
The Myth of a Stagnant Middle Class - tokenadult
http://online.wsj.com/article/SB10001424127887323468604578249723138161566.html
======
lkrubner
I am tired of this:

"the CPI overestimates inflation by underestimating the value of improvements
in product quality and variety"

The extreme right-wing has been making this argument since the early 1980s. I
used to believe this argument, as it once sounded believable. But Newt
Gingrich used this issue (among others) to engineer a Republican resurgence in
1994, and one of the first things they did was force the Bureau of Labor
Statistics to change the way it calculates the CPI, so that more attention was
paid to quality improvements of goods and services.

What surprised me was that the right-wingers continued to use this argument,
as if nothing had changed. It was then that I realized they were arguing in
bad faith. No matter how many changes were made to the CPI, they were going to
keep repeating the mantra "The CPI overstates inflation".

Regarding what the Republicans achieved during 1994-1995, here are some
articles worth reading:

[http://www.shadowstats.com/article/no-438-public-comment-
on-...](http://www.shadowstats.com/article/no-438-public-comment-on-inflation-
measurement)

[http://bluemassgroup.com/2010/11/the-1995-gop-revolution-
scr...](http://bluemassgroup.com/2010/11/the-1995-gop-revolution-screwed-the-
seniors-out-of-cola-this-year/)

~~~
e40
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.

~~~
fokov
Did you expect anything less from Rupert Murdoch? As soon as I saw the news of
him buying the WSJ, I knew it was just a matter of time until it was filled
with propaganda.

------
rayiner
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...](http://www.interest.com/files/2012/08/pew_income_distribution_2012.jpg).
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?

~~~
dionidium
_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?_

Nothing. But the article makes no attempt to address income inequality.

These are two different questions:

1\. Has the middle class stagnated over the last _n_ decades?

2\. Has the middle class improved its share of national income over the last
_n_ decades?

In fact, it's possible to believe that income inequality is ultimately a _good
thing_ that improves the standard of living across all income brackets.

Edit: The short version of this argument: _It's good to let some people get
very rich creating the iPhone if the end result is that we all end up with
iPhones._

~~~
roc
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."

~~~
dionidium
I more or less agree with everything you said, which is why I think the really
salient question is whether income inequality is actually a _driver_ of
technological progress. Everybody loses in a more "fair" but ultimately less
prosperous society.

~~~
roc
It's trivially true that an unequal-but-growing economy is better than a more-
equal-but-shrinking one. But that's neither here nor there. No-one's
advocating radical changes. No-one's saying we should carve up the golden
goose because eggs were being 'unfairly' distributed.

It's another hallmark of bad faith arguments to respond to a disagreement-in-
degrees as if the other side were advocating extreme positions.

No-one's seizing the means of production here.

------
cromwellian
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.

~~~
twoodfin
_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?_

Not necessarily. If college education and its financing became more broadly
available and increased expected lifetime earnings by more than the cost of
the debt to pay for it (+ opportunity cost), you might expect to see many more
households with college debt without your expected lower incomes.

We've been living through two decades of historically low rates of interest
and inflation. It's possible that had folks in the 1970's seen rates like
that, they might have chosen to debt-finance more as well.

~~~
cromwellian
It is true that credit is a lot easier to come by, and given American's trade
deficit/capital account surplus, a lot more money across the world is flowing
into the US, like crack into a poor neighborhood, obviously increasing
borrowing above what it would have been in the 70s. I'm not sure how to square
this, it pollutes the data.

It does seem to me however, that given the loss of manufacturing jobs, and the
increase in low end retail / service jobs, that there has been downward
pressure on wages.

------
jere
All I see is a bunch of handwaving and distractions from what is admitted to
be a real issue at the start.

Imagine we still had slavery in the US in 2013. Who would argue that slavery
is perfectly ok because, by golly, slaves live longer and have access to nicer
clothes and improved healthcare? And look, we had to deal with an influx of
new slaves, so it's actually their fault! Really, those are your arguments?

After seeing this and the hopeless single mother making $260k infographic, WSG
seems to be pretty out of touch.

[I'm not trying to compare low wage workers to slaves. At all. I'm making an
analogy concerning red herrings.]

~~~
ry0ohki
You're missing the point. The gross numbers haven't increased, but the things
that actually matter (what you can buy for your money) have decreased. The key
point being:

"spending by households on many of modern life's "basics"—food at home,
automobiles, clothing and footwear, household furnishings and equipment, and
housing and utilities—fell from 53% of disposable income in 1950 to 44% in
1970 to 32% today."

There's a reason why the middle class today can buy so much MORE stuff, it's
all much cheaper. The article is saying people are not richer, but the quality
of life is not significantly different for the middle class then it is for the
rich (the same access to long life, short travel, etc...)

~~~
alsocasey
But they spend more on healthcare and education (upward social mobility should
ideally be affordable to all).

------
yummyfajitas
I've been making this point for a while. In particular, there is pretty solid
data showing that immigration drags down the average hourly wage, based on
longitudinal data which excludes them:

[http://www.chrisstucchio.com/blog/2011/immigrants_simpsons_p...](http://www.chrisstucchio.com/blog/2011/immigrants_simpsons_paradox_great_stagnation.html)

(The data compares the income of Americans to that of their parents, thereby
excluding people who's parents are not Americans.)

Note that this observation (by itself) is not an argument against immigration.
<http://openborders.info/compositional-effects/>

------
gojomo
Another factor that isn't often acknowledged when making comparisons of
'household income' over time: households are shrinking.

To contrive a stark example, say 30 years prior the median household size was
4 people, and the household income was $100K (in real dollars). Fast-forward
to a later period, median household size 3 people (due to later marrying,
fewer children, more people living alone), and median household income $90K.

A politician or publication wanting to preach stagnation will run with the
headline: "Household Income down 10%!". But in actuality, the household income
_per household member_ has risen from $25K to $30K, a 25% increase.

(Real-life effects are much subtler than this, but I believe in the same
direction for most recent analyses of 'household income'.)

~~~
alsocasey
Conversely, mean number of earners per household has also gone up, but
household income does not reflect this.

~~~
gojomo
Also an excellent point, and possibly a concern... but some of this has been a
conscious rebalancing of roles (for example, men doing more nonmarket work and
women doing more market work) to optimize leisure time. Altogether, the story
is complicated and top-level headlines from people with political agendas
almost always mislead.

------
drcube
>Consider the electronic products that every middle-class teenager can now
afford—iPhones, iPads, iPods and laptop computers.

No teenager can afford this. They, or their parents, go into debt for it.

And that is the problem. The ability of middle class Americans to buy what
they are implored by our consumerist society to buy has fallen sharply.
General unhappiness and massive amounts of personal debt used to finance
knickknacks is the outcome.

~~~
waterlesscloud
Most middle-class teenagers with even a part-time job could afford these
items.

~~~
geogra4
Because they live at home and are subsidized by their parents.

~~~
twoodfin
Just like all middle class teenagers, forever. I'm not sure what your point
is.

------
Lukeas14
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.

------
xaa
Wealth is relative. Instead of comparing today's middle class to today's rich
(a comparison in which the middle class is unambiguously losing ground), the
author would rather us compare the middle class of today to the middle class
of yesterday.

This is a big red herring, since this article comes in the context of a
broader societal discussion about whether we should raise taxes on the rich.

Another problem is that the author chooses his examples very selectively when
making the argument that the rich are barely better off than the middle class.
There are too many counterexamples to count, but the most important difference
is that the rich, because they live primarily on passive income and can hire
domestic help, have free use of their own time, in contrast with middle class
people who have to work 8+ hour days to maintain their standard of living.

However, the analysis about _why_ wages have been stagnant is good stuff.

------
jones1618
This article also lacks any economic literacy based on one simple fact: When
statistics report that middle class wages have been stagnant for decades (by
this article's own account, 48 years), remember this figure is already
adjusted for inflation. This means that the buying power of the 2013 dollar
has already been normalized to the power of the 1982 dollar (or whenever)
primarily against the price of the costs of necessities like housing,
clothing, transportation, food, etc.

So, in the end the author is basically saying "Quit your grousing, middle-
class drones, you may still be struggling to house and feed yourselves (just
like the good old recession days of 1982) but you can get the latest, spiffy
cell phones and HDTVs as the rich. So, what are you complaining about?"

Clueless. So, it bears saying again: One of the clearest indicators of a
civilization's downfall is income inequality (not that it exists at all but
the sheer magnitude of it). Prosperity should be floating all boats to a
degree but when only the gold-plated yachts are rising, we're all in danger.

~~~
sbmassey
Where does this idea that income inequality indicates the downfall of a
civilisation come from? It doesn't seem to be historically true, given the
vast income inequality in, say, Regency England, or pretty much any part of
classical Roman history after the early Republic, or, hell, pretty much any
civilisation ever that lasted any amount of time had some kind of aristocracy
with all the inequality that entails...

------
fasteddie31003
The article points out a 3 reason why the "flat-wage of the middle class" idea
is a myth:

1\. CPI underestimating product improvements. 2\. Increase in fringe benefits.
3\. Influx of lesser skilled workers.

Product improvements and fringe benefits effect both middle and upper class
living standard equally. These two improvements would increase both upper and
middle classes equally, so I can't see how these would make middle income
workers better of relative to upper income workers.

The third point, an influx of lesser skilled workers "women and immigrants" as
the article puts it, does not change the fact that the middle class's wages
are stagnent, it just is a changing of demographics.

~~~
pdonis
_The third point, an influx of lesser skilled workers "women and immigrants"
as the article puts it, does not change the fact that the middle class's wages
are stagnent, it just is a changing of demographics._

But it does change a key consequence of the claim that middle class wages are
stagnant. That claim is often used to argue that "the middle class is no
better off"; but if the stagnant wages are due to changing demographics, then
all the _individual people_ in the middle class may in fact _be_ better off.
Some used to make the average wage and now make more; some used to make
nothing at all or made the average wage in a much poorer country, and are now
making less than the average wage here, which is still an improvement for
them. The point is that "average wage" is a poor measure of how individual
people are actually doing, since it really reflects changing demographics, not
changes in individual fortunes.

------
justin_hancock
The one thing seems to have been omitted is housing costs? I am in the UK and
housing costs have risen very sharply thus eliminating any other reductions on
pricing. This is one area the current generation is much worse off, rents are
high, and purchase prices even higher. My parents with a single relatively low
income could afford a house, my sibling and his partner with two reasonable
incomes can't afford a one bedroom apartment.

Some parts of the UK do have cheaper housing but with good reason, low levels
of employment.

Interested to hear the US and wider perspectives.

~~~
hnal943
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.

------
tokenadult
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.

------
BenoitEssiambre
"First, the CPI overestimates inflation by underestimating the value of
improvements in product quality and variety"

As others have pointed out this is very debatable. Especially since CPI is
corrected for that already. Also consider certain goods have gone down in
quality due to being mass produced instead of hand tailored. "Fresh" produce
are more available but often old and stale because they come from far away.
Inflation is overestimated on these types of items.

"health benefits, pensions, paid leaves and the rest now amount to an average
of almost 31% of total compensation for all civilian workers"

Health care is costlier, securing a pension is costlier (due to low investment
returns), more paid leaves are probably due to both adults working in a family
which is unsustainable in times of family crisis. This is related to:

"Third and most important, the average hourly wage is held down by the great
increase of women and immigrants into the workforce over the past three
decades"

So let me get this straight, previously a single income was enough to sustain
a family of often 5 or more and now you need two incomes for a family of only
3 or 4 and this dude thinks that makes people feel richer?? Also consider that
one reason people don't have 5 kids anymore is that they wouldn't be able to
afford them and can't take care of them because both parents have to be
working.

"spending by households on many of modern life's "basics" fell from 53% of
disposable income in 1950 to 44% in 1970 to 32% today." Is that for median
households or is this number skewed by including the super rich in the
average? I'm suspicious that this isn't specified. Also this is a complex
number with lots of caveats. For a single earner family (remember this used to
be sufficient), is this still true?

"Before airlines were deregulated, for example, commercial jet travel was a
luxury that ordinary Americans seldom enjoyed."

The fact that technology has made air travel's costs more in line with other
forms of travel, doesn't make a person richer. Sure it gives that person more
options, and some quality of life improvements if he or she chooses these
options. However, if a median worker could afford only a few train tickets a
year in 1980 he still can't afford many more train or plane tickets today with
his dwindling salary.

~~~
chrisfromto
Being able to "afford" n children all depends on your definition of the word.
Consumption per child is much higher now than it has ever been.

------
marcusestes
tl;dr: the consumer price index only makes it _look_ like the middle class is
suffering. To wit:

1) They have access to a higher quality of goods. 2) Don't forget deductions
for health care and 2 weeks of vacation! 3) We pay women and minorities less,
and since they've been entering the workforce in bigger numbers, it only
_looks_ like white males are being paid the same since the 60s.

Seriously?! Can we please keep politics off the front page? Or else we'll all
be subjected to countless polemic summaries like this one and who wants that?

(But honestly, fuck this article.)

------
sever
What about political influence? Irrespective of how much you can buy, if
dollars equal political influence, which is not far from wrong, people in the
middle class now have less control over their lives and those of their
children.

------
kmfrk
WSJ is doubling down on the crazy talk. Here's their idea of a representative
demographic:
[http://online.wsj.com/article/SB1000142412788732368960457822...](http://online.wsj.com/article/SB10001424127887323689604578220132665726040.html#project%3DWEALTH0105%26articleTabs%3Dinteractive).

------
digitalzombie
wsj is own by Murdoc and anything that dude own seems to be fills with lies
and bias. They got flak for it over in England, I believe.

------
CleanedStar
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.

~~~
twoodfin
_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._

You really think you'd rather be the median income 25 year old in 1973 vs.
2013? It's not sophistry to point out that today's median 25 year old has
massive advantages in health, education, technology and basic quality of life
over his 1973 equivalent. The real average wage captures none of this
improvement, which is the point of the piece.

~~~
malyk
What about happiness? Hope for the future? Ability to have your spouse raise
the kids at home while you earned enough to pay for a house and car?

And the idea that life expectancy is what counts is absurd. 79 years of
fighting for jobs where you're worked like mad fighting every week to stay out
of debt while trying to get your kids some semblance of education in shittier
and shittier school systems sure sounds a hell of a lot nicer than the past
because what, iPhones exist?

~~~
twoodfin
I think you are looking at the past with rose-tinted glasses if you think
"hope for the future" was on a real win streak in the '70s. (See: Vietnam,
Watergate, Arab oil embargo, stagflation...)

Also, in the '70s, it wasn't the "spouse" raising the kids at home, it was the
wife. The huge increase in available roles for women is another thing not
captured by the average real wage (and as the piece points out, probably had a
negative impact on it).

~~~
malyk
You are definitely correct. My post was a little snarky and written way too
quickly to get any real point across.

My real point is that, regardless of whether or not wage stagnation has
occurred, the "middle class" is not in a good position. Median household
income is $52,000. You can survive on that while raising 2 kids, paying rent
or a mortgage, and paying for a car if you are smart about it. But you aren't
very well positioned to get ahead and you certainly aren't in a position to
have a couple of smartphones, premium cable tv on a big flat screen tv, with
the newest computers, etc. like we are taught to aspire to.

Yes, there is more tech, better healthcare, etc., but your money goes a lot
less far than it did when you could have a single worker earning enough to
afford the "same" (relatively) overall quality of life. It's not a perfect
comparison by any means, but saying wage stagnation doesn't exist and
therefore we shouldn't care about it seems utterly bizarre when you look at
what most of the nation has to live on.

I just can't wrap my head around how anyone can look at this article and
especially that horrible infographic that the WSJ published and think anything
except how out of touch and frankly stupid people are about the reality of our
collective situation.

