Thursday, March 15, 2012

What is being rich ?

Following on from the previous post, SOYMB reads that:

The Fiscal Times published an article arguing that a family with an income of $250,000 per year is not really rich. When taxes, housing costs, college costs for children and so on are accounted for, even those with an income five times the median family income are just barely getting by, it said. Later the Fiscal Times reported that a study recently found that a middle class family needs at least $150,000 of income just to cover the basics.

Subsequently, The New York Times published an article sympathizing with the plight of those making only $250,000. They are certainly not poor, but neither are they rich in any meaningful sense of the term, it said.

Gallup Poll asked people how much money they would need to consider themselves rich. The answers were surprisingly varied. Some 18 percent of people would need less than $60,000 per year of income; 12 percent said between $60,000 and $99,999; 23 percent said between $100,000 and $150,000; 18 percent said between $150,001 and $299,999; 11 percent said $1 million; and 4 percent said more than $1 million. The median income, the exact middle of the distribution of responses, was $150,000. Women, the elderly, non-college graduates, those with no young children, those presently making less than $50,000, and those living in rural areas gave lower responses.

Gallup also asked about wealth. More than 20 percent of people would need a net worth of $100,000 or less to consider themselves rich; 27 percent would need between $100,001 and $999,999; 24 percent would consider themselves rich with $1 million in net worth; 12 percent would require between $1 million and $5 million; and 14 percent would need more than $5 million. The median response was $1 million.

And then we get someone like Ann Romney, wife of Republican presidential hopeful, Mitt Romney, whose net worth is estimated to be in the range of $250 million, telling Fox News that she does not consider herself to be wealthy!

Economists often use ad hoc definitions for who is rich and who isn’t. For example, they often assume that those in lowest income quintile (20 percent of households) are poor, those in the middle three are the middle class, and those in the top quintile are rich. But using this method means that households with just over $100,000 would be considered rich, according to the Tax Policy Center. It would take about twice as much income to get into the top 5 percent.

The Socialist Party has a more simple formula. We identify two classes of people. Those who own or control the means for producing and distributing goods (the land, factories, technology, transport system etc). We refer to this group of people as the capitalist class. The rest of us must sell their ability to work in return for a wage or salary - the working class - who are paid to produce goods and services which are then sold for a profit. The profit is gained by the capitalist class. The capitalists live off the profits they obtain from exploiting the working class whether in the form of legal property rights of individuals backed by the state or collectively as a bureaucracy through the state. The capitalist class lives on privileged incomes derived from surplus value. The capitalists personally need not - and most do not - get involved in the process of production.

It may not be exactly clear which class some relatively wealthy people are such as the senior functionaries like CEOs. But there is no ambiguity about the status of the vast majority of the world's population and, despite Mrs Romney, the capitalist class certainly know who they are. And most members of the working class know that they need to work for a wage or salary in order to earn a living or are dependent upon somebody who does.

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