Morning Must-Read: Noah Smith: What We Talk About When We Talk About the Middle Class
Noah Smith argues that inequality has a direct effect on utility functions and societal well-being–not via the envy/spite channel, but through a yardstick channel by which an unequal society is one in which people feel insecure:
…is that the middle class is almost impossible to define. The obvious stumbling block is the variation in local living costs:
[T]he amount of money needed to feel middle class varies sharply across the country. Making $50,000 leaves you struggling in Manhattan and wealthy in Detroit…. But… is living in New York City a necessity, or is it a luxury good, much like buying a fancy car or a huge house?…
Middle class is more of a state of mind… means a feeling of being in a similar economic situation to the people around you, combined with a sense of overall optimism and security…. That’s why inequality kills the idea of a middle class, even if it improves people’s standard of living overall. When everyone makes $50,000 a year, it’s easy to tell that you’re middle class. If half of those people suddenly start making $150,000 a year, it’s no longer so easy. For the half of people still making $50,000, nothing has changed in terms of their absolute material standard of living…. But now they might think to themselves, ‘Have I failed in some way?…
The idea of the middle class is dead. There is no going back in our lifetimes. We need to find a new way of thinking about broadly shared prosperity.