Economics 101: the six socio-economic classes.

In Hans Rosling’s classic “Factfulness,” he estimated that one billion people still live on less than $2 per day, three billion live on between $2 and $8 per day, two billion live on between $8 and $32 per day, and only the top 1 billion live on more than $32 per day ($11,680 per year) which is just above what we define as the “poverty level” in the U.S.  The  book was published in 2018, and we have added another one billion to world population, but I suspect the ratios remain about the same. I break out world population into six socioeconomic classes.

The starving poor:  those who do not produce enough to survive. Though often forgotten, they are numerous — nearly one billion people “survive” on less than two dollars a day. Most are in areas where government has failed: governments engaged in religious or civil wars; governments stuck in the Middle Ages with a King (or Dictator) who expropriates from peasants and stays in power by sharing with family, cronies, the clergy, and the military; repressive governments in underdeveloped countries trying to force socialism to work; or areas where famine or pestulence runs free following government collapse.  The good news is that for the last 25 years about 137,090  people have escaped from this category each day, primarily through gaining employment in  the  spreading market economy.

Subsistence hunters, gatherers, herders and farmers: those who produce just enough to live, but not enough to save, invest and move out of the subsistence cycle. Millions in India, China, Africa and Latin America still engage in subsistence agriculture. In fact,  it is the largest class in the world with three billion members. There is nothing “wrong” or “dysfunctional” with this group, it was the “successful” group from the agricultural revolution up to the industrial revolution.

Third, for lack of a better term, is the middle class: people who are employed and paid a salary sufficient to both subsist and consume something more. They are sometimes referred to as working class or as consumers, depending on how you see them, based on how they obtain their wealth or on what they can buy with it. Depending  on the skills they can sell on the labor market, they are sometimes subdivided into lower, middle, and upper middle classes, each with its own unique culture.

Note that there is currently a huge transfer of wealth within the world’s middle class — the rich are getting poorer and the poor are getting richer. Relatively poor workers in India, China, and Southeast Asia are increasing their earnings at the expense of the relatively wealthy workers in the US and other developed nations, with huge political consequences.

Note further that the rise of the global middle class does not bother wealthy citizens in developed nations — they welcome the opportunity to invest in low wage economies.

Slightly different from the middle class are the petit bourgeoisie: the capitalist merchant class, different because they work for themselves rather than for others. This group includes shopkeepers, small businessmen, and some self employed professionals such as doctors and lawyers. It is their attitude, not their income which is different. They do not have a “job”, that is they are not employed by others, rather they have created their own employment, and maintain it through their own effort. Just as workers deal with and are sometimes adversarial with employers, the petit bourgeoisie deal with and are sometime adversarial with governments.

Fifth, the upper class, the rich, the one percent: those  who have accumulated  enough wealth that they can live well soley on their investment income without reliance on earning a salary through work.  They may still work, though they do not need to do so. Any family in the world with a net worth over one million is part of the global top 1%, although to be part of the 1% within the United States required a  2022  annual gross income from employment and investments of $682,577 to $819 324 (depending on whose statistical analysis you rely upon) and a net worth of $11.6 million to$13.7 million per family unit (again depending on the source of your data). Note that a 6% return on assets of $13.7 million gives net investment income of $822,000.

Sixth, a subset of the one percent are the super rich, the fabulously wealthy, those whose wealth is beyond imagination.  The super rich come from a few sources: a few high  performers in winner take all occupations like sports and the arts, a similar few at the apex of business, but most from knowledge workers in high tech industries who create and patent new technology.  The rich are not becoming richer, they are being supplanted by this new class of super rich.