The Fifth Dimension

There is a famous 80/20 rule for governing one’s expectations. For example, the rule of thumb is that 20% of participants in any enterprise produce 80% of the value. Another 20% cause 80% of the trouble. 80% of movies are disposable. 20% of college men have 80% of the dates. (Studies actually have confirmed that last one.) And so on. It is so much a part of our experience that we don’t usually think much about it. There is one 80/20 split that has been causing some concern lately however: the widening split between the bulk of the nation and the fifth of it comprising the upper middle class.

It’s easy to hate on the 1%, at least for 99% of us. Hence, at the May Day Occupy march back in 2011 more than a third of the marchers had incomes over $100,000, which only 8% of individuals earn. Yet the more important divide is the top 20% of households (not individuals, though some households are individuals) defined as those with over $115,000 in income vs. the 80% that earn less. 50% of the nation’s wealth is owned by the 19% just below the 1% and it is the prime beneficiary of economic growth.  Political scientists across the spectrum including Charles Murray (Harvard, MIT) on the libertarian right (cf. his book Coming Apart), New York Times columnist Farhad Manjoo (see America’s Cities Are Unlivable: Blame Wealthy Liberals on the left, and Richard Reeves of the Brookings Institution in the center (see Dream Hoarders) have taken note. All three authors are worth a read. One always has to give credit to someone who, like Manjoo, is willing to critique political allies. Murray’s book is extensively documented though by design it concentrates on white America so as not to confound class differences with ethnic and racial differences, which are always hard to tease out from each other in the US; he brings other groups into the graphs in the closing chapters, however, with surprisingly little impact on the statistics. Of the three, Reeves is probably the most broadly readable in our divided world in which too many of us dismiss out of hand the words of those with ideologies that differ too much from our own.

The issue all three have with the upper 20% is not their high incomes per se but rather the barriers they place in the path of the 80% trying to join them, particularly (but not only) by placing out of reach big ticket items such as housing and education. Let’s take Manjoo’s primary concern, a subject with which I have familiarity. In constant dollars food is about the same price as in the 1950s while televisions are cheaper as well as vastly better, but the cost of housing has soared. Housing was not always the massive expense it is today. In 1940 the average price of a single family home in the US was $3000 which in inflation-adjusted 2019 dollars is a shade under $55,000. In the decade after World War 2 my grandfather and his three sons (including my father) built smallish but completely serviceable ranch houses for nominal prices much lower than even the cheapest of compact cars today. The homes were sold to average working people (usually single income), few of whom had any degree higher than a high school diploma. One of these very same houses in Whippany NJ is on the market right now priced (not unfairly) at $473,000. In my own town my father in the early 1960s (by then no longer with my grandfather) built slightly more upscale houses (just like the one in which I grew up) priced at $30,000; one of those houses is currently listed at $599,000. According to the Bureau of Labor Statistics the inflation multiplier since 1961 is 8.4, meaning that in real terms the price has more than doubled. Pretty much all of the increase can be attributed to the land rather than the improvements. The reason? Primarily it is restrictive zoning. It is simply impossible under current regulations to duplicate developments aimed at ordinary middle class buyers on the scale they were built in the two decades after WW2, so the price of properties (the land more than the improvements) is driven up. The remaining large tracts of land in my home township recently have been rezoned for 10-acre lots, which means each individual subdivided lot will cost seven figures. The residents of the town have striven to ensure that no one new will move into town unless Upper Middle Class or truly rich. It is no wonder so many adult Millennials are still living at home with mom and dad.

It is important to note that the 80% is not an underclass in the usual sense – a portion of it is, but there has been no growth in actual poverty in recent decades. The large bulk of the 80% is middle class, but it is largely stuck. Much of what ails it cannot be put specifically on the doorstep of the 20%. For example, while children of 20-percenters overwhelmingly are born into and raised by two-parent households, the majority of 80-percenter children are born out of wedlock and spend at least some of their first 18 years in single parent households. This has powerful economic consequences. The cause of other ailments is open to debate. Male wages, for example, for the 80% (not the 20%) in real terms peaked in 1974 and are down 20% since then; only the influx of women into the workforce kept household income from declining. Intermarriage between 20-percenters and 80-percenters (commonplace 50 years ago) has become rare: college educated professionals marry college-educated professionals. While there always have been nice neighborhoods and less nice neighborhoods, there is a segregation of the classes like never before by zip code. The segregation is not by race: though the 20% is whiter than America in general (75% vs. 63%), it is increasingly diverse as the older whiter members of it die off. The segregation is by class. The 20-percenters live next to, go to school with, and marry each other. They live in a self-contained bubble that really is out of touch with the rest of the country. The 20-percenters are the elites (including news and cultural commentators) at whom average folk rail. The rise of populism of both the right and left wing cannot be understood except in this context.

Do you live in a bubble? Murray has a 25 question quiz available here that might answer the question: https://www.pbs.org/newshour/economy/do-you-live-in-a-bubble-a-quiz-2. (Full disclosure: my score was 42, a result which the quiz describes as "A second generation (or more) upper middle class person who has made a point of getting out a lot." That is basically right: neither of my parents attended college and their assets when they got married at age 21 & 19 totaled $700, so there is no “or more” to the “second generation.”)

Though the three authors write about the US, this growing divide is a trend across the West and one that seems immune to the differing tax and social policies of different nations. Nevertheless the authors do have suggestions. Murray, as one might expect, concentrates on removing the legal and institutional barriers to upward mobility including excessive licensing restrictions, overregulation of small enterprises, and, of course, restrictive zoning, which economists Chang-Tai Hsieh and Enrico Moretti agree by itself has chopped 50% off GDP growth since 1964. Manjoo agrees about the zoning though we also hear more about taxes from the left. Reeves espouses all of that and more.

Whatever response (if any) is appropriate, acknowledging the division is an obvious first step. Reeves, once again, is the author I recommend to most people. Reeves moved to the US from the UK in part, he says, to get away from persistent class snobbery. He was unsettled to find that, though class snobbery remains less overt in the US, class mobility is if anything lower. Hence the book Dream Hoarders. Of course, (one might note at the risk of snobbery), not all class is about money.

Motörhead – No Class