What Shrinking Middle Class?
February 14, 2013 - 11:09 am
We all know Democrats like to champion the American middle class. A strong middle class is usually the foundation for stable democracies. Yet, in recent years, they have shrunk in number according to the 2010 Census data – and nothing will hurt them more than when ObamaCare’s taxes comes bearing down on them. Nevertheless, liberals mock Republican trickle down economic policies, and say they want to grow America from the middle class out. It was a talking point pitched ad nauseum by the Obama campaign last year.
During Obama’s 2013 State of the Union address, the president said, “it is our generation’s task, then, to reignite the true engine of America’s economic growth — a rising, thriving middle class.” The progressive left thinks the American middle class is dissolving, but Megan McArdle says we should all look again.
In a graph provided by 2010 Census statistics, the income distribution details a possible dystopian future of the wealthy maintaining their share of the pie, while everyone else is relegated to a working class dominated by low-skill, minimum wage labor. We’re destined to be 21st Century Helots. We are the 99%! However, it’s not the time to panic.
Look closely at those last two brackets. Now look at the brackets immediately to the right of them? What do you notice?
Probably, you notice the same thing that immediately struck me: the last two brackets cover a much, much wider income band than the rest of the brackets on the graph.
Each bar on that graph represents a $5,000 income band: Under $5,000, $5000 to $9,999, and so forth. Except for the last two. The penultimate band is $200,000 to $250,000, which is ten times as wide as the previous band. And the last bar represents all incomes over $250,000–a group that runs from some law associate who pulled down $251,000 last year, through A-Rod’s $27 million annual salary, all the way to some Silicon Valley superstar who just cashed out the company for a one time windfall of hundreds of millions of dollars. Unsurprisingly, much wider bands have more people in them than they would if you kept on extrapolating out in $5,000 increments.
In 2011, the $195,000 to $199,999 segment had 312,000 households in it. If you multiply by ten, you get 3 million households. But the $200,000 to $250,000 segment had just 2.2 million households. In other words, as incomes rise, the number of households-per-$5,000-of-income falls–just as Jon Evans learned it should, in those long ago Canadian days.
To put it another way, the apparent clustering of income along the rich right tail of the distribution is just an artifact of the way that the Census presents the data. If they kept running through $5,000 brackets all the way out to A-Rod, the spreadsheet would be about a mile long, and there would only be a handful of people in each bracket. So at the high end, where there are few households, they summarize.
McArdle added that there’s no evidence to indicate the American middle class is crumbling.
There’s “no big movement ‘up and to the left’, other than a slight expected income downshift during the Great Recession.”
In January of 2012, Scott Winship of the Brookings Institute wrote a guest post on Reihan Salam’s Agenda blog at National Review.
When mentioning Alan Kreuger, chairperson of the Council of Economic Advisors, and his speech on income inequality at the Center for American Progress at the time, he noted the same sentiments of middle class decline. Krueger “presented estimates indicating that the percentage of American households who were in the middle class fell from 50 percent in 1970 to 42 percent in 2010.”
Yet, Winship also added that:
Krueger’s claim of a shrinking middle class relies on the same peculiar definition. Specifically, “middle class” is defined as having a household income at least half of median income but no more than 1.5 times the median. I re-ran the numbers using the same definition and data source as Krueger and found that the entire reason the middle class has “shrunk” is that more households today have incomes that put them above middle class. That’s right, the share of households with income that puts them in the middle class or higher was 76 percent in 1970 and 75 percent in 2010—two figures that are statistically indistinguishable. For that matter, I am not discovering fire here; Third Way made the same point in early 2007 (page 7). A shrinking middle class is only a problem if it reflects fewer people reaching the middle class. That is clearly the impression the administration wants to give, but it is entirely dishonest to do so.
So, there you have it. The American middle class is stable, and not going anywhere. Although, that’s not to say that many Americans, on both sides of the aisle, including Sen. Rick Santorum, agree that more needs to be done to increase social mobility in the United States.