Meet the Global Middle Class!

According to The Economist, more than half of the world is now middle class, defined as

the possession of a reasonable amount of discretionary income. Middle-class people do not live from hand to mouth, job to job, season to season, as the poor do. Diana Farrell, who is now a member of America's National Economic Council but until recently worked for McKinsey, a consultancy that has spent a lot of time studying the middle classes, reckons they begin at roughly the point where people have a third of their income left for discretionary spending after providing for basic food and shelter. This allows them not just to buy things like fridges or cars but to improve their health care or plan for their children's education….

Almost 60 percent of the world now meets The Economist's standard, up from just over 40 percent at the turn of the century. Why have standards of living surged? Due to economic growth based on the liberalization of trade and other economic factors.

Go here for the full report. And go here for Reason.tv's take on the subject in relation to the India portrayed in the hit movie Slumdog Millionaire.

Hat tip: Alan Vanneman

Comments

[Sam N.]

“Almost 60 percent of the world now meets The Economist’s standard, up from just over 40 percent at the turn of the century.”

A 20% improvement in just 8 years? This is impressive!

[Warren]

No Friday Funnies
No Steve Chapman
No Isolated Incident

Let the Friday Festivities commence!

[ed]

In another month it will be back to 40%.
I am thinking about taking up cannibalism.
If we can put a man on the moon and elect a half-black president…

[Typical American Reinmoose]

Discretionary spending? I don’t have any discretionary spending money, what with my mortgage payment, my car payment, my cell phone payment, my cable payment, my credit card bill from Christmas that I have to pay off, and I only eat at cheap restaurants like Applebees. I’m poor!

[Adam]

“A 20% improvement in just 8 years? This is impressive!”

Actually, 40% to 60% would be a 50% improvement.

I guess some people didn’t get the memo that since the numbers rolled over you need to specify which century. 🙂

[Nick]

After paying mortgage and taxes, utilities and trash pickup, life insurance, daycare, student loan, gas for the car, groceries, and phone that leaves me about 200 bucks a month for all discretionary spending 100 of which go to DirecTV and Road Runner. So is 100 bucks a month in a suburban American home with a wife and one child much discretionary spending money?

I don’t think it is. It sure as hell ain’t 1/3.

[R C Dean]

This:

the possession of a reasonable amount of discretionary income.

and this

Middle-class people do not live from hand to mouth, job to job, season to season, as the poor do.

Are two different things. I know lots of people with very good paying jobs who have no savings. They live paycheck to paycheck “as the poor do.” They just live high-consumption lifestyles, is all.

Income and net worth are not the same thing, and there are a lot of people who have high incomes and low or even negative net worths.

So which is it that makes you middle-class? Income above subsistence level, or a decent net worth?

[Reinmoose]

Nick –
I think the Economist is including a lot more in discretionary spending than we would. It also doesn’t make a distinction between before-tax income and after-tax income. If you read the article, it doesn’t really rely to heavily on that 1/3 firgure.

[#]

Income and net worth are not the same thing, and there are a lot of people who have high incomes and low or even negative net worths.

And doing our part to drive the global economy!

[Nick]

Middle Class has become more about lifestyle than actual dollars and cents. I’ve seen guys driving great cars, way better than mine. But they live in shitty neighborhoods you wouldn’t want to drive through during the day. If you see them outside the hood, they are middle class. At home they are “poor.”

[Episiarch]

I only eat at cheap restaurants like Applebees

You disgust me.

[robc]

Are two different things.

Not really. The “high-consumption” lifestyle is primarily discretionary spending.

I know the moose was being sarcastic but I cant tell if Nick was or if he doesnt know what discretionary means (sorry Nick if you were being appropriately sarcastic).

[robc]

For some reason The Millionaire Next Door keeps popping into my mind.

[Typical American Reinmoose]

You disgust me.

What?! They have great Appletinis and chipotle shrimp!

[Typical American Reinmoose]

though I guess I can see if you prefer Friday’s they have better steaks and things if your a steak person but i’m not lol

[Episiarch]

What next, moose? Red Lobster? Olive Garden?

[Typical American Reinmoose]

fortunately I moved from a small town to a city that at least has all the places I’d ever want to go. Have you ever had red lobster’s cheddar buscuits? their sooooooo good. chilis is good too but mostly for the queso and margaritas but the best is cheesecake factory. they give you the biggest portions and the turtle double chocolate pumpkin forest traditional cheesecake is to die for

[JW]

I only eat at cheap restaurants like Applebees

I ate at a Fridays recently, after a decade long roll of not eating at one of these faux-style dives.

I think I’d rather slash my femoral and make a vinaigrette out of my own blood than do that again.

[R C Dean]

Not really. The “high-consumption” lifestyle is primarily discretionary spending.

I think you’re missing my point. The article conflates two very different things – income and net worth. They do not necessarily track each other. High-consumption lifestyles are why they don’t track each other.

Under a pure income definition, most people I know are middle class. Under a net worth definition (not living paycheck-to-paycheck) a lot of those people are not middle class.

[robc]

There is a road near me with an Olive Garden, Carabbas, Buca and another chain I forget all within a couple of blocks. All have hour+ waits on weekend evenings. Meanwhile, locally owned and much higher quality Italian places you can walk in and get a seat.

Win for me, I guess. But I dont get it.

[Reinmoose]

I think you’re missing my point. The article conflates two very different things – income and net worth. They do not necessarily track each other. High-consumption lifestyles are why they don’t track each other.

Under a pure income definition, most people I know are middle class. Under a net worth definition (not living paycheck-to-paycheck) a lot of those people are not middle class.

This is an excellent point. The Economist article takes a very loose definition of “middle class.” I think you can use both of those definitions and still consider someone middle class, but if they have low-consumption lifestyles and low/negative net-worth, they would not be middle class.

[robc]

RC,

See my 10:26 post. I think we are in agreement.

BTW, I like the wealth accumulator formula in MND.

Quick equations ignoring some of their adjustment factors.

Take your income from your last tax form.
Take your age (during that tax year) and divide by 10.
Multiply the 2 numbers together, call that C.
Now calculate two other numbers as below:

A = C/2
B = C*2

If your net worth is below A, you are a low accumulator of wealth
If it is between A and B, you are normal
If it is above B, you are a high accumulator of wealth.

Ex: A 40 year old with a household income of $50k.
C is 200k
A is 100k, B is 400k

[Nick]

Going to Friday’s or Applebee’s specifically for a steak is well, stupid. If you’re going there because of the family atmosphere, appetizers, and menu variety, that’s something else.

robc, I wasn’t being sarcastic, I was basing it on just the above posted section, having not read the whole article. That’s where I was thinking I don’t meet the 1/3 rule. Considering everything beyong shelter and food, I suppose I do.

[Reinmoose]

I, the real Reinmoose, have been known to go to the occasional Applebees at the request of a group I’m with. I generally try to stick to the big beers and uncomplicated foodstuffs.
But I can have a good time anywhere.

[ed]

I ate at a Fridays recently…I think I’d rather slash my femoral and make a vinaigrette out of my own blood than do that again.

I had the worst-ever meal at a Fridays and haven’t been back since. The “hostess” sat us down at a greasy, unwashed table. I had to clean it myself. Our drinks arrived 10 minutes after we ordered them. The burgers were salted to the point of toxicity and the fries were limp and cold. The “hostess” handed us our check and asked if everything was ok. I told her it was the worst meal I ever had and she and the cook should be fired. She seemed offended.

[Episiarch]

But I can have a good time anywhere.

That’s because you are a whore. Once again you disgust me.

The chain restaurants, besides being cloned dives, are usually under strict rules regarding fully cooking meat. Asking for “bloody/rare” inevitably results in medium rare at best. Since medium rare is basically ruining the beef, whether it’s a steak or a burger, what’s the point?

[R C Dean]

Interesting, robc. My accumulated wealth is somewhat below C. Before the market meltdown, it was just above C. I’m, sadly, typical.

Of course, when I got divorced at age 32, my net worth dropped to zero, so I’m making up for lost time.

[Reinmoose]

That’s because you are a whore. Once again you disgust me.

I thought they all really loved me!

*runs away*

[P Brooks]

All have hour+ waits on weekend evenings. Meanwhile, locally owned and much higher quality Italian places you can walk in and get a seat.

Risk premium; those people standing in line would rather have a meal they know will be “okay” than take a chance on a getting something truly great (or truly awful).

[Bronwyn]

robc – what are your favorite restaurants in town?

I’m going to Hanabi in Prospect this Sunday. Mmmmmm… sushi….

[Warren]

There is nothing wrong with either Red Lobster or Olive Garden. I’m not saying they’re haute cuisine. But they serve perfectly acceptable fare.

Applebee’s is of course, worse than dumpster diving.

[Nick]

Risk premium; those people standing in line would rather have a meal they know will be “okay” than take a chance on a getting something truly great (or truly awful).

Ladies and gentlemen, the voting public.

[libertarian democrat]

I LOVE going into the North End (Boston) for italian food. There are so many great little restaurants.

That said, while Olive Garden doesn’t compare, the two times I’ve been there I was really pleasantly surprised by the quality of food. It’s not in the same league, but it’s so much better than other chain food.

That said, I love Chili’s. For random American food chains, I think it’s the best.

[libertarian democrat]

But, speaking of the North End, if you are in Boston, I really, really recommend a small restaurant called Al Dente. Probably the best place I’ve ever gone for Italian.

[robc]

robc – what are your favorite restaurants in town?

In no particular order, just what pops into my head:

Rich O’s (if Nalbany is “in town”)
Cafe Lou Lou
Havana Rumba
Thai Siam
Irish Rover
Clifton’s
Palermo Viejo
BBC (sometimes)
Bristol
Pig City (although they have service issues)

Ive never been to most of the “high end” places.

[robc]

huh, Ive never thought of my food preferences as “ethnically diverse” but I guess they kinda are.

[Bronwyn]

have you been to India Palace? Very very yummy.

thanks for the list. if ever I see my husband again, I’ll see if I can’t swing a date

we eat at the Bristol more often than not when we go out. love their tapas.

[joshua corning]

joe opposes expanding the middle class through free trade.

I am glad that statist piece of shit is gone

[R C Dean]

Fond memories of hitting the North End for Italian when I was in law school. Can’t remember the name of the little place we would go, but I sure remember their cannolis.

[John]

“Fond memories of hitting the North End for Italian when I was in law school. Can’t remember the name of the little place we would go, but I sure remember their cannolis.”

Mike’s patries perhaps? As I engage in the terrible habbit of hip travel name dropping.

[Paul]

the possession of a reasonable amount of discretionary income. Middle-class people do not live from hand to mouth, job to job, season to season, as the poor do.

I have now officially dropped out of the Middle Class.

[TallDave]

Why have standards of living surged? Due to economic growth based on the liberalization of trade and other economic factors.

You’d think most everyone would have figured this out when we won the Cold War, but apparently there are too many autocrats with a vested interest in the status quo.

[curious]

joe opposes expanding the middle class through free trade.

I am glad that statist piece of shit is gone.
——–

gone where?

i was curious to see how Joe would spin obama’s security policies, and increased spending to benefit his special interest groups.

[economist]

“joe opposes expanding the middle class through free trade.

I am glad that statist piece of shit is gone”

Settle down, Francis. While joe had the rather misguided view that all trade treaties should require the countries the U.S. traded with to have U.S.-style regulations (or stricter), he was hardly anti-trade.

[economist]

curious,
He didn’t bother trying. He left.