The Myth of a Stagnant Middle Class

In the early 1970s, WSJ writers could have written an article pointing at how much better the middle class in the US had done over the past 40 years. Now they have to resort to this sophistry. When they admit the average hourly wage of nonsupervisory workers has remained about the same, what that actually means it is lower than it was in the early 1970s, adjusted for inflation.

So one point they make is workers are paying more to their HMOs than ever, so the % of fringe benefits to wages has increased. This is proof against a stagnant middle class?

Then that a one income household can not cut it any more is mentioned. What does this have to do with a stagnant middle class? "The U.S. economy was [and is] flexible and strong". No kidding, I can see GNP going up as well. This has nothing to do with a stagnant (falling, actually) middle class.

The mention of 32% of disposable income - again, money is going to HMOs that went to nicer housing, cars, clothes etc. Also, I don't know what NBER report they're citing, those numbers look much lower than other reports I have seen. To believe this you would have to believe the middle class today has 68% play money with the 32% covering housing, cars and essentials.

"Joe Six-Pack when making a similar trip on a commercial jetliner. But unlike his 1970s counterpart, Joe routinely travels the same great distances in roughly the same time as do the world's wealthiest tycoons."

I know many people in their 20s and 30s with middle class jobs, many of them have never been on an airline ever. that airplanes have been improved means little to them.

The article sounds like just a lot of sophistry. The fact is that inflation-adjusted hourly wages are lower today than they were in the early 1970s. Even if you don't give a flying fuck about the average American, it means there are less consumers to buy new commodities coming out. They can go into debt to get it, but we all just saw what happened when the whole system is gamed so that these now poorer middle class people can buy houses with sub-prime mortgages.

Personally I don't have a Robert Reich/Paul Krugman/Keynesian view of this. My personal view is the economic system has much greater essential underlying weaknesses that little Keynesian measures won't fix over the long run. Which is just to say that just because I think Boudreaux and Perry are wrong doesn't mean I think Reich's suggested minor tweaks to the economy would work either.

The WSJ has lost all credibility with me. This and the picture of sad faces of people that will pay more in taxes, but all of them had ridiculously high incomes, were the last straws. They have moved from somewhat impartial to full-on a promoting the GOP agenda.

If real compensation remained constant since 1970 (or whenever), then basket of goods available to Americans would today would be the same as in 1970 (or with substitutions of equivalent value). That's simply the definition of real compensation.

Do you believe this is actually the case?

This article is pretty much geared for people who can't do math (ironically, considering the ostensible target demographic of the WSJ).

1) Pointing out that things have gotten cheaper is specious. Things have gotten cheaper for rich people too. One would expect technological progress to make things cheaper over time--what does that have to do with income distribution within the country?

2) Average worker productivity has increased since 1965 while real wages have stagnated. You can't use the "women and minorities are dragging the average" down there, because they are included in the worker productivity average as well.

3) Most importantly, the share of national income earned by the middle class has decreased: http://www.interest.com/files/2012/08/pew_income_distributio.... Technology makes things cheaper, sure. Is it enough that the middle class can afford more widgets than they could before? The real debate is who is getting the benefit of the fact that Americans are working longer and more productively than they did 50 years ago. Prices are irrelevant to this question. What the data shows is that the upper class is receiving the vast majority of the increased production. Why is that the case? Are that much smarter and harder working than they were 50 years ago?

Boudreaux is presenting an absolute view of the economy when we've always looked at it from a relative perspective. Yes the dollar value of middle class wages have always gone up but it's still a big problem if they haven't risen in line with inflation or the overall growth of the economy. Economic gains are not sustainable if the middle class doesn't have the buying power to keep up with it. One reason our recovery has been so slow is that the gains from when our economy was exploding did not trickle down to the middle class which in turn did not create the demand needed to bring the economy back. The right likes to say that businesses aren't hiring because of regulations or economic/tax uncertainty. But the fact is if the demand was there, they'd be hiring left and right. The middle class just isn't capable of providing that demand right now.

He is also ignoring the effects of the average households going from 1 working adult to 2. Obviously, when household income doubles that family will have much more spending power to buy expensive i-devices. But the loss of a stay at home parent whose full time job is to take care of the home also has severe consequences not always seen in economic indicators.