The Global Middle Class Is ExplodingGuest Post
FORECASTS & TRENDS E-LETTER
by Gary D. Halbert
September 4, 2018
The Middle Class is Exploding Around the World
- Overview – Global Middle Class is Surging
- Astounding Growth of the Global Middle Class
- Americans Have Different View of Middle Class
- ZEGA Buffered Index Growth (ZBIG) Strategy
Overview - Global Middle Class is Surging
If you listen to the media, you probably think the “middle class” is declining rapidly, not just here but around the world. It’s true, the middle class is declining in America, but not for the reasons the media would have us believe. It’s actually a good thing, and I’ll explain why as we go along today.
The fact is, the middle class is exploding in many parts of the world and may be the greatest story of our age. The Washington Post reported last week that people around the world are joining the middle class on a scale never before seen.
This revelation came from a recent Brookings Institution study which found that the world is quietly nearing a historic milestone few would have dreamed possible a generation ago. By 2020, for the first time ever, more than half the world’s population will be middle class.
The surge is being driven in large part by a middle class explosion in India and China and is now spreading to Southeast Asia and other regions around the world. Many demographers believe it may be the most incredible demographic shift ever witnessed.
It’s easy to forget that the middle class barely existed for most of modern history. There was almost no middle class before the Industrial Revolution which began in the 1800s. Before that it was mainly just the rich and peasants. Now we are about to have a majority middle class world. That’s what we’ll talk about today, even though the mainstream media would just as soon you not know about it.
The Astounding Growth of the Global Middle Class
To put today’s discussion into perspective, let’s assume that you woke up from a thirty-year coma in 2018. The first thing you do is look around to see how the world has changed in the last 30 years. It might not take long for you to conclude that our world is falling apart.
Cable news and social media are a steady drumbeat of negativity. Mass shootings, Russian collusion, Xenophobia, Unite the Right, Antifa, the Deep State, #MeToo, a president accused of affairs with stars, a national debt of $21 trillion, etc., etc. The news is filled with anger, outrage and angst.
You probably wouldn’t realize that the world is experiencing an economic miracle, just as most people today do not. But it’s happening just the same. People around the world are joining the middle class on a scale never before imagined.
One need not go all the way back to the dawn of the Industrial Age in the 1830s to see just how extraordinary this milestone is. As recently as 1970, 60% of the world lived in extreme poverty. In 1950, it was over 70%. As of 2015, it was down to only 9.6% according to the World Bank.
And the news gets even better. The Brookings Institute, the non-profit, non-partisan Washington think-tank since 1916, reported in late August that: “By 2020, more than half of the world’s population will be ‘middle class’.” That is remarkable on so many levels!
It is important to understand that the term “middle class” means different levels of income in different countries. Brookings defines the middle class as people who have enough money to cover basics needs, such as food, clothing and shelter, and still have enough left over for a few luxuries. Luxuries would include a car, a television, computer, higher education, home improvements, etc., etc.
Obviously, these costs vary by country and Brookings took that into account in its study. For example, earning $12,000 a year for a family of four in Indonesia would qualify for the global middle class, but it would not in the United States where the cost of living is much higher.
Today, the global middle class totals about 3.7 billion people, Brookings says, or 48% of the world’s population. An additional 190 million (2.5%) comprise the mega-rich. Together, the two groups make up a majority of humanity in 2018, a shift with wide-reaching consequences for the global economy.
The most middle class people reside in the United States, Western Europe and Japan, but the middle class is growing most rapidly in India and China. Given the size of their populations, this has serious positive implications for the future.
Another interesting finding of the middle class from the Brookings study , the researchers noted, was people reaching the point they could purchase store-bought hygiene items such as bars of soap and plastic toothbrushes, just to name a couple. Sounds a little odd, doesn’t it, but many people around the world still make their own soap and do not have plastic toothbrushes.
In any event, it’s a critical juncture: After thousands of years of most people on the planet living as serfs, as slaves or in other destitute scenarios, half the population will soon have the financial means to be able to do more than just try to survive.
Reaching the middle class in your country is a transformative life experience. While there are arguably only so many differences between the quality of life between being wealthy and being middle class, the quality of life between poverty and middle class is stark.
Americans Have Different View of Being Middle Class
The presence of electricity, running water, decent soap and plastic toothbrushes are not what Americans typically think of as indicators of the middle class. But Americans have a skewed vision of the middle class, evidence shows. There’s a reason for that.
As the largest economy and the richest population on the planet, it’s no wonder Americans have a different standard for what is middle class than the rest of the world. For the last several decades, 85-90% of Americans have self-identified as middle class.
Interestingly, Gallup surveys show that only about 2% of Americans self-identify as “Upper Class,” which suggests many Americans have little understanding of their actual wealth. Of course, it depends on what we define as upper class. Clearly much more than 2% of Americans qualify as upper class by virtually all definitions, and this number is also increasing rapidly.
Here’s the point. The mainstream media continually points out that the middle class in America is in decline. They would have us believe that this is terrible and points to “income inequality” as the prime culprit. Yet this is very misleading.
The reason the middle class is shrinking in America is because many in the US middle class are moving into the upper class, not the lower class. This is what you need to keep in mind when you hear liberals lament that the US middle class is shrinking. They don’t want you to know the truth.
At the end of the day, there are two important takeaways from the above discussion. One, the global rate of people moving up into the middle class, as defined in their individual countries, is accelerating as never before in history. This is fantastic news! Two, while the middle class in America is declining, it’s because more Americans are moving UP from the middle class to the upper class – and that’s a great thing.
Finally, one last point: As you’ve no doubt noticed, more politicians are embracing socialism these days. This is a troubling trend and one that makes no sense. Socialism has been a failure wherever it has been implemented. Unfortunately, liberal college professors have been advocating socialism for years, and this explains why more and more young adults have bought into this world view.
They don’t understand – YET – that socialism means higher and higher taxes at all levels, and more and more government regulation and control, which strangles the economy. It seems odd that they don’t realize the current surge in the economy is the result of lower taxes and deregulation. Hopefully, they will figure this out soon.
ZEGA Buffered Index Growth (ZBIG) Strategy
Last week, Jay Pestrichelli, the Co-Founder and Managing Director of ZEGA Financial Services was in our office to discuss their ZEGA Buffered Index Growth (ZBIG) Strategy. It is designed to provide upside exposure to the financial markets when they are going up, while also using a “buffered zone” to help protect you if the markets drops.
This unique strategy, which we have been recommending for over a year, uses options to participate in market gains, plus hold-to-maturity corporate high-yield fixed income ETFs as a buffer to help protect against downside risk. Both the option expiration and the fixed income maturity dates are aligned with expirations of 18 to 36 months.
The goal of the ZBIG Strategy is to help reduce or eliminate some market losses should the markets drop. The strategy is available in three different versions, depending on the risk level that is appropriate for your needs.
As always, keep in mind there are no guarantees with this or any other investments.
All the best,
Gary D. Halbert