Is the Middle Class a Dying Breed?

10.02.12 | BofAgini indexAmazonViacomHourglass theoryDr. Farhoud KafiLouis VuittonChinaIndia

There are tents in Harvard Square in front of designer stores and they are not protesting the 1% or Goldman. They are people camping out, probably because the cops patrol Cambridge Commons and only so many will fit under the canopy of the BofA (ironic huh?). I found myself feeling guilty for checking out window displays after passing by folks huddling for warmth after possibly getting their daily dose at the meth clinic one subway stop away in Central Square.

Maybe there aren’t more homeless but just a shift in their patterns. Brattle Street is less obvious than JFK by The Pit or the park, where a handful still spend the night in sleeping bags. Homeless are nothing new but it struck me to see the locals in their new regular spot after a day when the stock markets soared on economic news and tech news/rumors, from Amazon and Viacom, to Google’s impending cloud and streaming ventures. Because my fear is that the economists are right — the middle class in America is a dying breed and it’s not a slow death.

Countless writers and economists have tackled the concept that America might be losing its crown and will soon no longer be viewed as king of the “free world.” Along with the crown will go a healthy middle class. The West and the Rest or the Markets Collide — it all says the same thing and aligns with the popular Hourglass Theory from Citi (also see Gini index)- that while the Third World grows, we have reached a plateau. If we plateau as a nation, than no new resources or jobs will be created and what will happen to the cash strapped, the unemployed, the uninsured?

Part of the shift in the power in the global community is tied to the middle class. Historically this community didn’t exist in places like China and India but the push for Mainland to boost domestic consumption came from their desire to decrease their reliance on Western purchases. The peasants can’t buy iPhones and L’Oreal products, and it’s not enough that the rich go crazy for Louis Vuitton. An interesting note my econ professor, Farhoud Kafi, mentioned, was that most of China is funded by foreign investments so even though they are growing, it’s at least partially thanks to our moving operations abroad. But, he added, once their middle class starts buying more, we may no longer have access to the goods at the cheap prices we now get.

The other night Paypal Founder Peter Theil spoke with Niall Ferguson at Harvard’s Kennedy school. He bottom lined this situation in one sentiment. He said that in the past people spoke of the First World and the Third World. Now they speak of the Developed World and the Developing World. Essentially, he said if America, Europe and Japan represent “Developed,” than we have no more growth left in us. If we do not grow, there is no new product or money but simply a shift of resources between people.

Average is no longer enough, or so argues The Atlantic. The truth is prior generations might have benefited from the post WWII growth that stemmed from rebuilding, the period when Deming helped Japan bounce back, while America too began working on its renaissance. But now working the line isn’t enough, there’s no gold watch, we all need to innovate and yet we’re more exhausted than ever.

I have no answers. Somehow now I feel a bit comforted that this is all happening while I’m in B school because even though the U.S. government is charging me 6.8% to borrow to educate myself, I know it will change me. If The Atlantic is right, what I have to offer without an MBA may not be enough in the world at large. If I don’t change anything, than I too could plateau and I can’t have that.

I have no answers. I don’t know how the world, this country, can save itself. I could say we should use more technology in schools but who will pay for it? I could say we need more technical and vocational schools as alternatives to college but who will develop these programs? I could say we need more condoms, more mentoring programs, more student entrepreneurship programs but who will do the outreach? I suppose at the very least I can promise myself I won’t take any more from the system, the government, than I need and that in the future, when I have more than I need, I will help lend my knowledge and money to those that can develop these programs. And I can say I won’t lose hope, I won’t make myself see right through the homeless, I won’t give up on the junkies, I won’t give up on Obama, and I will do my best to better myself and support programs working to fill the aforementioned voids.