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10 Facts About the
“Disappearing” Middle Class
by Robert James
The “middle class” will earn a featured role in the upcoming election
season. You will hear rhetoric – almost certainly from both sides –
that the middle class is disappearing and “the other guy” is to blame
and/or will make it worse. They will present their own policies as the
solution to the middle class dilemma.
But what do we really know about the middle class? I realized that I
had never actually seen or heard an official definition of the middle
class, and that got me thinking: without a definition, any statistics,
accusations, and plans are baseless and arbitrary. So I set out to
uncover the truth behind the claims that the middle class is
disappearing. I share what I learned with you.
1. Most Americans think they are “middle class”
A CBS News poll (2007) and a USA Today poll (2006) both discovered that
about 90% of Americans self-identify as belonging to the middle class.
This data clearly reveals perception bias on both the lower and higher
end of the income spectrum. Interestingly enough, this is not unique to
the USA – the same bias has been observed in Argentina.
2. The “middle class” has no official definition
While researching for this article, I was surprised to discover that
the government does not have an official definition of “middle class”.
Considering how often politicians of all stripes cite statistics about
the middle class to further their particular policies, I naturally
assumed there was an official benchmark. Turns out there isn’t really
even a generally-accepted definition.
I note with no small amount of incredulity the convenience of our
ruling class being able to cite statistics based on arbitrary
definitions to a population which largely self-identifies as belonging
to the demographic in question. Perhaps the fact that there is no
official definition of “middle class” is no accident?
So how can we even have a rational discussion about the middle class
without being able to define its boundaries? Read on!
3. If your household makes $24,376 to $73,129 per year, the White House
considers you “middle class”
Some analysts prefer to define the middle class based on earnings
quintiles. For example, some might say that anyone falling from the
upper half of the second fifth to the lower half of the fourth fifth
would be considered middle class. However, this quintile method is not
politically convenient because every quintile has the exact same number
of households. Therefore, it would be mostly impossible to say that the
middle class is growing or shrinking.
Of course, I’ve never know logic or reason to stand in the way of a
good soundbite.
To be fair, there are certainly other reasonable ways to define the
middle class. In January of 2012, Alan B. Krueger, Chairman of the
Council of Economic Advisers, presented slides and a lecture discussing
income inequality. In his verbal presentation, Krueger defines the
middle class by placing a “+/- 50% band” around the median household
income. I am willing to accept that this is a perfectly legitimate
method for defining the middle class.
By examining the Census data, we find that the inflation-adjusted
median household income for 2010 was $49,445. Therefore, we can
conclude that the White House considers the middle class “band” to be
within +/- 50% of this number, or $24,376 on the low end to $73,129 on
the high end.
From this point forward, when I refer to the “middle class”, I am
referring to this White House definition.
4. The “middle class” is not static
Most claims about the state of the middle class are inherently spurious
due to the simple fact that the middle class is not made up of the
exact same people year to year. A statement like “the rich are getting
richer and the poor are getting poorer” relies on “the rich” and “the
poor” being comprised of the exact same people from sample to sample.
Otherwise it is not a correct comparison.
Most people have only to look at their own fiscal history to understand
this concept. Ten years ago I was living below the poverty line; today
I am comfortably residing in the White House definition of middle
class. This is known as “income mobility,” and most Americans
experience it consistently throughout their lives.
5. Most Americans are “middle class” at some point in their lives
The Treasury Department studied income mobility from 1996 through 2005
and the findings were revealing. Almost 6 out of 10 people in the
bottom 20% of wage earners had moved up to a higher quintile in just 10
years, and over half of of those had moved into the middle class or
above. A study done years earlier found similar results.
The data makes sense. Most of us start out our adult lives on the lower
end of the income spectrum, often in minimum or near-minimum wage jobs,
and continue to climb upwards as we advance our careers. The vast
majority of us experience “middle class” lifestyle at some point in our
lives.
6. Hard work is still the key to success – so says… well… us! The Pew
Economic Mobility Project found that hard work and work ethic is still
considered the dominant factor in economic success by most Americans.
91% of those surveyed considered intrinsic attitudes as “very
important” or higher. That is a figure which crosses virtually all
political, racial, and gender lines.
7. Entitlements are not a strategy for reaching the “middle class”
Government entitlements will never make anyone a perennial member of
the middle class. Welfare regulations vary by state, but I’ve yet to
find one where maximum benefits will bring a person up to that magical
$24,376 threshold. The same goes for unemployment.
If anything, the government programs meant to help the poor may be
creating a negative substitution effect and actually impairing the
long-term mobility of some lower earners. One specific example is that
the Earned Income Tax Credit can inadvertently discourage marriage
which, by virtually all measures, harms both long-term upward mobility
of the individuals as well as long-term success of their children.
8. Unemployment is the enemy of the “middle class” Republicans and
Democrats are busy blaming each other for destroying the middle class.
But there is really only one enemy of the middle class: unemployment.
Data from the Census and the Bureau of Labor Statistics helped me
produce the chart below (see link).
As you can see, as unemployment rises, median income falls. As
unemployment falls, median income rises. This fact should be the
overarching topic for any discussion about the current or future state
of the middle class. Address unemployment, and the state of the middle
class will follow.
9. Taxing the rich won’t help the “middle class”
The debate over whether or not taxing the rich is necessary or
appropriate is complex enough to warrant its own dedicated article. But
assuming that a “Buffet Tax” or some other similar plan was
implemented, it would have virtually no lasting positive impact on the
middle class.
Even a casual observer would point out that despite no obvious direct
correlation, while top rates have trended downward, median income has
trended upward. Indeed, Indian economist Arpana Mathur argues that
higher taxes on the wealthy, especially in the form of higher corporate
taxes, results in capital outflows to more attractive markets, which in
turn creates lower demand for workers here in the U.S., which in turn
results in wage stagnation and/or rising unemployment. In other words,
she argues that taxing the rich may hurt the middle class.
10. The “middle class” is shrinking, but not exactly like you think
In the presentation I mentioned earlier, Krueger concluded that the
distribution of middle class households fell from 50% in 1970 to 42% by
2011. By his definition, this is true. The insinuation, of course, is
that a shrinking middle class means people are getting poorer.
However, a closer look at the data reveals a somewhat different
conclusion. The last few years not withstanding, the historical trend
is that households are moving up out of the middle class, not down.
Multiple analyses have found the same including one from back in 2007.
I can’t think of any politician who could legitimately decry the
shrinking of the middle class if it meant those folks were moving up
the ladder, rather than falling down.
Conclusion
“The middle class is disappearing” is a true statement… depending on
how you define the “middle class.” Unlike race or gender, where we sit
on the class spectrum is not immediately obvious, even to us.
Politicians will abuse this ambiguity, knowing that 90% of us consider
ourselves to be part of the middle class and that very few will ever
dig deeper into the numbers to find out if any particular claim rings
true.
The Obama White House has adopted a definition which does exactly that.
It suits their purposes by allowing them to claim that the middle class
is disappearing, even though a deeper look calls the insinuated
conclusion – that people are falling down out of the middle class –
into question.
This is not to say the middle class is better off than they’ve ever
been. Different analyses are necessary before arriving at that
conclusion, such as relative upward mobility, inter- and
intra-generational elasticity, purchasing power, creature comforts,
etc. A true accounting of the state of the middle class is probably
impossible. Even if it were, the complexity of a true accounting would
not lend itself to a handy little soundbite, so don’t expect either
camp to undertake it in the next election.
But by the Obama administration’s own measure (+/- 50% of median
household income), the middle class has actually been steadily
improving its lot, both in terms of inflation-adjusted median income,
and in terms of upward mobility.
Knowledge is power. Ultimately, it is up to each of us to learn the
facts, educate ourselves, and spread that knowledge, lest we become one
of those living bobble-heads who just repeat whatever talking points
come from our favorite website or talking head on the TV. We may not
agree on the solutions, but knowing the facts at least lets us engage
in proper debate and challenge our political leaders — even the ones we
choose to vote for. That’s not such a bad thing in America.
Source: hillbuzz.org
Read this and other articles at Mail Magazine 24
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