Between Wal-Mart and Tiffany, No Middle Ground

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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Wal-Mart Stores Inc. is forecasting a difficult holiday season, but Tiffany & Co. just exceeded their earnings estimates by the simple expedient of raising their prices. It's hard to find a more vivid example of the segmenting taking place in American society: The wealthy are doing very well indeed, while even bargain retailers are having a harder time of things.

I thought of this when I read Charlotte Allen's new piece in the Weekly Standard about the divide between the vast tech wealth of Silicon Valley and the people who provide them goods and services. It's hard to excerpt, so you'll have to read the whole thing, but to summarize, she looks at the way even affluent communities are dividing into the super-rich and the merely extremely well-to-do ... who live in what used to be starter homes for the middle class. The regular middle class, meanwhile, seems to be disappearing, squashed outward to more distant suburbs by the immense pressure of housing prices. It is becoming an area of rich and poor, with little in between.

That's hardly specific to Silicon Valley. The District of Columbia, where I live, has the highest proportion of college graduates in America. The median value of owner-occupied housing is more than twice the national average -- and yet our poverty rate is almost 30 percent higher. Manhattan, where I grew up, has similar statistics, except that the median value of owner-occupied housing is more like four or five times the national average, for far less space, light and privacy than most Americans enjoy. Los Angeles, Boston, San Francisco ... America's urban centers are starting to look like barbells, incomewise, with a lot of weight at each end and not much in the middle.

Of course, terrible urban policy is partly to blame. All of these places restrict building pretty sharply, which keeps the housing supply well below demand. That is not the only factor at play. Allen wisely points to the difference between the tech boom that built postwar California and the one it is having now: The old boom created lots and lots of middle-class jobs, from design to manufacturing to selling the stuff. The new companies employ a lot of high-end-knowledge workers, but not so many middle managers and secretaries. And they don't have much of a supply chain; the jobs Google Inc.'s success creates are mostly going to be at Google.

In other words, the middle class isn't just being pushed outward by bad housing policy, but it's also being compacted. That's not always bad news for the individuals involved: Some people are falling down the ladder, but others are leaping upward, making more money than they would have in the past.

But even good news for the individuals may be bad news for a place and a culture. In various ways over the last five years, various writers have been trying to express a disquiet with the growing distance between the successful and the rest. I don't just mean geographical distance but social distance. America's elites are often the second or third or fourth generation of exquisitely educated, affluent professionals (or what you might call "paraprofessionals," such as political activists or social workers, who don't make too much money but are very hooked in to how the meritocratic status game works). It's not just that they live in affluent areas and buy expensive stuff; the wealthy have always done that. It's that there is increasingly no overlap at all between their lives and those of ordinary Americans: They do not watch the same television shows or movies, shop at the same stores, eat the same foods or vacation in the same places. You could read the mainstream media for a long time without realizing that "Duck Dynasty" is one of America's top rated television shows, "Taste of Home" its best-selling food magazine, and Cheesecake Factory its favorite restaurant. These are things that the elites rarely even consume ironically.

This widening distance hits us in an uncomfortable place. We are okay with there being a top and bottom of the ladder -- but it should be a ladder, with plenty of rungs to climb, and places to rest if you're tired of climbing. Most of us don't want to live in a country that has only two classes, top and bottom. Especially if the top is wildly flourishing, while the bottom is just sort of grinding along.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net