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Who or what is the middle class? - Gut_Check - MSNBC.com

http://www.msnbc.msn.com/id/21272238/print/1/displaymode/1098/

In the end, they wrote, “There is no consensus definition of ‘middle class’; neither is there an official government definition. What constitutes the middle class is relative, subjective and not easily defined.”

For one thing, the report noted, there's little agreement on how many households above or below the midpoint should be included in the standard definition of the middle class.

Neighbor's paycheck as important as your own? But it turns out that the size of your neighbor's paycheck may be as important as your own in determining how you view your place on the economic ladder. You may feel comfortably middle class — with two cars in the driveway and a big screen TV — until the guy across the street pulls up in his third car to install a second widescreen TV. (The researchers call this the "relative income hypothesis.")

"Being well above the bottom is a source of satisfaction," the CBO report concludes. "But when those at the upper end of the distribution fare better than (you) do, it is a source of consternation."

And with the upper end of that distribution rising further and faster than in the past, it's easier for those in the middle to feel like they're falling behind.

Another reason for middle class "consternation" is that income tells only part of the story: the cost of maintaining a middle-class lifestyle depends heavily on where you live. A family in Wichita, Kansas, where the median price for an existing home is about $110,000, has a much better shot at a comfortable middle-class life than a family in San Francisco where — housing slump or no housing slump — the median home price is $846,800.

The link between housing costs and schools As the biggest single line in the typical household budget, the cost of housing has played another important role in the financial squeeze reported by many families in the middle. One of the key aspirations of middle-class families is to provide their children with the good education they’ll need to maintain — or exceed — their standard of living when they enter the work force. With local schools funded largely through property taxes, living in a nice neighborhood has come to mean more than having a nice house, according to Robert Frank, a Cornell economist and author of “Falling Behind: How Rising Inequality Harms the Middle Class.”

“You can say, 'Well, I don’t care about having a big house, I’d rather live within my budget and feel secure financially,'” he said. “If I go that route, my kids go to schools where they’ve got metal detectors, and they don’t do well in school.”

The financial security of middle-class Americans has also been strained by the rising cost of higher education, which has risen faster than overall inflation for much of the past decade.

Health care costs also have outstripped inflation; the cost of a catastrophic illness can quickly knock a middle-class household into another, better-defined economic category: poverty. And while many middle-class Americans a generation ago relied on their employers to fund their retirement, that burden has now shifted heavily to the wage-earners themselves.

The paradox behind the data Despite these added burdens, there’s a paradox that doesn’t show up in the numbers. Though middle-class life in America isn’t what it used to be, in many ways it’s much better.

Health care may be more expensive, but modern medicine can do much more: Americans are living longer and healthier lives. Our houses, on average, are bigger (over 2,300 square feet, up 40 percent since 1980) with more cars in the driveway. Those cars are safer, last longer and are loaded with technology and features once available exclusively to the wealthiest buyers of luxury cars — from antilock brakes to GPS navigation systems.

Modern conveniences that were unimaginable a generation ago, from wireless phones to the Internet to hundreds of channels of home entertainment, are available to most Americans. The modern global supply chain brings a cornucopia of basic, affordable products — from year-round fruit shipped from both hemispheres to cheap textiles made in low-wage, developing countries.

“A middle class person today lives better than the wealthiest individual who lived 100 years ago,” said Mark Zandi, chief economist with Moody’s Economy.com.

Americans also have more to spend. Census data show that the median income has risen steadily, with temporary setbacks, over the past 60 years as "the real reward for an hour of work has more than tripled," according to a February speech by Federal Reserve Chairman Ben Bernanke. In 1947, median family income, in 2004 dollars, stood at just $22,500, according to the Census. By 1973, that figure had doubled, and continued to rise to $57,500 by the year 2000.

Upward march of income stalls Those advances began to stall at the turn of the millennium, for reasons that are the subject of much speculation

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10/17/2007 2:45 PM

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