem with the way our society recognizes intelligence and rewards work.  In 2010, the median annual earnings of black men was 74.5% of their white counterparts. That's worse than white women - who made only 80.5% of their white male counterparts, but better than black women (69.6%), Hispanic men (65.9%), or Hispanic women (59.8%).

The US has one of the lowest rates of social mobility in the industrialized world.  Cyclical poverty is likely because in general, and in particular in the US, poverty means reduced access to quality education or health care. The idea that someone can "pick themselves up by their bootstap" is an increasingly rare experience in the US and while we celebrate the outliers, they are, in fact, outliers for a reason. We know their names and their successes because by definition they are not the rule.  And this very notion is an affront to the concept of equality that capitalism is supposed to foster.  Part of the myth of the "truly free market" - the extreme, unencumbered concept of the market that the extreme right wishes to promote whereby all regulation is bad and the market decides everything from whether we have environmental regulations to what workers are paid - is that it allows people to take control of their own destiny, rewarding hard work and persistence while punishing laziness. But, if extreme inequality leads to limited social mobility and that in turn leads to greater inequality, then you are not rewarding people based on their intelligence, their hard work, or their skills. You are rewarding them based on what their ancestors did.  You are promoting not a democracy but an oligarchy of privilege. Some want to claim this is "true" freedom and what the GOP is promoting is simply a true market economy, but for a market economy not to simply become a means for new human rights oppression, there must be some level of equal opportunity.  Yet, equal opportunity clearly does not exist in the current US system.

That inequality - both in terms of what is held and in terms of opportunity - actually harms national economic growth.  Lower rates of economic inequality are shown to be associated with greater, long-term economic stability.  So by creating this "free" economic system without regulation and without social opportunity, we are harming our economic interests not just on an individual basis but on a collective level for our society.

And people feel this. They aren't dumb, despite what O'Reilly, et al., would like you to believe. When you talk to people in the lower class and lower-middle class, they understand the economics of their situation and the cyclical nature of their position in society. They recognize the limited opportunities they have.  So, voters - meaning, non-privileged voters - do, in fact feel that the economic system is stacked against them because it is.  Study after study supports this, so the only way to actually dismiss this very real, very accurate feeling is to buy into a theory of math's "liberal bias."

But where O'Reilly goes wrong - horribly, horribly wrong - is his assertion that what people were demanding in Obama's reelection was "stuff."  It is not stuff, but opportunity that people are demanding. It is an equal playing field that can foster a market economy that allows for people to pull themselves up by the bootstrap. It is a system that supports economic growth not just for the wealthy but for the entire economy.  They are demanding the education and social infrastructure that encourages poor children to realize that there are options and opportunities available to them and that helps realize that promise. Because kids now get the promise but not the reality and that's our failing as a society. 

Demanding that isn't demanding stuff.  It's demanding dignity on an equal basis, not based on your parents' social status.  That's an American ideal and that's what the GOP should be joining the Obama administration to help realize.