More on the Middle Class

One of my favorite topics: Is the middle class disappearing? Scott Winship says, “no.” For the record, Scott Winship works at Brookings and this was published in the National Review–so let’s set aside our instinctive ideological context filters, which aren’t designed for such radical complexity.

[Council of Economic Advisors chair Alan] Krueger’s claim of a shrinking middle class relies on the same peculiar definition. Specifically, “middle class” is defined as having a household income at least half of median income but no more than 1.5 times the median. I re-ran the numbers using the same definition and data source as Krueger and found that the entire reason the middle class has “shrunk” is that more households today have incomes that put them above middle class. That’s right, the share of households with income that puts them in the middle class or higher was 76 percent in 1970 and 75 percent in 2010—two figures that are statistically indistinguishable. For that matter, I am not discovering fire here; Third Way made the same point in early 2007… A shrinking middle class is only a problem if it reflects fewer people reaching the middle class. That is clearly the impression the administration wants to give, but it is entirely dishonest to do so.

The whole thing is good. Read it. That’s an order.

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About J@m3z Aitch

J@m3z Aitch is a two-bit college professor who'd rather be canoeing.
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7 Responses to More on the Middle Class

  1. D. C. Sessions says:

    Using that definition, the middle class is larger in Somalia (or Dickens’ London) than here: all but a very small handful are living at essentially the same (bare subsistence) income.

    Not terribly useful for the question of whether, for instance, that middle half of the population is doing better or worse in any reasonably objective sense. Or, perhaps more importantly from the perspective of social stability, whether they have any basis for hoping that their children will have a good shot at doing better than they have.

  2. James Hanley says:

    True, but if we accept the (I think dubious) pessimistic claims that middle class income has stagnated, then this is good news, right?

  3. D. C. Sessions says:

    I don’t get your point.

  4. James Hanley says:

    If middle class wages are stagnant, then the reference point is fixed, so that if more are moving above that reference point, then it’s a Pareto improvement.

  5. D. C. Sessions says:

    if more are moving above that reference point, then it’s a Pareto improvement.

    1) Not necessarily. If those dropping below are dropping farther, the net incremental welfare is declining. Extreme example: below subsistence.
    2) Compared to what? Fifty years ago, the median was increasing as well. We weren’t scrounging for crumbs in the margins of statistical error to find increases in middle-class welfare, they were freaking obvious. Right down to my paternal grandparents, who grew up as sharecroppers in Arkansas, raised (and buried) children during the Dust Bowl, and before they died lived in what would still be pretty comfortable homes in middle-class neighborhoods. With children and grandchildren going to college and doing even better. Great grandchildren? Not so much.

  6. Troublesome Frog says:

    I was never a fan of phrases like “vanishing middle class” as they’re prone to pretty obvious Lake Wobegon problems. I really don’t know why there’s so much debate over how we define “middle class” or who is in it or out of it. If all you worry about is the tightness of the distribution, you can start celebrating things like a drop in median income (which brings the poor into the middle class by bringing the middle class to the poor). For me, there are three important variables:

    1) Is our economy growing?
    2) Is everybody getting a share of that growth?
    3) Do individuals have a reasonable ability to move up the income ladder?

    If all three are true, I there really isn’t much to worry about. We don’t seem to have a problem with (1), but the other two are important questions if we’re going to avoid “politics of envy” or “class warfare” or whatever the kids are calling “the study of income distribution” these days. Doing good analysis on (3) is tough (although I’d say the weight of the evidence shows a not-so-good trend), but I’m still perplexed about the debates over (2).

    We can debate whether real median income has become completely flat (probably not) or just flattened noticeably (seems obvious). We can debate whether this trend is interesting or whether there are any policy implications. We can certainly debate what should be considered normal or fair. But what I’m seeing in the political arena is still debate over whether the trend exists or not. The smart money on the “don’t worry about it” side of the debate has shifted from, “The trend doesn’t exist,” to, “The trend exists, but it’s uninteresting/expected/the way it should be.” This is good, because at least we’re agreeing on the underlying facts. But I haven’t heard enough of it.

    So it seems to me that a few things are simply true:

    1) GDP growth has more or less been on a predictable trend for generations.
    2) Median household income has not grown as quickly over the past 30 years as it did over the 30 years before that.
    3) Income at the very top few percent has grown faster than trend during the same period. This is even more true when measuring after tax income, and it’s even more true as you move up toward the top fraction of one percent.

    Suspiciously, even with the dramatic deviations in those two trends, the overall area under the growth curve has remained about on trend. This smells like the new trend is that gains in efficiency are no longer being shared with unskilled labor the way they were before. If that’s the case, it seems to me that there are a lot of social and policy implications.

  7. D. C. Sessions says:

    This smells like the new trend is that gains in efficiency are no longer being shared with unskilled labor the way they were before.

    Or for that matter, skilled-but-not-outstandingly-skilled labor. When you have to get up to the top 2% to see significant real-money income gains, you’re way outside of “unskilled labor.”

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