Shrinking Middle Class?

Off Topic Politics & World Issues
1

Some folks in the media are trying to spin the economic story against the President, and are using that tired old measure, “the income gap.”

Noticed this data from a post over at Reason.com –

The Washington Post came out with a story today bemoaning the “shrinking middle class”, as if that is inherently a bad thing – the silly headline is “As Income Gap Widens, Uncertainty Spreads - More U.S. Families Struggle to Stay on Track”:

http://www.washingtonpost.com/wp-dyn/articles/A34235-2004Sep19.html?referrer=emailarticle

Now, a shrinking middle class, as defined as the percentage of households earning close to the median income ($43,318 in 2003 and in 2003 dollars), would be problematic if there were fewer households there because they were getting poorer. However, the data in the story seem to support the opposite conclusion: There are fewer people in the middle class because they are moving UP.

Note this graphic:

http://www.washingtonpost.com/wp-srv/business/daily/graphics/landscape_091704.html

To quote Nick Gillespie:

"[N]ote that 22.3 percent of households were in the middle income quintile as of 1967–a figure that shrunk to 15 percent in 2003 (all corresponding money amounts are in constant 2003 dollars); that’s supposed to be bad news.

Note also that in 1967 52.8 percent of households were in the bottom two income quintiles–a figure that had dropped to 40.9 percent in 2003; that should be very good news.

And note further that the percentage of households in the top two quintiles had risen from 24.9 percent in '67 to 44.1 percent in 2003. That is, arguably, better news still.

So significantly more households were in the top two quintiles in 2003 than in 1967–and significantly fewer were in the bottom two. That this gets spun as bad news is pretty amazing–especially in an economy with relatively low unemployment and historically high home ownership rates and near-record levels of high school seniors going on to college."

So, we have people moving from the middle to the upper classes, generally speaking. So, who is populating the lower quintiles of the income distribution? All the data seems to indicate it is the underskilled and undereducated, especially unskilled workers with less than a high school education. Some might note that a lot of unskilled, uneducated labor enters the country, legally and illegally, over the southern border.

So, for those who do think the growth of income inequality is a bad thing, do you really think the solution is punishing the upwardly mobile via the “progressive” tax structure that takes progressively higher bites of the apple from the formerly middle class people who have worked their way up?

To me, it would seem more productive to attack from the bottom, namely fixing our education system for those it is failing, particularly students in poor districts, students from broken homes, and students from cultures that do not value education highly (these categories tend to overlap a lot). For me, this would mean breaking the NEA and funding charter schools, but I realize others might take a different view of how to fix the problem – but I simply can’t understand the argument that it is good to simply tear the top down.

2

[quote]BostonBarrister wrote:
To me, it would seem more productive to attack from the bottom[/quote]

I agree, but I think it even more productive to incentivise the TOP to attack from the bottom – encouraging those in the upper income brackets to help those in the lower income brackets move upward. When you enlist sixty percent of the nation to help forty percent of the nation, you do a much better job than you might by having a few thousand people in the government try to help that same forty percent.

Granted, there’s some self-interest here, because I’m currently trying to budget for a program like this within my own company. Government subsidies would make that a lot less of a pain in my ass, but the lack of them isn’t going to stop me.

3

Just found another article on the same subject at Slate:

http://slate.msn.com/id/2107023/

4

[quote]CDarklock wrote:
BostonBarrister wrote:
To me, it would seem more productive to attack from the bottom

I agree, but I think it even more productive to incentivise the TOP to attack from the bottom – encouraging those in the upper income brackets to help those in the lower income brackets move upward. When you enlist sixty percent of the nation to help forty percent of the nation, you do a much better job than you might by having a few thousand people in the government try to help that same forty percent.

Granted, there’s some self-interest here, because I’m currently trying to budget for a program like this within my own company. Government subsidies would make that a lot less of a pain in my ass, but the lack of them isn’t going to stop me.
[/quote]

Very true – what sort of incentivizing did you have in mind? I’ll note that we do have income-tax deductions for charitable contributions, for those who do line-item deductions – but we don’t have any government incentivizing of people to donate time, which, seemingly, could be much more valuable.

5

I think the numbers in the original story are skewed somewhat, especially when you consider the report out a few weeks ago that the number of families living in poverty has risen, and the number of families living in deep poverty has nearly doubled.

My first guess without doing a bunch of research is that against 1967 numbers the figures are likely true, but lets see this comparted to 1980s, 90s, numbers to get a better idea of where things stand now. It seems at least recently that more people are moving into poverty and those already living within poverty are moving even lower, probably from losses of jobs, etc.

6

[quote]BostonBarrister wrote:
Some folks in the media are trying to spin the economic story against the President, and are using that tired old measure, “the income gap.”

Now, a shrinking middle class, as defined as the percentage of households earning close to the median income ($43,318 in 2003 and in 2003 dollars), would be problematic if there were fewer households there because they were getting poorer. [/quote]

Try paying attention to the news. The poverty levels are up, under Bush. Over a million additional Americans are now living in poverty since Bush took office. One third of the people living in poverty are children. If I recall correctly, the current cutoff level is roughly anyone with an income below 9 or 10k per year. I forget what the rates are for a family of four, but it’s something like 15k per year. How the hell can these people survive in today’s economy?

Then there are the millions of Americans who are low income, but make enough money to keep them above the poverty level.

I realize that bodybuilding is a rich man’s sport, and a few of you may not be exposed to any actual lower income or middle class people. But I can guarantee you that most Americans are feeling squeezed more than ever.

7

Lumpy:

The poverty levels aren’t up. The numbers are up. There’s a difference. The numbers for those not in poverty are up too. It’s called population growth with a steady poverty rate.

8

Opera –

As I just stated for Lumpy, the poverty percentages have remained relatively static, minus some cyclical fluctuations for the economic cycle. Overall, we’re doing better historically, and we’re coming out of a normal, and mild - especially given 9/11 and its effects - economic recession, although there’s not much of a story for the media in that fact.

9

[quote]BostonBarrister wrote:
what sort of incentivizing did you have in mind?[/quote]

Nothing really specific. What worries me is that nobody in the upper echelons of business is reaching out to the trenches. We need people like Donald Trump and Bill Gates to get behind an effort to create programs that actively accomplish something, instead of simply endowing a scholarship fund or donating to charities.

The reason we don’t have more people making their way out of disadvantaged positions isn’t that the existing programs don’t have enough money, it’s that these programs DON’T WORK. We need to create some incentive for fatter wallets to engage brighter minds and create better programs.

10

Another article making substantially the same point I did, along with some liberal media complaints:

September 27, 2004, 8:08 a.m.
Middle-Class Hooey
The Washington Post runs a front-page ad for Kerry.

A newspaper?s prime real estate is the space on page one, above the fold. This is where it highlights the most important stories of the day. Usually, the news itself dictates what will occupy a paper?s most important space. So when a paper turns this territory over to a politically charged story that is not time-sensitive, it is sending an important message to its readers about what it wants them to know.

Consequently, it is revealing that the Washington Post devoted half the space on its Sept. 20 page one above the fold to an advertisement for John Kerry. It wasn?t technically an advertisement, of course, but it might as well have been. The whole thrust of the article was to support Kerry?s charge that Republican policies are impoverishing the middle class.

If the facts supported the Post analysis, this would be an interesting story, although I don?t see how it could ever conceivably justify page-one status. It isn?t as though we haven?t heard this many, many times before. In 1984, 1988, and 1992, the Post ran innumerable reports about the imminent disappearance of the middle class. Oddly, I don?t recall any articles of this type in 1996, when Bill Clinton was running for reelection, even though the data would have supported the same analysis.

The reason for is that the media have a template: Republicans are for the rich, Democrats represent the middle class. Any data that confirms this template is reported ? often on page one ? while any data contradicting it is ignored or buried on the back pages.

It is exactly this sort of thing that recently got CBS in trouble over forged documents. All of the elite media tend to accept uncritically any information supporting a liberal worldview. Anything going in the opposite direction is subjected to strict scrutiny. Also, stories with a liberal worldview are allowed to appear without a contrary perspective, whereas those supporting a conservative point of view must always be ?balanced? with lots of quotes from the other side.

Looking at the Post story, you can see many ways in which the data have been manipulated to give it a liberal spin. For example, on page one there is a graph showing that the percentage of households earning between $35,000 and $49,999 (in 2003 dollars) has fallen sharply from 22.3 percent in 1967 to just 15 percent in 2003. At first glance, this would seem to be powerful evidence for the Post/Kerry thesis that the middle class is disappearing. In the pre-Internet age, people might have bought this argument, since they lacked any way of checking it. But today, anyone with an Internet connection can log on to this address and find the facts for themselves.
http://www.census.gov/prod/2004pubs/p60-226.pdf

Anyone who does so will discover that the Post data are accurate, but leave out what is really important: Over this same period, 1967 to 2003, the percentage of families making less than $35,000 (in 2003 dollars) also fell from 52.8 percent of households to just 40.9 percent. In short, the ranks of the middle class could not have fallen because they became poor, as the Post implies, because the ranks of the poor also fell.

The truth is that poor and middle-class households alike became better off, which increased the ranks of the ?rich? (those making over $49,999 in 2003 dollars in the Post?s view) as a share of the population. In 1967, those with such an income constituted 24.9 percent of households. By 2003 this had increased to 44.1 percent. The inescapable conclusion is that the declining ranks of the middle class result from one thing only ? more of them are now ?rich.?

In fairness, the Post presents a graph making this point, although there is nothing in the text of the article. The entire piece is constructed so as to make it appear that the rich have gained at the expense of the middle class, instead of explaining that many in the middle class are now rich by the Post?s definition.

The Post story plays fast and loose with the data in other ways as well. For example, it notes that the top 20 percent of households claimed more than half of all income in 2001, as if this is the most recent data. In fact, there is data from the Census Bureau for 2002 and 2003, which show that the top quintile?s share of income has fallen to under 50 percent in both years. It?s a trivial point, but it shows the extent to which the Post is trying hard to make things look worse than they really are.

Unfortunately, the Post has promised more articles on this same subject ? this was just the first in a series. One can only hope they get better, but I doubt it.

? Bruce Bartlett is senior fellow for the National Center for Policy Analysis. Write to him here.

11

One more, from Arnold Kling – just follow the link for some interesting explanations of poverty statistics over time:

12

[quote]CDarklock wrote:
BostonBarrister wrote:
what sort of incentivizing did you have in mind?

Nothing really specific. What worries me is that nobody in the upper echelons of business is reaching out to the trenches. We need people like Donald Trump and Bill Gates to get behind an effort to create programs that actively accomplish something, instead of simply endowing a scholarship fund or donating to charities.

The reason we don’t have more people making their way out of disadvantaged positions isn’t that the existing programs don’t have enough money, it’s that these programs DON’T WORK. We need to create some incentive for fatter wallets to engage brighter minds and create better programs.
[/quote]

Close the borders (specifically mexico where 4,000 come over daily helping to keep down our wages), raise the minimum wage to a living wage. Stop allowing corporations to evade paying taxes by outsourcing overseas. There’s plenty of things we can do, but as long our the government is controlled by BIG BUSINESS and BIG MONEY nothing is going to happen. And it is both parties, they both accept huge corporate donations and therefore they owe these corporations for helping them get into power. The rich want to get richer and the poor can’t fight back. That is your problem.

13

Why not just notice the REST OF THE WORLD here? Look at most of the countries of the world: you have the super-stinking filthy rich, and poverty, and nothing in between. The middle class is a North American invention, and quite frankly, it’s a function of standard Pareto’s Law that you have this division. Don’t like it? Do something about it FOR YOURSELF. The middle class is going to disappear. Deal with it. It has nothing to do with the president.

14

This article goes a long way toward explaining the poverty numbers and the income data – native-born U.S. citizens are indeed moving up the income ladder, but as we welcome the tired, poor and hungry it should not surprise us that they add numbers to the bottom quintile of the income measurements:

The Changing Face of Poverty
This is an issue that Bush and Kerry don’t want to talk about because it touches a politically explosive subject: immigration
By Robert J. Samuelson
Newsweek

Oct. 18 issue - The census bureau’s annual figures on family incomes and poverty were bound to become familiar factoids in the Bush-Kerry combat. The numbers seem to confirm what many people feel: the middle class is squeezed; poverty’s worsening. In 2003 the median household income dropped for the fourth consecutive year, to $43,318; the official poverty rate rose for the third year, to 12.5 percent of the population; and the number of people without health insurance increased for the third year to 45 million, or 16 percent of the population. But the debate you’re hearing is not the real deal. What ought to be the debate is shunned by both candidates because it touches a politically explosive subject: immigration.

The Census statistics are both better and worse than advertised. They’re better because the middle class isn’t vanishing. Many middle-class families achieved large income gains in the 1990s and?despite the recession and halting recovery?have kept those gains. They’re worse because the increase in poverty in recent decades stems mainly from immigration. Until our leaders acknowledge the connection between immigration and poverty, we’ll be hamstrung in dealing with either.

Let’s examine the Census numbers. They certainly don’t indicate that, over any reasonable period, middle-class living standards have stagnated. Mostly, the middle class is getting richer. Consider: in 2003, 44 percent of U.S. households had before-tax incomes exceeding $50,000; about 15 percent had incomes of more than $100,000 (they’re also included in the 44 percent). In 1990 the comparable figures were 40 percent and 10 percent. In 1980 they were 35 percent and 6 percent. All comparisons are adjusted for inflation.

True, the median household income has dropped since 1999 and is up only slightly since 1990. That’s usually taken as an indicator of what’s happened to a typical family. It isn’t. The median income is the midpoint of incomes; half of households are above, half below. The median household was once imagined as a family of Mom, Dad and two kids. But “typical” no longer exists. There are more singles, childless couples and retirees. Smaller households tend to have lower incomes. They drag down the overall median. So do more poor immigrant households.

A slightly better approach is to examine the incomes of households of similar sizes: all with, say, two people. In 2003 those households had a median income of $46,964, off about $900 from the peak year (1999) but up almost 10 percent from 1990. For four-person households, the median income in 2003 was $64,374, off about $2,200 from its peak but still up about 14 percent from 1990. Though unemployment and less overtime have temporarily dented incomes, the basic trend is up.

Now look at poverty. For 2003, the Census Bureau estimated that 35.9 million Americans had incomes below the poverty line; that was about $12,000 for a two-person household and $19,000 for a four-person household. Since 2000, poverty has risen among most racial and ethnic groups. Again, that’s the recession and its after-math. But over longer periods, Hispanics account for most of the increase in poverty. Compared with 1990, there were actually 700,000 fewer non-Hispanic whites in poverty last year. Among blacks, the drop since 1990 is between 700,000 and 1 million, and the poverty rate?though still appallingly high?has declined from 32 percent to 24 percent. (The poverty rate measures the percentage of a group that is in poverty.) Meanwhile, the number of poor Hispanics is up by 3 million since 1990. The health-insurance story is similar. Last year 13 million Hispanics lacked insurance. They’re 60 percent of the rise since 1990.

To state the obvious: not all Hispanics are immigrants, and not all immigrants are Hispanic. Still, there’s no mystery here. If more poor and unskilled people enter the country?and have children?there will be more poverty. (The Census figures cover both legal and illegal immigrants; estimates of illegals range upward from 7 million.) About 33 percent of all immigrants (not just Hispanics) lack a high-school education. The rate among native-born Americans is about 13 percent. Now, this poverty may or may not be temporary. Some immigrants succeed quickly; others do not. But if the poverty persists?and is compounded by more immigration?then it will create mounting political and social problems. One possibility: a growing competition for government benefits between the poor and baby-boom retirees.

You haven’t heard much in this campaign about these problems?and you won’t. To raise them is to seem racist; that’s a heavy burden for politicians or journalists. Politicians also risk alienating Hispanic voters. Worse, there’s the hard question: what to do? President George W. Bush and various Democrats have offered immigration plans that propose different ways of legalizing today’s illegal immigrants. That’s fine as long as the future inflow of illegal and poorer immigrants can be controlled. That would require stiffer measures than either party has endorsed. These are tough problems; our leaders give them the silent treatment. This is understandable, but it won’t make them go away.

? 2004 Newsweek, Inc.