Is the American Middle Class in Decline?

Many political commentators have been complaining recently about the financial difficulties of the American middle class.  For example, a recent report from Bill Moyers and Company, “By the Numbers: The Incredibly Shrinking American Middle Class”, has a chart showing that the median middle class salary, adjusted for inflation, is now no better than it was in 1989 and not much higher than in 1979:
CaptureBut there is another point of view, very well described by the two economists, Donald Boudreaux and Mark Perry, in the Wall Street Journal just about a year ago, “The Myth of a Stagnant Middle Class”.  They make several pertinent points:

  • The Consumer Price Index overestimates inflation by underestimating the value of improvements in product quality and variety.
  • Wage figures ignore the rise over the past few decades in the portion of worker pay taken as (nontaxable) fringe benefits.  Health benefits, pensions, paid leave, etc. now amount to almost 31% of total compensation according to the Bureau of Labor Statistics.
  • The average hourly wage has been held down by the great increase of women and immigrants into the workforce over the past three decades.  Because the economy was (before the Great Recession) so strong, it created millions of jobs for the influx of often lesser skilled workers into the workforce.

Messrs. Boudreaux and Perry point out several other improvements in the quality of life which Americans enjoy:

  • Life expectancy has increased to 79 years for an American born today, five years longer than in 1980.  And the gap in life expectancy between whites and blacks has narrowed.
  • Spending by households on the basics of food, housing, utilities, etc. has shrunk from 53% of income in 1950, to 44% in 1970 to 32% today.
  • Although income inequality is rising when measured in dollars, it is falling when measured in terms of our ability to consume.  For another example, air travel is now as common as was bus travel in an earlier era.  And another: the latest electronic products are available to even middle class teenagers.

Conclusion: We should stop complaining about inequality and thank our lucky stars for the free enterprise system which has been so successful in improving our quality of life.

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