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Have American Living Standards Been Stagnant for Decades? Almost Certainly Not.
American middle-class incomes have gone nowhere for decades. Unless they’ve gone up more than 50 percent, even accounting for inflation. Or maybe it’s somewhere in between as this table — from the Urban Institute’s Stephen Rose — summing up various studies indicates:
So which studies are the good studies? Well, the ones that support your existing beliefs and biases, of course! For me it’s “Yay, CBO” and “Boo, Piketty and Saez” — at least their 2003 results. The serious answer is that all these studies are “good studies,” they’re just measuring income differently and using different inflation measures, as indicated on the table. The sames goes for income inequality statistics where different studies come up with different results. Here are the various results of studies looking at what share of income has been going to the top one percent:
So what to make of it all? Rose takes his best shot:
Published in EconomicsAs shown, researchers’ estimates of income inequality differ significantly because they use different units of analysis, definitions of income, adjustments for family size, capital income measures (if any), and adjustments for inflation. And some studies provide estimates of both post- and pretax incomes.
The results from at least four studies were compared for three measures of income change: change in median incomes, share of growth captured by the top 10 percent, and the changing income share of the top 1 percent. In all cases, Piketty and Saez (2003) were the outlier, showing the most increased inequality. And in all three measures of income change, Piketty, Saez, and Zucman (2018) found much less growth in income inequality than Piketty and Saez (2003).
This brief does a meta-analysis of different findings to estimate a “consensus” level of change. Applying Canberra Group (2001, 2011) recommendations, I find that instead of stagnating, real median incomes grew by just over 40 percent (1 percent a year) from 1979 to 2014; the top 10 percent of the income ladder captured 45 percent of income growth from 1979 to 2014; and the share of the top 1 percent grew 3.5 percentage points. All studies find that income inequality rose after 1979, but common perceptions that all income gain went to the top 10 percent and middle class incomes stagnated (or even declined) are wrong.
Hold on there, just a minute… I have been assured the middle class has been hollowed out and we are living in a modern day version of Oliver Twist. Could it be I have been deceived? Lied to? But why, why?
Silence! You are poor and miserable.
Now eat your artesinal gruel.
Okay James, if living standards have risen so greatly why is it that so many cannot afford to pay their rent or have health insurance? Why are so many young men thought to be ineligible for marriage because they cannot provide for a family? Why are such a vast majority of the population living paycheck to paycheck?
All these studies assign great value to various gadgets that have greatly improved peoples’s enjoyment over time, however the basic fundamental costs of living such as housing, food, health insurance, energy, and the cost of a college education have become distinctly unaffordable for large swaths of the population. That is what is meant by a decline in living standards, not these other metrics granting great weight to all our new gadgets. These studies much like the Federal government’s definition of the cost of living are thoroughly warped so avoid the ugly truth of a serious decline in living standards.
Fat people aren’t starving.
Macaroni & Cheese is cheap.
Could it be possible that the public’s expectations are rising faster than reality? Are the basics really unaffordable, or do we now expect even more? Or do we spend more on the bling and then feel we can’t afford the basics? Or does our perception of being able to “afford” these things include an expectation of certainty and predictability that our ancestors did not have?
I note that several of these categories (and especially the ones that have seen the most rapid increase in cost) include extensive government involvement, which involvement I would argue contribute to the increased costs. Government severely restricts the availability of housing, and imposes expensive minimum standards and costs on the development of new housing. Government imposes expensive minimum standards on health insurance, many of those minimum standards being ones free market purchasers would not choose to buy (I don’t even like the term “health insurance” (as opposed to “medical insurance”) because the term “health insurance” alone inflates the public’s expectations about what having such insurance will do for them). Government inserts massive amounts of money into colleges in ways that encourage inflation.
In contrast, food is much cheaper than it was decades ago. Energy is currently relatively cheap, though it does have quite a bit of volatility.
The number of people starving in the US is vanishingly small. Moreover the reasons they are starving have little to do with income and availability of food and much to do with addiction and mental instability.
It is hard to feed the homeless because they are a moving target.
Jim, we get that the change in median “income” varies over a large range as one changes the definition of income. Could you add some analysis to that? If one were to assume all those studies are reasonably accurate, could one read the quantitative distribution of changes in the various kinds of income from the differences between studies?
But then why the big difference between CPS and Rose (2016)?
Can we attribute the major part of the difference between studies to home value changes back in the last bubble?
What kind of income explains the big difference between the CBO (2018) and, say, PLS (2011)?
In the chart I can see taxes, home values, transfer payments, and employee benefits including health plans all factoring into the accounting on top of basic income. One’s position on the question “have the gains in living standards mostly gone to the top?” hinges on whether and how those factors affect living standards. It is difficult to see how, for instance, inflated home prices could be said to increase living standards. Still more so for unwanted health insurance.
I don’t need charts and graphs….the average middle class family all have hand held computers they carry with them everywhere. They have at least one giant hd flat screen tv if not more. Their kids usually have an I-Pad by age for. They watch a freaking live feed baby monitor to make sure jr is ok in the next room…..I could go on and on.
Paid for on credit.
With no retirement savings.