The Myth of a Stagnant Middle Class

Over the last thirty years, households have gone from predominantly single bread winner, to dual earner. And at the same time, consumer debt has done up while savings have gone down.

Now, if worker compensation was growing significantly faster than inflation, wouldn't we expect the amount of disposable income to be higher, and hence savings and debt to be lower? Why were Americans forced to tap home equity and credit cards to continue consumption? Either prices went up, or people started consuming a lot more. The article claims disposable income went up, but if that's the case, why the credit binge? Doesn't add up.

Moreover, even if you ignore this, the share of national income of the bottom quintiles has been dropping monotonically over the last 30 years, but it was rising with the rest of the quintiles prior to that. That tends to indicate that broad based productivity increases were accruing benefits to workers. Now it tends to indicate that productivity increases accrue solely to capital and not labor. It is not a stable situation.

The apologetics seem designed to avoid debate about the problem, just like climate change, because the assumed solutions would conflict with closely held ideological beliefs. That is, ideological belief trumps contradictory data.

There have been a lot of posts to HN, including submissions of articles with a point of view contrary to this article, claiming that the current generation of young people are "screwed" or the like. Both of my two older sons have netbook computers and mobile phones (not the Apple brand) even though our family income is solidly in the range described by the article. My second son recently mail-ordered computer parts and assembled a new desktop PC for my wife, which is quite a blessing. The simple point of fact is that young people today have opportunity to enjoy goods and services that were unavailable and unimaginable to their parents at the same age. All four of my children have had opportunity to obtain good education that prepares them for productive adult life--my oldest son is already working full-time as a programmer for a start-up. We have spent out of pocket more than most American families to pursue educational opportunities for them at the primary and secondary level of education, largely through homeschooling, but we can afford what we did with a middle-class income. We live in a nice house (rented, in our case) in a peaceful, crime-free neighborhood, and travel as we have occasion to travel. Our lifestyle has improved over the lifestyle I grew up with.

As a younger Baby Boomer, I am prime political fodder for appeals to "protect Social Security." Yet I support entitlement reform, even at my short-term detriment, because I care about my children. I do agree that young people today need to have older people like me drain less of the money they earn through work to fund entitlements paid to me. Rather, I support reforms that raise the retirement age and age of eligibility for other old-age benefits and put more of the economy's money in the hands of working people who can best decide how to spend it, funding entitlement programs on a more actuarially sound basis. Understanding the basic facts about the economy is an important first step for hackers and other entrepreneurs to have a business environment in which they can innovate and invest. Current policies are unsustainable and anyway are based on false factual premises. Americans can buy more of what they want for fewer hours of work than ever before in human history. Hackers can keep right on innovating, because Americans will never feel like they have enough. History makes that clear.

Just because the pie is getting bigger doesn't mean it's inaccurate to characterize the situation in zero-sum terms. E.g. the gain in total national wealth from 1960 - Present is a fixed amount--who got what part of that is zero-sum.

More importantly, of course everyone's share is getting bigger. That's been the long-term trend ever since people started farming. What's important is whose slice is getting bigger faster relative to the other slices. Pointing out that the middle class's slice is getting bigger in absolute terms and saying they should be content with that is like saying you should be fine with a stock that returns 1% over inflation. Why should you complain--you're getting richer! Of course, an investor expects to get richer. What he cares about is his return relative to that of other stocks.

The first question is bordering on bad faith.

It's nigh-on-tautological that technological advances will ensure that being middle class in 2010 is 'better' than being middle class in 1970. [1]

But more air conditioning, computers and even cell phones does not negate the argument that productivity and wage gains have diverged.

And how else would one fairly assess, in the aggregate, if workers are being rewarded for their work, than to see if greater productivity is being rewarded with greater wages? And how else does one describe the situation where continued productivity gains were met with low-to-no gains in wealth, other than "stagnation"?

For we're not talking about absolute shares of national income here. Economics is no zero-sum gain. There are net increases. There is wealth creation. And we're talking about where this created wealth has gone. And for the last several decades, it hasn't gone to the workers. Even though their productivity has continued to increase and, historically at least, those two have tended to increase together.

Framing the situation in terms of your first question is tantamount to the arguments that poverty today isn't a problem simply because, historically, the poor have never lived so well.

It's an irrelevant distraction used to keep people from asking the second question. [2]

[1] If technological gains stopped delivering improved quality of life, we'd be facing a civilization-level calamity that would render concerns about productivity gains less than irrelevant. Because it would necessarily imply that technological advances had topped out and resources were now becoming scarce.

[2] Asserting that questions of economic fairness and health are answered solely by whether today's workers are doing at least as well as yesterday's workers is pretty close to anti-American. To accept that argument, one would have to believe that it's not necessary for hard work to be rewarded. All those "up by your boot-straps" stories are contingent upon harder and smarter work being rewarded. And here we're staring at an economy-wide case where harder and smarter work has simply been the baseline for continued employment. It's no longer "do well and move up." It's "do well or move out."

In the US, housing values have crashed since the bubble burst in early 2007. Americans have a bigger problem securing mortgages than they do finding an affordable home.