Middle-class crunch: Who's to blame?
You're not imagining it: It's harder than ever to get into the middle class and stay there. Here's how you’ll succeed . . . and why many others will fail.
By Liz Pulliam Weston
Write about money, and you're going to tick someone off.
Write about poverty, affluence, whether the middle class is disappearing and if so, whose fault it is . . . and people go berserk.
Reader reaction to stories MSN Money has posted on these topics, including "Surviving (and thriving) on $12,000 a year," "I make $6.50 an hour. Am I poor?" and "Middle class living on the edge," has been overwhelming and mostly positive.
But each story has touched off vociferous debates on message boards and in e-mails about who's to blame for financial failure.
In one camp are the folks who are convinced that American workers are being squashed by the economy, the government, big corporations, lenders, the system in general. They see many, if not most, people as helpless pawns in a game that's rigged against them.
In another are those equally sure that there's no excuse for failing. If you've fallen down the economic ladder, or never figured out how to climb it in the first place, in their view it is solely and entirely Your Own Damned Fault.
The truth is somewhere in between. A decent job is no longer an easy ticket to a middle-class life. It's not just that things like health care and pensions are disappearing; it's that they're disappearing at the same time as our expectations about our lives have risen.
It's not your imagination, there is a squeeze on the middle class. MSN Money's Liz Pulliam Weston explains how it's possible for anyone to get in the middle class -- and stay there.
I believe a middle-class life is still possible for most people. But you have to be smarter, more cautious and faster on your feet than ever before. You have to obey some deceptively simple rules. And one thing is certain: Wherever you currently stand on the economic ladder, the surest way to rise is to pull yourself up.
What's middle class, anyway? "Middle class" is a squishy concept if ever there was one.
If we define it solely by income, then according to the U.S. Census Bureau, a household income of $36,000 to $57,657 in 2005 landed you squarely in the middle class. If you want to expand the definition to include "lower" and "upper" middle class, the range widens considerably, from $19,178 to $91,704. Here's the breakdown, with each "quintile" representing 20% of U.S. households:
Population group Lower limit Upper limit
1st quintile $0 $19,177 Poor/working poor
2nd quintile $19,178 $35,999 Lower middle class
3rd quintile $36,000 $57,657 Middle class
4th quintile $57,658 $91,704 Upper middle class
5th quintile $91,705 Bill Gates? Upper class
Of course, there are plenty of problems with using income figures, most notably because income alone doesn't reflect the huge variation in living costs across the U.S. Simply put, $50,000 might buy you a comfortable life in Iowa or Kentucky but keep you scrambling in San Francisco or Manhattan. And there are plenty of folks living in high-cost areas with nominally "upper middle class" or even "upper class" incomes who would adamantly reject those labels.
A more flexible definition for middle class would be having the resources to cover all your needs and some of your wants, plus the ability to save for the future.
That definition:
Doesn't necessarily mean homeownership, although it probably will; homeownership is still an achievable goal in most of the U.S., where close to 70% of all households own their own dwellings.
Certainly doesn't mean two new cars in the garage, or even one, although it probably means at least one reliable vehicle.
The middle-class crunch
MSN Money Special Coverage: How to hang on to what you've got. Doesn't mean being able to retire at 50, but it does mean being able to save for a retirement in which cat food is not a factor (unless you actually have a cat).
Sometimes, a middle-class life is out of reach Am I setting the bar too low? Some of you may think so. But inflated expectations about what constitutes a middle-class life lead many people into the kind of spending decisions that endanger their long-term financial security.
Those who are too eager to buy the trappings -- the "wants" -- are the ones who wind up with credit card debt and who overspend on homes
In other words, trying to look like you're middle class may well doom your prospects to actually be middle class.
And then there are those for whom the bar will remain too high. When I talk about most people being able to attain middle-class status, I have to carve out some exceptions. For example:
People not blessed with good, or at least decent, physical and mental health. It's hard to achieve much if you can't work. Illness, disability, addiction, depression and other afflictions can stop your economic progress in its tracks.
People who wait too long to start saving. If you hit your 50s, have never saved a dime and get bucked off the economic horse -- by a layoff, illness, disability, whatever -- your chances of being able to recover sufficiently may be dim.
People who can't or won't change. The alterations you need to make might be small, such as eating out less so you can put more into your 401(k). Or the adjustments might be big, like moving to another area or heading back to school to update your skills. Folks who are willing to consider their options, and then act, are going to be better off than those who insist it's the world that needs to change, not them.
Even if you're young enough and capable enough and willing to adapt, you've got powerful trends standing in your way. Don't expect them to be solved by politicians or to disappear in a puff of smoke.
Yes, the system is against you There are fewer good jobs for those who don't have college educations. A decline in manufacturing, waning union power and increased globalization mean it's tougher than ever to get into the middle class without a college education. But globalization and outsourcing are sniping away at white-collar jobs as well, and a fast-evolving economy mean few can be content to end their educations after four years.
The price tag for education is rising. Education was, and still is, the ticket to a more affluent life. Eight million vets grabbed this ticket in the wake of World War II, which helped fuel a huge expansion in America's middle class. Education is even more vital today, but the cost of a college education has skyrocketed and financial aid hasn't kept up, even as the comparative worth of a degree has shrunk. Loans have replaced grants as the primary source of financial aid, and too many students graduate with crippling debt.
Health care and health insurance costs are soaring. We have 47 million uninsured, and health care costs eat a big chunk out of the budgets of many who do have coverage. Two of five adults (43%) who buy individual polices, and one in four whose employers help pay for their coverage, spend more than 10% of their incomes on premiums and out-of-pocket medical expenses, according to the Commonwealth Fund.
Lenders don't care who can afford to borrow. Lenders were simply more conservative before the advent of credit scoring and securitization (the process in which most loans are bundled up and sold to investors). As lenders discovered more ways to manage risk, their willingness to extend credit soared, especially in the past 15 years. As a result:
The middle-class crunch
MSN Money Special Coverage: How to hang on to what you've got. Credit card debt exploded. The amount of money owed to credit card lenders at year end more than quadrupled, according to CardWeb.com, from $172.6 billion in 1990 to $710.9 billion in 2005.
Payday lending skyrocketed. The number of payday loan outlets zoomed, according to the Federal Reserve, from about 300 nationwide in 1992 to more than 22,000 last year. Payday lending is now a $40 billion industry.
Mortgages and other lending got riskier. That 70% homeownership statistic has been achieved, in part, by riskier loans, with lower down payments, adjustable rates and in some cases terms that allow your mortgage balance to balloon over time. Car loans, which used to average two or three years, now average five or more.
In short, it's never been easier to hang yourself.
There is a plan, and it's deceptively simple As complicated as the world has become, the middle class awaits anyone with an income and the strength to observe five vital steps:
Spend less than you make. The key to making any financial progress is to live within your means. Think it's impossible on your income? You're almost certainly wrong. And in the end, you really don't have a choice.
Limit your debt. It's costing you unnecessary interest and leaves you vulnerable to the slightest economic setback. The more you owe, the fewer choices you have.
It's not your imagination, there is a squeeze on the middle class. MSN Money's Liz Pulliam Weston explains how it's possible for anyone to get in the middle class -- and stay there.
Save for a rainy day. Even $500 in the bank could allow you to weather day-to-day crises like a car repair that could otherwise push you over the edge.
Plan for retirement. Start early, keep your mitts off the money and don't stop for any reason. Even a small amount, scraped together and invested over a lifetime, offers a much more comfortable retirement, if only psychologically, than Social Security alone.
Get the latest from Liz Pulliam Weston. Sign up to receive her free weekly newsletter.
Preferred format:HTMLPlain TextLearn more about newslettersStay sharp. You are the captain of your financial ship. You have to look for new opportunities and spot potential dangers. No one else will watch out for you and you alone, though, of course, MSN Money is here to help.
Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money.
Thursday, May 28, 2009
Thursday, May 14, 2009
Global warming? pt.2
By Jon Birger, senior writer
Last Updated: May 14, 2009: 12:29 PM ET
NEW YORK (Fortune) -- With Congress about to take up sweeping climate-change legislation, expect to hear more in coming weeks from John Christy, director of the Earth System Science Center at University of Alabama-Huntsville.
A veteran climatologist who refuses to accept any research funding from the oil or auto industries, Christy was a lead author of the 2001 Intergovernmental Panel on Climate Change report as well as one of the three authors of the American Geophysical Union's landmark 2003 statement on climate change.
Yet despite those green-sounding credentials, Christy is not calling for draconian cuts in carbon emissions. Quite the contrary. Christy is actually the environmental lobby's worst nightmare - an accomplished climate scientist with no ties to Big Oil who has produced reams and reams of data that undermine arguments that the earth's atmosphere is warming at an unusual rate and question whether the remedies being talked about in Congress will actually do any good.
Christy's critics in the blogosphere assume his research is funded by the oil industry. But Christy has testified in federal court that his research is funded by the National Oceanic & Atmospheric Administration and that the only money he has ever received from corporate interests - $2,000 from the Competitive Enterprise Institute for penning a chapter of a global warming book in 2002 - he gave away to a charity, the Christian Women's Job Corps.
His most controversial argument is that the surface temperature readings upon which global warming theory is built have been distorted by urbanization. Due to the solar heat captured by bricks and pavement and due to the changing wind patterns caused by large buildings, a weather station placed in a rural village in 1900 will inevitably show higher temperature readings if that village has, over time, been transformed into small city or a suburban shopping district, Christy says.
The only way to control for such surface distortions is by measuring atmospheric temperatures. And when Christy and his co-researcher Roy Spencer, a former NASA scientist now teaching at UA-Huntsville, began analyzing temperature readings from NOAA and NASA satellites, they found much slighter increases in atmospheric temperatures than what was being recorded on the surface. Clark and Spencer also found that nearly all the increases in average surface temperatures are related to nighttime readings - which makes sense if bricks and pavement are in fact retaining heat that would otherwise be dispersed.
In testimony to the House Ways and Means Committee in February, Christy displayed a chart showing central California temperature trends for both the developed San Joaquin Valley and the largely undeveloped Sierra foothills. "The daytime temperatures of both regions show virtually no change over the past 100 years, while the nighttime temperatures indicate the developed Valley has warmed significantly while the undeveloped Sierra foothills have not," Christy told the committee.
I recently spoke with Christy about his controversial research.
Why did you help write the 2001 IPCC report and the 2003 AGU statement on climate change if you disagreed with their fundamental conclusions?
With the 2001 IPCC report, the material in there over which I had control was satisfactory to me. I wouldn't say I agreed with other parts. As far as the AGU, I thought that was a fine statement because it did not put forth a magnitude of the warming. We just said that human effects have a warming influence, and that's certainly true. There was nothing about disaster or catastrophe. In fact, I was very upset about the latest AGU statement [in 2007]. It was about alarmist as you can get.
When you testified before Ways and Means, did you have any sense that committee members on either side were open to having their minds changed? Or are views set in stone at this point?
Generally people believe what they want to believe, so their minds will not change. However, as the issue is exposed in terms of economics and cost benefit - in my view, it's all cost and no benefit - I think some of the people will take one step backward and say, Let me investigate the science a little more closely.
In laymen's terms, what's wrong with the surface temperature readings that are widely used to make the case for global warming?
First is the placement of the temperature stations. They're placed in convenient locations that might be in a parking lot or near a house and thus get extra heating from these human structures. Over time, there's been the development of areas into farms or buildings or parking lots. Also, a number of these weather stations have become electronic, and many of them were moved to a place where there is electricity, which is usually right outside a building. As a result, there's a natural warming tendency, especially in the nighttime temperatures, that has been misinterpreted as greenhouse warming.
Are there any negative consequences to this localized warming?
It's a small impact, but there is an indication that major thunderstorms are more likely to form downwind of major cities like St. Louis and Atlanta. The extra heating of the city causes the air to rise with a little more punch.
Have you been able to confirm your satellite temperature readings by other means?
Weather balloons. We take satellite shots at the same place where the balloon is released so we're looking at the same column of air. Our satellite data compares exceptionally well to the balloon data.
During your House Ways and Means testimony, you showed a chart juxtaposing predictions made by NASA's Jim Hansen in 1988 for future temperature increases against the actual recorded temperature increases over the past 20 years. Not only were the actual increases much lower, but they were lower than what Hansen expected if there were drastic cuts in CO2 emissions - which of course there haven't been. [Hansen is a noted scientist who was featured prominently in Al Gore's global warming documentary, "An Inconvenient Truth."] Hansen was at that hearing. Did he say anything to you afterwards?
We really don't communicate. We serve on a committee for NASA together, but it only deals with specific satellite issues. At the Ways and Means hearing, he was sitting two people down from me, but he did not want to engage any of the evidence I presented. And that seems to be the preferred tactic of many in the alarmist camp. Rather than bring up these issues, they simply ignore them.
(Contacted by Fortune, Hansen acknowledges that his 1988 projections were based on a model that "slightly" overstated the warming created by a doubling in CO2 levels. His new model posits a rise of 3 degrees Celsius in global temperatures by 2100, vs. 4.2 degrees in the old one. Says Hansen, "The projections that the public has been hearing about are based on a climate sensitivity that is consistent with the global warming rate of the past few decades." Christy's response: "Hansen at least admits his 1988 forecasts were wrong, but doesn't say they were way wrong, not 'slightly,' as he states." Christy also claims that even Hansen's revised models grossly overestimated the amount of warming that has actually occurred.)
I know you think there's been something of a hysteria in the media about melting glaciers. Could you explain?
Ice melts. Glaciers are always calving. This is what ice does. If ice did not melt, we'd have an ice-covered planet. The fact is that the ice cover is growing in the southern hemisphere even as the ice cover is more or less shrinking in the northern hemisphere. As you and I are talking today, global sea ice coverage is about 400,000 square kilometers above the long-term average - which means that the surplus in the Antarctic is greater than the deficit in the Arctic.
What about the better-safe-than-sorry argument? Even if there's a chance Gore and Hansen are wrong, shouldn't we still take action in order to protect ourselves from catastrophe, just in case they're right?
The problem is that the solutions being offered don't provide any detectable relief from this so-called catastrophe. Congress is now discussing an 80% reduction in U.S. greenhouse emissions by 2050. That's basically the equivalent of building 1,000 new nuclear power plants all operating by 2020. Now I'm all in favor of nuclear energy, but that would affect the global temperature by only seven-hundredths of a degree by 2050 and fifteen hundredths by 2100. We wouldn't even notice it.
First Published: May 14, 2009: 11:15 AM ET
Last Updated: May 14, 2009: 12:29 PM ET
NEW YORK (Fortune) -- With Congress about to take up sweeping climate-change legislation, expect to hear more in coming weeks from John Christy, director of the Earth System Science Center at University of Alabama-Huntsville.
A veteran climatologist who refuses to accept any research funding from the oil or auto industries, Christy was a lead author of the 2001 Intergovernmental Panel on Climate Change report as well as one of the three authors of the American Geophysical Union's landmark 2003 statement on climate change.
Yet despite those green-sounding credentials, Christy is not calling for draconian cuts in carbon emissions. Quite the contrary. Christy is actually the environmental lobby's worst nightmare - an accomplished climate scientist with no ties to Big Oil who has produced reams and reams of data that undermine arguments that the earth's atmosphere is warming at an unusual rate and question whether the remedies being talked about in Congress will actually do any good.
Christy's critics in the blogosphere assume his research is funded by the oil industry. But Christy has testified in federal court that his research is funded by the National Oceanic & Atmospheric Administration and that the only money he has ever received from corporate interests - $2,000 from the Competitive Enterprise Institute for penning a chapter of a global warming book in 2002 - he gave away to a charity, the Christian Women's Job Corps.
His most controversial argument is that the surface temperature readings upon which global warming theory is built have been distorted by urbanization. Due to the solar heat captured by bricks and pavement and due to the changing wind patterns caused by large buildings, a weather station placed in a rural village in 1900 will inevitably show higher temperature readings if that village has, over time, been transformed into small city or a suburban shopping district, Christy says.
The only way to control for such surface distortions is by measuring atmospheric temperatures. And when Christy and his co-researcher Roy Spencer, a former NASA scientist now teaching at UA-Huntsville, began analyzing temperature readings from NOAA and NASA satellites, they found much slighter increases in atmospheric temperatures than what was being recorded on the surface. Clark and Spencer also found that nearly all the increases in average surface temperatures are related to nighttime readings - which makes sense if bricks and pavement are in fact retaining heat that would otherwise be dispersed.
In testimony to the House Ways and Means Committee in February, Christy displayed a chart showing central California temperature trends for both the developed San Joaquin Valley and the largely undeveloped Sierra foothills. "The daytime temperatures of both regions show virtually no change over the past 100 years, while the nighttime temperatures indicate the developed Valley has warmed significantly while the undeveloped Sierra foothills have not," Christy told the committee.
I recently spoke with Christy about his controversial research.
Why did you help write the 2001 IPCC report and the 2003 AGU statement on climate change if you disagreed with their fundamental conclusions?
With the 2001 IPCC report, the material in there over which I had control was satisfactory to me. I wouldn't say I agreed with other parts. As far as the AGU, I thought that was a fine statement because it did not put forth a magnitude of the warming. We just said that human effects have a warming influence, and that's certainly true. There was nothing about disaster or catastrophe. In fact, I was very upset about the latest AGU statement [in 2007]. It was about alarmist as you can get.
When you testified before Ways and Means, did you have any sense that committee members on either side were open to having their minds changed? Or are views set in stone at this point?
Generally people believe what they want to believe, so their minds will not change. However, as the issue is exposed in terms of economics and cost benefit - in my view, it's all cost and no benefit - I think some of the people will take one step backward and say, Let me investigate the science a little more closely.
In laymen's terms, what's wrong with the surface temperature readings that are widely used to make the case for global warming?
First is the placement of the temperature stations. They're placed in convenient locations that might be in a parking lot or near a house and thus get extra heating from these human structures. Over time, there's been the development of areas into farms or buildings or parking lots. Also, a number of these weather stations have become electronic, and many of them were moved to a place where there is electricity, which is usually right outside a building. As a result, there's a natural warming tendency, especially in the nighttime temperatures, that has been misinterpreted as greenhouse warming.
Are there any negative consequences to this localized warming?
It's a small impact, but there is an indication that major thunderstorms are more likely to form downwind of major cities like St. Louis and Atlanta. The extra heating of the city causes the air to rise with a little more punch.
Have you been able to confirm your satellite temperature readings by other means?
Weather balloons. We take satellite shots at the same place where the balloon is released so we're looking at the same column of air. Our satellite data compares exceptionally well to the balloon data.
During your House Ways and Means testimony, you showed a chart juxtaposing predictions made by NASA's Jim Hansen in 1988 for future temperature increases against the actual recorded temperature increases over the past 20 years. Not only were the actual increases much lower, but they were lower than what Hansen expected if there were drastic cuts in CO2 emissions - which of course there haven't been. [Hansen is a noted scientist who was featured prominently in Al Gore's global warming documentary, "An Inconvenient Truth."] Hansen was at that hearing. Did he say anything to you afterwards?
We really don't communicate. We serve on a committee for NASA together, but it only deals with specific satellite issues. At the Ways and Means hearing, he was sitting two people down from me, but he did not want to engage any of the evidence I presented. And that seems to be the preferred tactic of many in the alarmist camp. Rather than bring up these issues, they simply ignore them.
(Contacted by Fortune, Hansen acknowledges that his 1988 projections were based on a model that "slightly" overstated the warming created by a doubling in CO2 levels. His new model posits a rise of 3 degrees Celsius in global temperatures by 2100, vs. 4.2 degrees in the old one. Says Hansen, "The projections that the public has been hearing about are based on a climate sensitivity that is consistent with the global warming rate of the past few decades." Christy's response: "Hansen at least admits his 1988 forecasts were wrong, but doesn't say they were way wrong, not 'slightly,' as he states." Christy also claims that even Hansen's revised models grossly overestimated the amount of warming that has actually occurred.)
I know you think there's been something of a hysteria in the media about melting glaciers. Could you explain?
Ice melts. Glaciers are always calving. This is what ice does. If ice did not melt, we'd have an ice-covered planet. The fact is that the ice cover is growing in the southern hemisphere even as the ice cover is more or less shrinking in the northern hemisphere. As you and I are talking today, global sea ice coverage is about 400,000 square kilometers above the long-term average - which means that the surplus in the Antarctic is greater than the deficit in the Arctic.
What about the better-safe-than-sorry argument? Even if there's a chance Gore and Hansen are wrong, shouldn't we still take action in order to protect ourselves from catastrophe, just in case they're right?
The problem is that the solutions being offered don't provide any detectable relief from this so-called catastrophe. Congress is now discussing an 80% reduction in U.S. greenhouse emissions by 2050. That's basically the equivalent of building 1,000 new nuclear power plants all operating by 2020. Now I'm all in favor of nuclear energy, but that would affect the global temperature by only seven-hundredths of a degree by 2050 and fifteen hundredths by 2100. We wouldn't even notice it.
First Published: May 14, 2009: 11:15 AM ET
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