This is a nice write-up, really insightful.
So, if the middle class is shrinking and a country can only bring in so many rich people, I still think housing prices will keep increasing. The rich makes tremendous passive income from their assets, and they’ll use that income to buy even more assets, like houses, further driving up housing prices. It’s a negative spiral. Gary Economics on YouTube talks about this quite a bit.
This is why the wealth gap keeps increasing. The rich keep getting richer because the money they make from their existing assets gets reinvested into buying more real assets (factories, stocks, lands, etc.) and products. This outcompetes the middle class, making it harder for them to buy homes or assets. At the same time, the cost of living, groceries, rent, etc. also keeps rising. So not only do the rich accumulate more wealth, but they also actively cause the middle class to shrink.
But one could argue that the middle class might also benefit from rising asset prices since they own properties, mortgages, and stocks (sometimes through pensions). However, this doesn’t really solve anything because they can only benefit from the price increase when they actually sell the asset—which, in most cases, a rich family will buy. Even though pension funds seem large in total, they are dwarfed when compared to the stock ownership held by the rich.
Older generations will be forced to sell their assets to afford healthcare, assisted living, elder care, or deal with emergencies. But it won’t be the middle class buying these assets, it’ll be the rich. This means kids of middle class won’t inherit their parents’ assets (or less of it), and at the same time, they won’t be able to buy their own since housing prices will just keep rising.
With automation and AI advancing, the rich won’t even need the middle class as workers after a while. So then, who will consume? Well, it’ll be the rich buying from each other. Companies will be forced to cater to the wealthy, meaning luxury brands, high-end home interior companies, and similar businesses will thrive. The middle class, what little remains due to automation, will work in these industries, essentially serving the rich. The economy will be driven by the wealthy, not by middle-class consumers.
I don’t know what the solution to this is unless the public comes together to demand change. It’s already much harder for Gen Z to buy a house compared to their parents, even with higher education. Maybe middle-class consumers are no longer essential, and their shrinking won’t stop asset prices from rising.
Curious what you think about this, maybe I have it wrong? Would love to improve my understanding of these economic trends.
Glad to hear those kind words. The point about how middle-class aspirations drive innovation is something I hadn’t fully considered. You're right, once people lose hope in class mobility and the world economic structure morphs into a form of feudalism, as you mentioned, the drive for wealth and innovation fades. This will lead to a plateau in innovation, which ironically maintains the status quo of the wealthy elite. With no innovation, there’s no chance for disruption.
Note - Sorry for the essay below, but I just realized I should write down my thoughts on these issues for my own future reference and for any interested readers.
We need radical tax reforms that actually force the ultra-rich to pay their share. This would push them to sell off some of their assets, freeing up assets and putting more money in the hands of the middle class. Simply handing out stimulus checks doesn’t work, as the middle class is spending it on groceries and everyday items, all of which are owned by the rich. In the end, the money just cycles back to them. People need to understand that stimulus, without proper tax enforcement (like closing tax loopholes), only makes the rich richer. This is why, during the pandemic, the wealthiest grew their fortunes like never in history.
There’s also a misconception that taxing the rich means targeting high-earning professionals like doctors or lawyers. No, those aren’t the “rich” I’m talking about. I mean the truly wealthy, those with a say net worth of $50 million or more. Someone with a net worth of $500 million makes $25 million a year in passive income alone, assuming a 5% return. This is nothing like the salary of a doctor or lawyer. It’s a false dichotomy that the elite push to make people fear taxes on the wealthy, when in reality, the likelihood of the (upper) middle class ever breaking into the wealthy class is virtually nonexistent.
Check this relevant news article - None of Forbes’ billionaires under 30 are self-made for first time in 15 years
People argue that the rich would just leave if taxed more, but this is also false. The rich own real assets in the country, and they can’t take those assets with them. The wealthy own real assets—buildings, factories, land, stocks—within the country, and they can’t take those with them. We saw this when Europe sanctioned Russian elites; Abramovich, for example, was forced to sell Chelsea Football Club. Governments can still tax these assets (or the income from them), no matter where the elites relocate. The public needs to realize how they’re being exploited and stop fearing the elites. If nothing changes, their children will face even worse circumstances in 20 years, where the squeeze will become evident. Many people already feel their quality of life is plateauing or decreasing.
The group that can actually move if taxed heavily isn't the elites but high-income earners like doctors, lawyers, and specialized professionals. They have the flexibility to relocate to countries with lower income taxes. Meanwhile, the ultra-rich remain tied to their assets—real estate, businesses, and investments—that can't simply be moved. People need to grasp just how vast the wealth gap truly is. A high-earning doctor is financially closer to the middle class than to a billionaire. Even someone with $100 million, which seems enormous to most, is relatively insignificant compared to the wealth of actual elites.
As the pie begins to shrink, we’ll see more mass immigration (middle class people forced to move where elites are located due to lack of employment), which will further erode quality of life. For example, look at how crowded public transportation is becoming. The pipeline of money flow to middle class is becoming tighter. People need to start discussing these issues with their families and friends to understand the true economics. GDP, news and stock market can be deceiving.
Sure, someone making AED 40K a month might be in a better position in this system than someone making AED 5K, but this squeeze still affects everyone. To an elite, someone making even AED 80K a month is still middle class. The truth is, most people are one or two emergencies away from financial ruin. We’re all in the same boat, don’t think you can stay safe in your bubble. If it’s not you, it’s your kids. Ask yourself, is this the future you want for them? Look at the increasing rates of suicide, depression, drug usage, and anxiety.
Don’t let the media tell you that immigrants are the enemy. The elites want you to scapegoat certain groups while they continue to profit off the hard work of the public. The real war is and always has been class warfare. Race, gender, religion, and cultural divisions are just distractions. The middle class is being squeezed, not because they’re lazy, but because the rules of the game have changed. We’re forced to rent everything, homes, jobs, even our futures—while the owner class reaps the profits from systems they didn’t build, exploiting our labor and resources. And then they preach about “hard work” as if it matters in a rigged game. This isn’t progress; it’s neo-feudalism, and it’s dismantling the social contract piece by piece.
The economy isn’t zero-sum, but if growth remains low, it starts morphing into zero-sum. Capitalism tends to do well when there is room to expand, but if every asset on the monopoly board is already owned, then no matter how the dice roll, you're screwed, simply because you were born late or started late. If the pie doesn't expand, and your share of the pie keeps shrinking, this is a recipe for disaster. I am reminded of this John Steinbeck quote that the reason socialism never took root in America because the poor see themselves not as exploited, but as temporarily embarrassed millionaires.
I hope I don't come off as a doomer or nihilist. In fact, I'm quite optimistic. The mere fact that people are starting to talk about these issues is a good start. We share a collective consciousness, and the more we become aware of such things, the better it will be for all of us.