Where did all the middle class go?
If you’ve read many of my blogs you’ll know that I very rarely get involved in current issues. Instead, I prefer to focus on principles that pervade all current political/social issues. This is because if you understand the underlying principles of investing you can trade in any market.
I read a lot. It’s one of life’s great enjoyments and recently l have been reading and researching a lot into the apparently diminishing middle class. It will affect us all, it’s unstoppable and yet most people will deny its existence or at least play down its importance but make no mistake - it’s happening - and you will have to choose sides.
Moreover, I believe it’s a problem on the scale of global warming.
A quick journey into history…
Think back to feudal times, there was a definite class structure. You were either royalty, aristocracy, or common (aka poor).
The basic distinction between each class was one thing: Property. Royalty owned the property, the aristocrats controlled the property and the commoners worked on the property.
Basically, 5% of the population owned & controlled and 95% worked it.
That worked well for a couple of hundred years until along came the Industrial Revolution. Things began to change slowly at first but then quite rapidly. I could go into a lot of social and demographic data about why things changed but basically through more widely available education, unions and increased wages, and various movements, a spark turned grew into a roaring fire and all of a sudden a new class was born.
The so-called middle class were neither elitist nor poor. So long as they had a wage each week they had a great lifestyle. They prospered and claimed the rights to owning their own home, driving a car, and going to parties at weekends.
And life was bliss…
The past hundred years or so…
The rich continued to get richer… and richer… and richer. They owned businesses and invested their earnings. The poor got richer too, although only marginally. They did this more because of socialistic policies than actual effort. The middle class got richer and poorer as the population of this class swelled beyond recognition.
And everyone lived happily for 100 years or so.
Now that should end of our happy story, but there is more.
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‘Life finds a way to restore the balance…’
Life has a funny way of swinging like a pendulum and running in cycles. Remember that fashionable safari suit or the knee highs with floral blouse you wore to your 18th birthday and that was out of fashion by your 21st. And guess what? It’s the same outfit you’ll see in a Shoreditch club now. So OK my fashion analogy may be totally whack but my point is that life will find a way to restore the natural balance of things.
The modern world, computers, aeroplanes, and the internet has had a massive part to play in this. It has made things happen quicker. It has accelerated the pace. The rich have gotten richer quicker, and the poor have gotten poorer quicker.
Now the most interesting part has been the middle class. This massive bulge of the population that I mentioned earlier has shattered into very definable fragments.
The middle class split…
Some of the middle class began taking some of their hard earned wage and invested. Some of these built businesses that replaced their wages. Some of them invested in property and some of them invested in property after their business was set up. These middle class investors enjoyed a comfortable lifestyle without the characteristic trappings of wealth. They had however taken care of their daily needs and had many lifestyle options rarely experienced by the next group we’ll talk about.
The final traunch fought for their entitlements, one-upped their neighbours, lived beyond their means, absconded responsibility, worked half their month to pay back the interest on past debts, found excuses, accepted their place in the world, practiced victim consciousness and mostly lived in fear. These people became the lower middle class or what you might call the ‘upper poor‘. Over time their position became worse and worse.
Over time the rich and “new lower rich” reinvested in their investments. These earnings bought more property and made more and more money. They lived better and better lifestyles as their investments gave better and better returns.
Now the poor and upper poor watched helplessly as investments got further and further out of their reach. Life for them seemed to be chained to an imaginary wheel that revolved round a descending spiral (a paycheck).
Affordability was a foreign concept to this group, the more time that passed the more un-affordable things became.
What was once the definable middle class had become two very distinct classes and the main criteria for one over the other. The lower rich owned property and the upper poor rented the property.
Had things really changed or did they just return to how things are meant to be?
I see it everyday with some of the unqualified clients who want a property with no money, who are racked with debt and a life beyond their financial means. Most of these people will be passengers in the game of life rather than driving the car.
My only question to you is:
Property Investor or Property Tenant…
Live with passion,
Brett Wood
PS. You may feel that I have been a bit hard on the upper poor but I as far as I am concerned they have made definite choices to be there. Whilst I do work with people all the time who don’t have the deposit to get on the property ladder, my real passion is working with disciplined people. Discipline really is the key difference between lower rich and upper poor.
PPS. He’s a book that I recommend which talks in American terms but is as true here in the UK as it is over there.
