Friday, September 14, 2012

A taxonomy of economic classes.

Rod Dreher, writing at The American Conservative, points out the absurdity of both President Obama and Mitt Romney describing the upper end of the middle class at an income level of $250k/year.  The point is taken--though as commenters point out, this income doesn't factor in the greater expense of urban lifestyles.  This salary will not make you rich in Manhattan or San Francisco, on the other hand, one can live quite comfortably on half of that if one lives in Montana.  Other factors, such as number of children, also affect the standard of living one can purchase on a given salary.

But a more fundamental problem is that the trichotomy of poor/middle class/wealthy doesn't do justice to the varying economic circumstances of people around the globe.  Many US commentators try and subdivide this with phrases like "upper middle class", "working poor", "working class", "homeless", and the like; but these are not rigorously defined.

To that end, here's an entirely non-academic attempt at a more useful taxonomy of economic strata.  No references to specific income levels are made.

  • Level 0:  Basic needs for biological subsistence are regularly not met.  Meals may be irregular, or the individual may in fact starve, be homeless, or lack any protection from elements.  Utterly dependent on charity, thievery, or begging for sustenance; death may result if these are withdrawn or unavailable.  In the US context, this mainly consists of the long-term homeless.
  • Level 1:  Basic needs for biological subsistence are occasionally not met; individual may exist in unsanitary, unhealthy, or socially pathological conditions.  In modern welfare states, persons at this level typically are on long-term government support (which keeps them out of level 0--a major reason level 0 is rare in wealthy developed countries).  Many US ghettoes, Indian reservations, and poor rural enclaves (parts of Appalachia) qualify.
  • Level 2:  Able to provide (or is provided) basic biological needs, though may need occasional public assistance, charity, or support from friends and extended family.  No disposable income (all goes to basic necessities), insufficient financial security for long-term planning, and unable to accumulate savings or afford long-term investments such as owning a home, education, or other big ticket items.  Significant cash-flow difficulties, lives paycheck to paycheck, may have difficulty coping with even minor unexpected events such as unexpected doctor visits.    Little or no access to credit on reasonable terms, may have dependency on predatory lenders.   "Judgement-proof" in legal parlance.   Many working poor.
  • Level 3: Able to provide basic needs and accumulate modest amounts of capital, and afford (or finance) medium-to-large ticket items like a car.  May also be able to purchase things like health insurance or preventative medical care; and has enough capital to protect that these purchases become rational.  Rate of capital accumulation is small, however, and a significant crisis (such as unemployment) poses a threat.  Lower-middle class.
  • Level 4:  Individual is able to provide basic needs, accumulate capital, and spend some money on large-ticket or non-essential items.  Ready access to credit, including the ability to finance the purchase of homes in some markets.  Able to meaningfully save for rainy days and or retirements, and also to spend non-trivial though not large sums on recreational items.  Able to financially withstand events like broken-down cars or appliances, minor medical emergencies, or short-term bouts of unemployment, though may be ruined by major crises.  Working class.
  • Level 5:  Financially secure in the medium term, with significant capital appreciation.  Some ability to invest in financial markets, little problem with owning own home, except in markets where real estate is extremely expensive.  Reasonable levels of disposable income, and able to spend some money on luxuries, and may be able to save up big-ticket recreational items (such as boats), and things like private school.  Generally has good access to credit.  Middle class.
  • Level 6:  Financially secure in the medium-to-long term.  Much of income is disposable.  Can afford quite a few luxuries, including big-ticket items like extensive travel, luxury cars, works of art, private schools, and tuition at elite universities.  Older members of this level could choose retire early and live off accumulated capital.  Upper middle class.  Top 10%
  • Level 7:  Completely financially independent.  Able to, if one chooses, quit working and finance a comfortable lifestyle on accumulated capital, or plan to do so within a short time-frame if young.  Able to easily afford things like full-time servants, luxury homes, vacation homes, or private aircraft.  Moderately wealthy; top 1%-2%.
  • Level 8:  Wealthy; have income or capital accumulation an order of magnitude above middle-class levels.  Able to afford any and all middle-class purchases without a second thought, and able to purchase luxury items which are simply beyond the ability of the middle class to even consider.  Depending on location, may be able to purchase some political influence.  Significant investments in marketplace; capital gains often exceeds earned income.  Top 0.1%.
  • Level 9:  Very wealthy.  Have capital accumulation several orders of magnitude above middle-class levels, and an order of magnitude above even wealthy levels.  Able to afford items like professional sports franchises, and medium-sized corporations; able to purchase virtually any consumer good on the market without a second thought.  Significant political influence is available; able to self-finance a run to high office (many US politicians are here, including Mitt Romney).  Top 0.01%. 
  • Level 10:  The wealthiest of the wealthy. .  Have capital accumulation which rivals that of many large corporations or small government entities; an order of magnitude richer than Level 9.  Able to live like royalty (and many in this class are royalty), and purchase absurdly expensive things like mega-yachts or other vanities.  Extensive access to politicians is available.  Top 0.001%--Warren Buffet, Bill Gates, Paul Allen.

1 comment:

  1. I remember reading somewhere recently that if one had more than $1000 saved you were in the top 10% on a world wide basis.
    More than 10k puts one into the top 5%, worldwide.

    And more than 50k put's one into the 1% worldwide.

    2.5 BILLION human beings earn less than $2/day and 30,000 human beings die daily of starvation and preventable disease.


Keep it clean, please