Business Success when there's no Middle Class

[EsJay]

I read articles few months back I think on NYT about technology threats to society.

Just to give few examples Auto Drive Cars, once that technology matures (and it will) it will wipe out taxi drivers across the country. Cloud Migration is already impacting out IT Admin types jobs, Bettermint and alike will wipe out Financial Advisers jobs (their value aside), BoA already started piloting human less branches in few locations...I can give numerous examples.

Yes new technology will bring new types of jobs but speed of change this time is much faster than anything seen earlier and probably anything society can absorb. As Walmart wiped out small shops, imagine it happening across multiple industries around same time. If so many people become unemployeed it directly impacts consumer buying power and will have cascading effect on multiple industries.

That's the reason there is a faint early chatter in some Govts specially in Europe (even in countries like India) exploring UBI (Universal Basic Income) as an alternative..which can bring back stability to people and families and maintain some consuming power in society

Under what circumstance would there be no consumers?

If the middle class (as compartmentalized and defined by who?) were gone, where did they go?

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Kak]

We do not have equal initial opportunity, and disparity of outcome certainly exists with or without it.

Disparity of outcome is what makes a society free.

Can you give me a macro example of disparity of opportunity? (in the USA)

What is middle class? What bracket did they decide to call the middle class this week?

How is median income more important than average income?

 

[Kak]

My take is simply that the pool of potential customers with disposable income is shrinking.

That is right... YOUR TAKE.. Prove it.

 

[Bdubz]

This is a good discussion. I don’t have charts or proof but with the rise in cancelling cable for majority of people imo proves the majority does not have disposable income they once did. More people are in more debt than ever before. Especially the young people.

I have friends who are on suicide watch after coming to the realization their 85k piece of paper was worthless and they cannot find jobs. I watched a video a while back about this generation of people 30 and under are under a mass depression engulfed in technology and social media, losing their social skills day by day. I don’t know the truth of that theory but I will say the people I know from high school and college the majority of them are not happy with their lives. Not happy people don’t spend frivolously on things they don’t need.

 

[Roli]

Guys, please try to keep the politics out of it...

Discuss as if the premise were true.

Kinda like saying... "Hey, if the stock market declines by 30% this year, what will you do?"

The premise can be argued, debated, and speculated, but the question speaks to what you will do IF it occurs - not IF the market will or will not decline 30%.

Thanks!

Like the guy who comes just in time to break up the drunks at the bar . . .

 

[CPisHere]

According to the chart in this article, middle class is described as individual earnings of 24k per year... That requires a job where someone would make 12 bucks per hour...

If middle income is described by nothing more than basic full time employment there is nowhere to go but up.

Thank you for posting this Gary, because it shows the strange ways people define “middle income” or “middle class”.

Middle Class is simply a math calculation from median income.

From the article "The income it takes to be middle income varies by household size, with smaller households requiring less to support the same lifestyle as larger households. Thus, a one-person household needed only $24,000 to $72,000 to be middle income in 2014. But a five-person household had to have an income ranging from $54,000 to $161,000 to be considered middle income."

 

[Kak]

What i see from my kids is they don't buy anything.....
They need a smart phone, a ps4, and time.
No cars, no sound systems, no going to the mall.
They want to hang out with their friends. Whether it is fortnite or on the basketball court. Very social.
Not really into buying a bunch of stuff. Content / skins / packages for their online players.
Pizza. Occasional movie. Few bucks for uber.

Eventually they will get out and get jobs and have kids and buy houses / cars / etc. Seems the new play though is for online content, subscription boxes, and experiences they can have with their friends...... (they just spent $70 on wrestlemania and watched with friends.... they had a blast for 4 hours and loved it)....

Now THAT is an interesting observation! Rep+

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Ninjakid]

As a business owner, I don't want to be serving the Middle Class.

Why? The middle class are usually the best consumers in a capitalist society.

The market isn't going in favour of the upper class, because they will always be a minority. Even expensive shit like iPhones, and vacations to overseas are commonly afforded by the middle class. Hell even people on welfare have smartphones.

The middle class isn't going anywhere anytime soon.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[CPisHere]

What do you believe income inequality is?

Why do you think income inequality is a problem?

Why do you think income inequality is growing?

What's your deal with these questions? They don't feel genuine.

 

[CPisHere]

There will always be producers and consumers.

I can't envision a first world society that doesn't have this.

No disagreement. The ratio is getting worse though.

There's lot of disagreements about which way society is going, and how income inequality / unemployment will be handled going forward (due to things like automation - which is a genuine concern) but I don't think any model says "we run out of consumers and the rich sleep on piles of money while the poor all starve to death with nothing in between".

Even the extreme-end concept of universal basic income where we just give cash to everyone out of taxes assumes people will still be able to support themselves and consume.

Yes, there will always be consumers but their level of disposable income will go down.

Now - getting back to the original point of not wanting to sell to poor people - there's some logic in that. That's why "target markets" are a thing. Don't sell Ferraris to teenagers - sell them to retired Italians.

I didn't say I don't want to sell to poor people. That's actually going to be the biggest growth market as the Middle Class becomes increasingly poor.

 

[CPisHere]

As corporates drive for profits and efficiency, specially with all automation, robotics etc and start dismantling employed middle-class I really can't imagine how economics will work in future society.

If there are no consumers (aka middle class) how will corporations survive? Businesses's' own survival is very much dependent on strong earning middle class. If there is no middle class who will Walmarts, Targets and Fords will sell their products to? Only Ferraris and Lamborghinis (aka selling only to few) can't drive economies and is not a sustainable model.

Many corporations, particularly Brick & Mortar retail of non-essentials, will not survive. It will be a largely Welfare state.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[CPisHere]

You aren’t though. You are pointing out “facts” according to popular opinion. Not actual facts.

Not that income inequality doesn’t exist... clearly it does. However it’s existence is an intentionally misguided focus.

By the world’s standards, Americans are filthy rich. The number one problem among America’s poor is health issues associated with obesity. Yeah. One American “poor” person eats more food than 5 people in Venezuela... Which, as it turns out has extremely low income inequality.

Income Inequality is a fact, so are median wages - even if you find it misleading.

Like I said, I'm not complaining nor am I suggesting to support Socialism or something. I'm pointing out that the Market is changing, and we as Business Owners should be prepared.

 

[CPisHere]

I didn’t say it didn’t exist.

Disparity of outcome exists because we have equal initial opportunity.

You can’t have one without the other.

We do not have equal initial opportunity, and disparity of outcome certainly exists with or without it.

 

[CPisHere]

Disparity of outcome is what makes a society free.

Can you give me a macro example of disparity of opportunity? (in the USA)

What is middle class? What bracket did they decide to call the middle class this week?

You seem to be stuck on some political perspective. That's not my take.

My take is simply that the pool of potential customers with disposable income is shrinking.

You must define disparity of opportunity very rigidly - there are not laws that prevent opportunities for certain people. But some people are born smarter, better looking, etc than others. Some kids go to private school with millionaire parents that will fund their ideas. Etc, Etc.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[CPisHere]

Dude. You keep doing this drive by. That is why I keep asking questions.

Of course you are supposed to adapt to changing business and market environments, however, you are using your EFFECT that "the middle class will disappear" to justify the cause "income inequality". You haven't even proven the assumptions of your causation... You just call them FACT and move on.

Income Inequality is not the cause of the Middle Class disappearing. It is a symptom of it. The only thing I said about the cause was "Public policies will encourage it, and technology will enable it."

I should have never mentioned the word Income Inequality because it obviously makes everyone assume this is political. It's not political.

 

[CPisHere]

That is right... YOUR TAKE.. Prove it.

You cannot prove a prediction.

Edit: There's plenty of proof that the Middle Class, and the pool of consumers with disposable income, has already been reduced. I can do a quick Google for you if you'd like. But the proof that it has happened in the past is not proof it will get worse in the future.

To do that requires foresight, logic, and analysis. That's what I wanted to encourage. Ah well.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[CPisHere]

I’m not making it political.

You made the claim the population of people with disposable income is shrinking as fact.

I disagree and am very bullish on consumerism and wanted to know how you landed on your assumption, but you think I’m just arguing with you.

Well this sounds like a discussion.

Consumerism isn't going away. It's shifting.

I hate HuffPo, but here's a decent collection of charts that show what I'm talking about with the Middle Class.
The Sad State Of America's Middle Class, In 6 Charts | HuffPost

Does income dictate net worth? No

I don't follow your point.

Shouldn’t consumption levels be more pertinent to your argument?

Consumption can be produced by reduced net worth, disposable income, or by debt. They are not all the same, as there are far different implications depending on the source.

 

[CPisHere]

Source?

Oh wait... here’s one:

Interactive charts by the OECD

It would seem your assumption is incorrect.

This doesn't address the distribution of that income, which is my point.

 

[CPisHere]

Innovation and efficiency gets rid of boring menial jobs people tend to hate. Maybe their displeasure is a personal defect in modern society as gratefulness is in short supply.

The invention of the washer and dryer and roomba gave servants less to do.

None of this has anything to do with my point about if you SELL to these people.

 

[Kak]

That's not what Pew Research found. In a study of 229 metro areas, upper and lower class grew roughly the same: 160 metro areas showed an increase in lower-income people, 172 showed an increase in upper-income people. 203 metro areas (89%) showed a decrease in middle-income people, defined as people who make between 2/3x and 2x the national median size-adjusted household income. That data says very clearly the middle class is shrinking, with people moving up AND down about equally. (This study looks at the number of **metro areas** that changed, not the number of **people** who changed, but it should be fairly representative.)

America’s Shrinking Middle Class: A Close Look at Changes Within Metropolitan Areas

That study is 2 years old, but I don't think much has changed.

According to the chart in this article, middle class is described as individual earnings of 24k per year... That requires a job where someone would make 12 bucks per hour...

If middle income is described by nothing more than basic full time employment there is nowhere to go but up.

Thank you for posting this Gary, because it shows the strange ways people define “middle income” or “middle class”.

 

[prashantcoupons]

Yes, It may be possible, I don't think cheap and costly products will get produce at the same time. Everyone would be richer in the near future.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[CPisHere]

Shifting how though? Prove it.

The average American income is shifting up.
The median American income is, in your words and I didn’t verify this, shifting downward.

Assuming the above is true, what does that data mean? Factually it means the majority of earners are no longer “in the middle” they have grown above it while the derelicts are still the same unchanged derelicts. This, on a whole, bodes well for consumer based businesses.

Imagine a bell curve with a large hump in the middle, where the majority make a good living, with a few making an extravagant living & a few in poverty. That was America 30 years ago.

Today, that bell curve is flattening and moving to the left, where less people make a good living, a few more make an extravagant living, and many more are in poverty. I believe we will continue to see this change occur.

There are consumer based businesses that can thrive in this, and many have/will. It's just a shift.

 

[CPisHere]

What i see from my kids is they don't buy anything.....
They need a smart phone, a ps4, and time.
No cars, no sound systems, no going to the mall.
They want to hang out with their friends. Whether it is fortnite or on the basketball court. Very social.
Not really into buying a bunch of stuff. Content / skins / packages for their online players.
Pizza. Occasional movie. Few bucks for uber.

Eventually they will get out and get jobs and have kids and buy houses / cars / etc.

Home ownership is dropping like a rock, car ownership is too (leasing is way up + Uber, etc), and the number of kids people have is also down. What we assume WILL happen isn't happening. And I don't think it's coming back.

*Edit: Full time employment is also way down. People are having to do freelancing/gig economy/multiple jobs.

 

[Kak]

Home ownership is dropping like a rock, car ownership is too (leasing is way up + Uber, etc), and the number of kids people have is also down. What we assume WILL happen isn't happening. And I don't think it's coming back.

LOL, I was there at Wrestlemania in the Superdome in a Suite and left because I was so bored... but was very surprised by the wide range of fans.

I was on the Lincoln website the other day because I’m considering a Continental. They have come up with a untraditional lease model. Basically you pay X per month and EVERYTHING is taken care of. You can have the car for 1 month, 6 months or 2 years... they just quote you a price and you start paying. It includes insurance too. Kind of compelling to me honestly, might be great for a company car.

Cadillac has something similar too... These big car companies must be seeing the same trend.

Although, when I leased another car recently, there was a lack of pride of ownership... I didn’t think I would care, but I kind of did.

Following the same trend of swaping and not committing to things... What if a company that owned apartment complexes across the US did the same? You could pay one monthly fee and go from place to place, furnished apartments available... 2 weeks- 6 months what ever.

My country club is like that. I can usually find a Clubcorp property wherever I go and I have access as if I were a member of that club.

 

[mmcconnell1618]

What happened to the saddle makers with the invention of the automobile and motorcycle?

Society moved on.

I've spent a lot of time studying the potential impact of automation and artificial intelligence on workers. My initial thought was that this would be really bad on many workers would no longer have any opportunity. However, past industrial revolutions have ended up creating more jobs than they destroyed.

Yes, the horse buggy companies were going to go out of business and most decided to ignore the automobile and create fancier buggies. William Durant decided to kill off his buggy business and buy as many failing auto companies as he could. William Durant took this failing auto companies and created General Motors.

Think about jobs like "social media marketer" or "YouTuber" or "Reality TV Star" and how those things didn't exist just a few years ago. There will be many other new opportunities created that we can't even imagine yet. If Elon Musk continues on the path with SpaceX we may have blue-collar asteroid mining jobs in the near future.

 

[mmcconnell1618]

What i see from my kids is they don't buy anything.....
They need a smart phone, a ps4, and time.
No cars, no sound systems, no going to the mall.
They want to hang out with their friends. Whether it is fortnite or on the basketball court. Very social.
Not really into buying a bunch of stuff. Content / skins / packages for their online players.
Pizza. Occasional movie. Few bucks for uber.

I would say kids aren't buying the same physical products that we might have bought as children (Legos replaced with Minecraft) but are instead buying digital items or advertising supported items.

With the GDRP regulation in Europe and the realistic possibility of personal data legislation in the US (Facebook, etc.) I think the advertising model might lose market share to a pay-for-use model. Somebody is paying those YouTubers tons of cash to scream into a microphone for two hours. You know they aren't paying them out of the kindness of their hearts.

 

[AlasdairM]

[QUOTE="Clueless Newbie, post: 688

Take a look at the incredible growth of Bejin: 1990 - 2010

What does this mean for fastlaners?
It means that we will have a HUGE pool of people that can afford to pay us for improving their lives.

Let's say you create a kickass app that solves a huge problem.
For example: You create an addictive Iphone/Android game that teaches teenagers math.

Parents from all over the world (in the billions) would be more than happy to give you a $1 or $2 for that app. If you solve a hard problem, it will increasingly become much easier to be mega wealthy.

When economies of scale is involved, the price point can be a little as a dollar.

And, if you're worried about the US middle class shrinking, always remember, when there are huge problems, there are opportunities to provide massive value. May be your business can help people who are left behind join the middle class.[/QUOTE]

Think that's Shanghai...but point taken!

 

[MHP368]

I've been thinking about where America is headed, and when I look 20 years into the future, the Middle Class will be crushed (even more so than it's already been the past 20 years). Public policies will encourage it, and technology will enable it.

As a business owner, I don't want to be serving the Middle Class. And many of us are. The future is low priced goods/services to everyone, or super high priced goods/services to a small group.

What do you think?

*EDITED - removed the word Income Inequality because it makes people crazy.

Not a very fastlane mindset if you're worried about 20 years from now, the world will be radically different in every conceivable way in 20 years - get while the getting good so you'll be in a position to dampen the effects to yourself and those you love.

 

[garyfritz]

I've spent a lot of time studying the potential impact of automation and artificial intelligence on workers. My initial thought was that this would be really bad on many workers would no longer have any opportunity. However, past industrial revolutions have ended up creating more jobs than they destroyed.

You are missing the MAJOR paradigm shift we'll be facing very soon.

In the past, the buggy-whip manufacturers went out of business. Their workers had to retrain a bit to get a new job, and everything continued as before. As you said, the industrial revolutions created new jobs.

That's changing. In the fairly near future, when automation takes over many jobs, there may not BE other jobs for people to move to. The harsh reality is that a significant percentage of the population, while they may be wonderful people, are not qualified for anything but simple jobs and menial labor -- and many/most of those jobs will be automated. If your job goes to a robot, and your abilities only qualify you for jobs that have already been taken over by other robots, you've got a serious problem. I'd guess within 10 years, 15-20 at the most, around 50% of the people in the country will be UNemployable. They will have NO marketable skills. People who did fairly menial jobs -- truck drivers, customer-service people, etc -- will be replaced by robots of one flavor or another.

We already see this on some levels. Bank tellers have been largely replaced by ATMs. Fast-food jobs are being replaced by order kiosks. Long-haul trucks might not drive themselves just yet, but Tesla and others are developing "train trucks" where one driver drives the lead vehicle, and 2 or 3 trucks follow obediently behind him. Uber has already run live tests of self-driving vehicles, with paying customers. Even doctors and lawyers are dangerously close to being replaced by Watson and similar expert software.

We as a society will have to determine how we maintain a functional society when half our citizens have no way to earn a living. Something like guaranteed income will almost certainly be necessary. But how do you keep all those idle hands from becoming the devil's workshop? "Ready Player One" might not be as fictional as you think...

So we're not there yet, but I think we will be, and sooner than you might think. What services or products could you offer to a bored population with a bit of disposable income and nothing useful to do?

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Deleted52409]

There is another side to this story:

Middle class might be shrinking in the US but it is expanding really, really fast all over the world. (I'm saying might because not everyone here agreed).

Take a look at the incredible growth of Bejin: 1990 - 2010

What does this mean for fastlaners?
It means that we will have a HUGE pool of people that can afford to pay us for improving their lives.

Let's say you create a kickass app that solves a huge problem.
For example: You create an addictive Iphone/Android game that teaches teenagers math.

Parents from all over the world (in the billions) would be more than happy to give you a $1 or $2 for that app. If you solve a hard problem, it will increasingly become much easier to be mega wealthy.

When economies of scale is involved, the price point can be a little as a dollar.

And, if you're worried about the US middle class shrinking, always remember, when there are huge problems, there are opportunities to provide massive value. May be your business can help people who are left behind join the middle class.

I see your point but if the american economy collapses every other economy will collapse too. Another problem we have to deal with is that even if we want to go overseas it's nearly impossible to run a profitable fastlane business outside of the United States.

The reason I say this is because as an american citizen you will be subject to worldwide citizenship based taxation regardless of where you live. If you make somewhere over $100,000 in a year you will be forced to pay Uncle Sam right after you pay your host country. Imagine how difficult taxes would be if you had a non american business partner....