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About the Shrinking Middle Class
Despite all the hand-wringing, America’s middle class shrank because its members moved into the upper-middle and wealthy classes. As economist Robert J. Samuelson reported in The Washington Post, between 1979 and 2014, the poor ($0 – $29,000) dropped to 19.8% of the population from 23.4%, the lower middle class ($30,000 – $49,000) dropped to 17.1% from 23.9%, and the middle class ($50,000 – $99,999) dropped to 32.0% from 38.8%. During the same years, the upper middle class rose to 29.4% of the population from 12.9% and the wealthy class rose to 1.8% from 0.1%.
Reports of wage stagnation are based on very misleading statistics. First, many of the studies were based on “households.” The problem is that “household” is a moving yardstick because the number of people in the average American household has been falling. As young Americans became more affluent, they moved out of their parents homes and started households of their own.
So, for example, if a single household includes two workers each of whom earns $20,000 a year, the combined household income is $40,000. If they each receive a $10,000 raise and can now afford to move into separate apartments, their combined wages total $60,000, but the average household income drops to $30,000.
Second, reports of income stagnation have excluded benefits from the studies. Finally, the reports tend to overestimate inflation. Correcting for all of the errors, wages – far from stagnating – have actually grown by over 50% since the seventies.
Published in General
Richard,
Of course, $29,000 isn’t a lot today but it was quite substantial back then. Does your rate of inflation honestly take into account the cost of health insurance, housing, & transportation? For instance, Obamacare has made the Health Insurance policies of 1979 illegal. Also, it is far less likely that older vehicles can be maintained for low cost & their fuel costs have been artificially ramped up by environmentalism high enough to make a dent in the poor (lower middle class used to be a term that meant something). As the income curve goes up steeply these costs are reduced to a minor inconvenience but for those below, they can easily become insurmountable. With a Donald Trump 3%+ growth economy and a 3%+ growth in real wages the lower middle class might be able to survive again. The question is whether Donald Trump can survive.
Regards,
Jim
Sure, there are problems inherent to macroeconomics; this measure included. However, I don’t see what’s misleading about wanting to compare economic units instead of only individuals as if all individuals are independent of some broader economic unit – seems like doing that will mislead in a different way. Aside from household size, what’s also changed is the amount of two income households. Not sure there is a good way to aggregate the numbers or compare them; then again I approach macroeconomics the way I approach climate science: with healthy skepticism. These are both infinitely complex systems and I don’t think the scientists can know as much as they claim to know.
Richard,
I understand the idea of the rate of inflation. In the crudest possible way, you could take a hand calculator and starting with $10,000 in 1979 multiply the number successively by the average rate of inflation for each year. Say it was 8 or 9% in 1979 (the year before would be higher) then you would multiply the $10,000 by 1.08 or 1.09 and you would get the amount of money in 1980 dollars that corresponded to the amount from 1979. If you did this over and over again multiplying the new amount by the rate of inflation for the next year you would finally get to the quantity for 2014.
The premise is that the average rate of inflation is an accurate reflection for real costs for real people. The example I gave of Obamacare making the Health Insurance policies of 1979 illegal has a very dangerous effect on the ability of those on the low end of the scale to pay. Their demand for Health Care is inelastic (what a lovely econo-babble word) not by choice but by law. This is very bad news for somebody on the low end. I’m not sure how you can properly reflect this in the average rate of inflation and that’s a problem.
Regards,
Jim
No clue. It’s not my rate of inflation.
It’s even more confusing than that. Currently, the number of wage earners in the average “wealthy household” is more than double the number in the average “poor household.” And that’s now – not a difference between today and 35 years ago.
The bottom line is that comparing “households” is comparing varying unknowns, while an individual is always an individual – whether rich or poor and whether today or in 1979.
I’m curious how adult children living with parents equates to an additional household income.
I assume @skipsul wasn’t rolling his kid’s salary into his own bank account… or had a joint account or was filing taxes jointly.
If his kid was helping pay electric and the mortgage, he’d be considered a tenant if he wasn’t related. I would expect most adult children living with parents are preserving their income separate from their parents while the parents provide food and shelter at a steep discount to the child.
So I fail to see how that is considered an income that is a part of the household and not distinct from the parental unit.
Now, I do know that some adult kids come in to support their impoverished parents and will roll the money together in the household to make ends meet, but I don’t think those would support the thesis.
A hundred years from now, they are going to say we had this crazy discussion because we didn’t realize our main problem is we’re trying to fix excess central planning with more central planning.
This is normally where I would make a tedious joke that I have been warned off of by management. LOL
I think this convo is less about central planning and more about the validity of the general perception that we are worse off than we were 50 years ago.
And a discussion on how to accurately measure and compare that financial well-being.
Right, but how did it come to this?
Wonderful post on this stuff.
***EDIT***
This is why I don’t think Ben Sasse is constructive. He’s always saying “people ought to” any never thinks about what gets in the way of that, like say Fed and government policy.
Last time he was on Jonah Goldberg’s podcast, Jonah asked him some very poignant questions at the end and he completely fumbled them. That is what I’m talking about.
I really wish they would get a guy to interview just one Austrian economist every month, here. Jonah has read all of that stuff, by the way.

Richard,
This article is on NRO right now.
Analyzing the Data of the Labor Market in Decline – Oren Cass
There is a lot more to the article than just the paragraph I’ve quoted. Cass is very interesting and gets into the detail I was asking about. He is even laudatory of a critic who he appears to be having an ongoing useful debate.
Check it out. See what you think.
Regards,
Jim
Just reporting:
Fed Report Says Millennials Are Poorer than Other Generations — But Fed Policies Made It Happen
This should be screaming opportunity to small gov types.
As millenials become more plentiful than boomers, start pushing to end social security. It’s a tax on the poor youth to give to the already established elderly. -> that will sell.
Tiny Houses, anyone?
It might be mocked by those in traditional housing, but tiny houses were born out of the nomadic life the Rs push – move to where the jobs are!! And the dysfunctional housing (and business clustering) of cities with jobs.
They can’t afford a house. So they put one on a trailer or convert a semi bed.
This is dysfunctional.
We used to have an inflation-istc system based on debt, big government and procreating more and more FICA slaves for the Ponzi. You would lever up like hell when you bought a house and that would protect you.
This is all down the drain for a bunch of reasons. Robots and globalized trade are deflationary. No one is pointing a gun to anyone’s head to procreate, even though that’s what it requires. If critical things like shelter and education are expensive, why would you bother procreating?
The government is set up to tax both asset and wage inflation. The reverse (better living through purchasing power) is unworkable. Plus there’s too much debt to go back to a deflationary economy like we had before the Fed.
Who is going to lead?