Annihilation of Middle Class

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheStreet) -- Having made a point of closely monitoring mainstream economic propaganda, a number of obvious tactics are used repeatedly. One of the most popular of these tools of deception is to lie by "redefining" terms.

In this case, the propagandists at Reuters are endeavouring to hide the annihilation of the U.S. middle-class through their very clumsy effort at redefining the word "affluent." The context of the article was an attempt by Reuters to continue to portray the U.S. as the world's "most affluent" nation. However, any realistic examination of their data must lead to a nearly opposite conclusion.

How does Reuters choose to define "affluent?" It considers any household with a net worth of merely $100,000 to be "affluent." In order to avoid being guilty of the same offense as Reuters, let me be more careful in my own efforts at definition.

To begin with, note that Reuters uses the term "household," rather than "family" or "individual." On the one hand, this means that the "net worth" figure it quoted is not a per capita statistic. On the other hand, it also does not apply to the stereotypical family of four. Some "households" consist of single individuals, some being childless couples, and some being actual families, while a "household" would normally be thought of as (approximately) a two-person unit.

This requires a brief caveat. Since the onslaught of the U.S.'s Greater Depression, families and households have become "extended" -- as millions of Americans impoverished by job losses are forced by economic necessity to move in with other family members. Thus considering a household to be a two-person unit is a very conservative figure, and becoming more so by the day.

So when Reuters is talking about "U.S. affluence," it is basing that label on a paltry, per capita net-worth of only approximately $50,000. Personally, when I consider the "affluent" people whom I know, I would estimate that the vast majority of these individuals have $50,000 worth of "stuff" alone -- i.e. their basic personal possessions (including cars), but not including home-equity, retirement savings, and other savings/investments. All the "affluent" people whom I know would have a net worth of several (many) multiples of that $50,000 figure.

Put another way, living in an era of high inflation and declining wages (for most of the population), I'm unaware of a single North American deluded enough to believe that a net worth of a mere $50,000 represents "affluence" in 2011. Conversely, I would suggest that very few people who do have a net worth of $50,000 would argue with being labeled "middle-class." Indeed, were it not for the need to be rigorous in my own definitions, I could have simply asserted the self-evident proposition that a modest net-worth of $50,000 represents middle-class status.

Clearly, what Reuters has done here is to take the category of middle-class Americans, remove that label and then attempt to get these people to believe that they are "affluent." The question then becomes: what is the purpose of this (clumsy) deception? The answer: to hide the annihilation of the U.S. middle-class.

After providing readers with its definition of affluence, Reuters supplies data on the total number of "affluent households" in the United States: 31 million. Converting that to a total number of people (using our prior definition), Reuters is telling us that only a little over 60 million Americans, or approximately 20% of the U.S. population have a standard of living of "middle-class" or better.

Readers must keep in mind that while the "genocide" of the U.S. middle class nears its completion, that for those at the top, times have never been better. Out of that top 20%, a full half of that, or 10% of the U.S. population are genuinely affluent -- with most of this small minority being very rich, and the top-1% sitting on hoards of wealth beyond imagination.

Note that Reuters claims the total percentage of the affluent in the U.S. at 27% of the population, suggesting a larger average size for (affluent) households than my own definition. I would question Reuters methodology here. As I stated previously, the average size of all households in the U.S. (mostly the 80% on the bottom) is getting larger due to poverty. Obviously that dynamic has no relevance for those on top.

As a result, when Reuters used the average size of household for the overall population and applied it to affluent households, it was exaggerating the size of this class in the overall U.S. population. However, even if I accepted the Reuters figure of 27%, that still only implies that roughly 13% of the U.S. population is "middle class."

Thus Reuters' economic data provides us with a clear and disturbing picture of the new, U.S. "wealth pyramid." Note that in any healthy economy, the wealth pyramid is in fact a spherical distribution, when expressed graphically. There is a small minority of wealthy individuals. The population distribution then widens greatly in the middle-class, and then shrinks again as we move down to the people living in poverty.

Not so in 21st century America. The fat cats on top have jealously limited their total numbers (while seeing the average size of their fortunes skyrocket), thus the numbers of the wealthy have remained relatively constant. However, the once robust U.S. middle class has gone from representing a clear majority of the population down to mere 10%. Then come the vast hordes of serfs in 21st century America.

Of the bottom 80%, 50% would be represented by the "new normal" in the United States: the working poor, a demographic which has now swollen in size to almost the same magnitude as the (former) middle-class. Indeed, the vast majority of the working poor used to be "middle class" and only lost that status during the last decade of rapacious Wall Street greed. Below the "working poor", a full 30% of the U.S. population live in clear poverty, and as with the working poor this demographic gets larger by the day.

Separately an article in the Wall Street Journal reports that nearly half of all U.S. households now receive some form of regular "government benefit." Breaking-down that group further, the WSJ reports that 34.2% of U.S. households received benefits subject to a "means test." What this means in most cases is that it is a form of benefit for which only the poor are eligible.

The next step in this propaganda is obvious. After this feeble attempt to portray the nearly extinct U.S. middle-class as being "affluent," we can expect other propaganda to appear which will attempt to define the working poor as being "middle class." Much like our governments lie about unemployment (to minimize unrest), and lie about inflation, and now lie about supposed "economic recoveries"; they also seek to attempt to deceive the vast majority of their own populations about their actual economic status.

For close to twenty years, the annihilation of the middle-class in the U.S. had been hidden by steadily rising debt levels (and to a lesser extent, in Canada and Europe as well). People borrowed to pay for the same standard of living which they used to be able to finance without debt (or with minimal debt).

It was always obvious, however, that the U.S.'s "credit card economy" was literally living on borrowed time. Now the "credit" has been maxed-out by the 80% on the bottom, and the decline in their standard of living is impossible to ignore -- as these people feel that decline every day. Yet rather than try to alleviate the poverty, unemployment, and suffering, our governments spend most of their time and effort either in lying about the extent of our own suffering, or making excuses for their own failures. Accountability is non-existent.

As we see the "Occupy Wall Street" movement beginning to gain traction across the U.S., it is clear that the 80% of the U.S. population living as serfs and the 10% of the population clinging to middle-class status have finally had enough. Enough lies. Enough hypocrisy. Enough of the incompetence in our top-down economic hierarchies.

Just like the credit cards of the (former) middle-class have been maxed-out, so too have all the government lies and excuses also run their course. "Arab Spring" could be followed by a very nasty "U.S. Winter."
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.