“The middle class champions political stability and good governance. It prevents political polarization and promotes greater compromise within government”. So says a 2019 report by the Organization for Economic Cooperation and Development. So we should perhaps take more care to nurture our middle classes, and not let its members drop into the ‘precariat’.
What is the precariat?
In 2013, Guy Standing, professor of development studies at the School of Oriental and African Studies, informed the Financial Times that the ‘precariat’, is a new class which faces “chronic uncertainty” and has “grown sharply since 2008… the old Beveridge and Bismarckian variants of the welfare state have been dismantled” to be replaced by “a mish-mash of means-tested, behaviour-tested social assistance, with a growing tendency to force young unemployed into workfare schemes, which are helping to depress real wages”. The Precariat is what happens when people lose hope, a new class that needs to be re-embraced for the good of us all.
According to the Pew Research Center, the American middle class has shrunk from being 61% of the population in 1971 to 50% in 2021. As the middle-class strata shrank, the upper-and-lower income segments have steadily expanded – respectively from 14% to 21% and from 25% to 29% over the same 50 years.
It’s similar to the position in the UK. “The lifestyle that the average earner had half a century ago – reasonably sized house, dependable healthcare, a decent education for the children and a reliable pension – is becoming the reserve of the rich. Middle-class pensioners look on amazed at how their children, now into adulthood, seem to have a far harder time” wrote one British commentator in 2013.
‘Precariat’ derives from the word ‘precarious’. According to Standing, the precariat feels itself to be (and objectively is) poorer, both materially and spiritually, where hope of a materially better future has been replaced by “a combination of anxiety, anomie, alienation and anger”. Conditions of unstable labour, a loss of non-wage benefits (such as pensions or medical coverage), living on the edge of unsustainable debt and chronic economic uncertainty – all these characterise the precariat.
During those same 50 years, the US Dollar has depreciated six-fold, falling by 86%. For the Pound Sterling, the decline is even worse – 94% of its value has been lost in the last 50 years. Over the same period the gold price has moved from some $45/ounce to about $1,800/ounce currently – an increase of around 3,900%. Impossible to identify a causal connection, but the correlation is compelling. As the money supply became easier, the Precariat has formed and grown.
As fiat currency has lost purchasing power, more people have dropped out of the US middle class and turned to state welfare for support. Yet we need the middle class, to provide that social stability.
Failing State Welfare
The precariat overlaps that segment of society which depends on the state for support. One of the growing concerns of our age is that the state, overwhelmed by demands from different directions, is running out of capacity to keep up with welfare demands.
In the UK, the combined debt servicing costs and welfare payments are likely to rise by “more than” £50 billion in the next financial year. UK welfare support is at its lowest in 50 years according to the Joseph Rowntree Foundation, a charity. The bills go up, tax revenues may go down, and government is becoming more squeezed.
UK domestic energy bills could rise to above £4,000 a year in early 2023 which, given that an average annual salary is around £31,000 (before tax), will create hardship for many households and lead many people to seek some welfare support. A campaign – “Don’t Pay” – has started up, with the aim of gathering support to reduce energy bills to an “affordable level”; if not, and if the campaign gets one million pledges by 1 October, its signatories pledge to cancel their direct debit payments to energy suppliers. This kind of inchoate direct action protest is erupting alongside more conventional protests – strikes or threatened strikes by rail workers, junior barristers, mail workers, and nurses. Even a general strike has been talked of. More than five million people work in the UK’s public sector; the wage bill is almost £200 billion a year, equivalent to 25% of all UK tax receipts. For every 1% pay rise the government needs to find an extra £2 billion. So far this year public sector pay deals have been around 5% – still far below the rate of inflation, which Goldman Sachs estimates will peak at 14.4% in early 2023.
In the UK, fuel poverty is conventionally defined as when energy costs exceed 10% of a household’s income. In the financial year 2019-20, almost 20% of UK households were in that category, but the rise in costs means that will rise to 50% by the start of 2023 according to research published by the Child Poverty Action Group. Local councils around the country are now planning to offer people ‘heat banks’ for this winter, where they can gather to stay warm, rather like food banks, where people can get food parcels.
The Trussell Trust, the UK’s largest national food bank charity, says there was a 5,146% increase in emergency food parcels distributed between 2008 and 2018. One journalist has observed that “this is a genuine national crisis…social unrest is surely a distinct possibility… The unavoidable truth is that the United Kingdom is in such a fragile, frayed state that it can no longer keep its people warm or adequately feed them”.
The Global Gig
The precariat is a contemporary version of Karl Marx’s proletariat: “a new class of alienated, insecure workers who are ripe for radicalization and mobilization…. This class is growing once again…” At the same time as demands on state welfare have increased, public confidence in the state’s funding ability is diminishing. In 2015, the Brussels-based think tank Bruegel published a survey stimulated by a report into ageing by the European Commission, which found that the European Union will move from four working-age people per person over 65 today, to about two working-age people in 2040. This means less revenue because of the shrinking working-age population, and more spending because of higher costs for pensions, health and long-term care. An average of almost 60% of those surveyed thought that by 2050 the state would be unable to cover the pension bill.
What results from this growing disenchanted class? As home prices have soared, wages stagnated, job conditions become more insecure, the ‘freedoms’ of the gig economy have soured, and the ‘advantages’ of globalization and the deflation that has resulted from shipping jobs to countries with cheaper labour costs, have turned to ashes. Younger people – Millennials – are losing sight of and hope in the long-term. One developing trend is “quitting quietly” – doing one’s job, but no more than that. China has spawned its own version, thanks to a social media protest titled “lying flat is justice” which went viral in 2021. It was a “manifesto of renunciation… The extraordinary stresses of contemporary life were unnecessary”. Young Chinese flocked to the post, which rejected ambition and openly despised effort. Last year huge numbers of US workers quit their jobs, including 4.5 million in November alone. On the internet forum Reddit the r/antiwork movement thread, which became a very attractive forum for disenchanted employees during the Covid-19 pandemic, went from 180,000 members in October 2020 to 1.6 million in January this year, although it has since gone private.
Doreen Ford, a moderator of the r/antiwork site, told the Financial Times in January this year: “Most of us are just normal people… We have jobs that we don’t like, which is the whole point of why we’re in the movement to begin with”.
What’s true of the UK and the EU may also hold for the US. The US has one advantage – it continues to be a honeypot for immigrants and can thus able to replenish and refresh its workforce, although the overall immigrant population (new arrivals and established immigrants) is “aging rapidly”.
American society overall is getting older – fewer employed people will be paying the taxes needed to keep welfare programmes afloat. In 2022, around $1.3 trillion (about £1.1 trillion) is likely to be spent on various programmes and account for more than a fifth of the federal budget. While there were 3.7 workers per Social Security beneficiary in 1970, projections are that will fall to just 2.1 by 2040.
The inescapable conclusion is that several pinch points or ‘crunch times’ are headed this way. The Covid-19 pandemic saw the extremely rich get richer. Americans for Tax Fairness, a non-profit organisation, claims that US billionaires have increased their wealth by 57% ($1.7 trillion) since the start of the Covid-19 emergency. The wealthiest 10% now own 84% of all stocks, with the bottom 75% owning none at all. Little wonder that many Millennials used their Covid-19 state handouts to gamble with cryptocurrencies, which tempted by social media tales of people gaining swift riches.
States are facing a squeeze on their finances, which will not be helped by the looming recessions. Rather than disappoint and/or anger voters by failing to meet welfare pledges, they will be tempted to ‘create’ money. The ‘magic money tree’ will, sooner or later, come to pass and further devaluations of fiat currency will result.
At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.