The Death of the Middle Class?

Photo: Chris Larsen

There's good news in the stock market, which is very comforting given how tired we've all become of the endless parade of bad news. Unfortunately this is no time to be sticking our heads back in the sand thinking all will be back to normal in a few months. This is not just the end of the recession, it's the end of the brief run of the American middle-class that began just after WWII and finally collapsed from exhaustion last year. Unfortunately this middle class will not recover; the patient died.

This will have huge implications for all Americans. First, if you're already poor in America, take solace. The huge numbers of former middle class now joining you will actually make things better as middle class refugees demand free health care, free public transportation, free education, and maybe even Hong Kong-style free housing. For the poor it will be like having Martha Stewart as a cell mate. You're still in jail, but the place will feel much more livable.

If you're part of the rich elite, you're also much better off. Now your start-up successes and capital investments are global, so your wins are 5 times what they used to be. And with the final death of "the mass affluent" (remember that?), there will be much less competition for the finer things in life.

Unfortunately, for the middle class, a persistent dread is upon you. You're living with the scary lump that doesn't really hurt yet but will be fatal if left unchecked. Get treatment now!

First, save in a way that makes Suzie Orman seem like MC Hammer – save 20% to 30% of what you make. Get out of anything that looks like a permanent liability. A 30-year mortgage? Even refinancing your rate to zero is just rearranging the chairs on the Titanic. The whole concept of 30 plus percent of your 2009 middle class income for 30 years is guaranteed poverty. Get to safe ground fast – back to pre-middle class ratios – 5 year TERM mortgages or rent that will plummet as middle class real estate collapses with its owners. Saving for 2009 style college costs? No! The $80K degree for the $25K job won't survive either. Just save generally and wait for the coming totally free online classes that our children will take for granted.

Most of all, if you're middle class or poor, look ever more urgently on your ability to become the rich elite. It will be easier and more possible than ever before as everything is rewired and both the market and tools to succeed become more democratized and the current elites loose permanent control.

Help trusted family members or your closest social networks to class jump. As the world splits into rich and poor – one lucky elite could support 50 family or social members. We will expect this of our rich elites – who could be any of us. A few million rich could become the creators of hundreds of millions of adequate jobs. Not in their companies, which will be built on technology and outsourcing (as popular as Twitter is, it only has 55 employees), but personally. In fact, expect a tax structure that encourages this – high taxes on the rich with huge tax credits so that if you employee 50 people you'll have lower taxes than today. If this sounds outlandish – think back to pre-middle class times – it was easy to have 20 service people – drivers, cooks, assistants. Taking this further out, the rich will employ artists, musicians, poets, writers and thinkers. This becomes the backdrop to the crushing changes ahead and sets the stage for the eventual utopia th! at's been called the "end of work."

Chris Larsen is Chief Executive Officer & Co-founder of Prosper, America's largest peer-to-peer lending marketplace

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