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Why is the Middle-Class Doomed?
Let us assume you are just a normal regular Joe, working a normal regular job, in order to pay for your normal regular house. You, dear friend, shall be screwed hardest of all.
Why? Simple: historically, it has been unlikely for middle-class income to rise proportionately with inflation. For example, as the cost of everything goes up by 4% per year, most middle-class employees can expect a modest 2.5% increase in pay.
Let’s say you earn $50,000 per year, spend $45,000, and add $5,000 to savings. What does that look like over the next 10 years, assuming both inflation and salary continue to grow at the present rate?
| year | income | expenses | savings |
| 2007 | $50,000 | $45,000 | $5,000 |
| 2008 | $51,250 | $46,800 | $4,450 |
| 2009 | $52,531 | $48,672 | $3,859 |
| 2010 | $53,835 | $50,619 | $3,226 |
| 2011 | $55,191 | $52,644 | $2,547 |
| 2012 | $56,570 | $54,749 | $1,821 |
| 2013 | $57,985 | $56,939 | $1,045 |
| 2014 | $59,434 | $59,217 | $217 |
| 2015 | $60,920 | $61,584 | -$665 |
| 2016 | $62,443 | $64,049 | -$1,606 |
| 2017 | $64,004 | $66,611 | -$2,607 |
By 2015 you will be in trouble. Here are your options:
- work more- thus lowering the quality of your life
- spend less- thus lowering the quality of your life
- borrow the difference- thus decimating your ability to retire comfortably, if at all
So please, average American, pause for a moment, put your iPhone and copy of “People” magazine away, and realize that sound monetary policy is in your own best interest.
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