The Myth of the Shrinking Middle Class

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When I regularly debated politics, both online and in person when I was pursuing my undergraduate degree, the topic of “income inequality” and the “shrinking middle class” often came up with more conservative minded people vehemently denying that income inequality was even a problem while simultaneously (and rather incongruently) blaming former President Barack Obama and the Democrats for the shrinking middle class.

More liberal minded people point to income inequality as the harbinger of economic disaster and the major driver of the shrinking middle class, all caused by Republican economic policies supported by milquetoast Democratic enablers in Congress.

Neither of these points of view reflect reality and my typical response to both notions always started out with…

Inequality is the result of abundance

Like any paradoxical statement of fact, this paradox is typically met with both incredulity and derision. On the surface, it is incongruent and illogical. However, this paradox is actual and factual once you view it outside of the lens of a preconceived, emotionally-driven, media-influenced frame of reference.

So how can inequality be the byproduct of abundance?

How can the shrinking middle class be a myth?

Let’s answer the first question…

The short answer to the first question can be summed up by two words…

Human nature.

Some people are simply more ambitious and resourceful than others. Some people are more intelligent, educated, and skilled than others.

In short, some people are more motivated than others to succeed. The world needs ditch diggers and factory workers as much as they need engineers and executives, but do those who abhor income inequality really think that the engineer who designed the car should make a proportional income to the person who works on the assembly line? Does a hairdresser deserve the same or proportional salary to an oil rig worker? Who would serve as the arbiter of “equal pay for equal work” if the work and the skills to perform that work aren’t equal?

In a wealthy nation with abundant resources like the United States, the goal, even if the execution towards the goal has historically left a lot to be desired, has always been equality of opportunity, not equality of outcome.

To condense this paradox down to the brass tacks, stratification in society would occur whether everyone made the same basic income or there were no monetary system in place at all.

Human nature will always stratify society on some arbitrary basis, be it kinship, in-group/out-group dynamics, loyalty, or even simple survival of the fittest. In an environment of abundance, this is even more pronounced.

To answer the second question…

The shrinking middle class is a myth because while people lie and statistics don’t, people do use (or more accurately, misuse) statistics to propagate lies.

This myth flourishes because politicians and the mass media alike point to decades of data accurately showing stagnant wages while the top 1-3% of earners appear to benefit from the economic market more than the rest. However, this simplistic view of the statistics doesn’t exactly explain the numbers.

This is NOT an accident. The political elite knows exactly how to promote deep bifurcation using these numbers out of context.

Today, I will provide the requisite context…

Professor Brad Schiller of American University points out in his Los Angeles Times op-ed that population grows by 2 million to 3 million people with individuals aging, moving through the education system, forming new households, bearing children, and gaining work experience. Ergo, population growth and life changes affect the aggregate income numbers.

Additionally, Schiller points out that life circumstances, whether you are rich, poor, or in-between, are not static.

Just because you are rich today doesn’t ensure you will be rich tomorrow and being poor is not a permanent sentence.

Schiller goes on to point out how census data skews income numbers in a way that suggests stagnation:

When you compare household incomes over time, you have to look at identical households. The census defines a household as one or more persons living in the same abode. Fifty years ago, only 15% of all U.S. households had a single occupant. By 2017 that percentage had nearly doubled, to 28%. In just the last 10 years, the percentage has increased by three points. So the typical household today is much smaller.

Lastly, Schiller further elaborates on how movement up and down the economic ladder affects income numbers in the aggregate.

In 2017 the median income of a married couple household was $90,386 while the income of a one-person household was a mere $36,000. So you would expect that, as the percentage of single-person households has grown, the average household income would inevitably decline.

Are these single-person households worse off? The millennials who have left their parents’ homes and moved into apartments of their own certainly don’t think so. Nor do retired people who have moved out of their children’s homes and are now living independently. In earlier generations the young and the old couldn’t afford such residential independence, and their ability to do so now is a symptom of financial well-being, not deprivation.

Another factor in the growth of single-person households is that as the economy has improved, rising family incomes have created an opportunity for unhappy couples to establish separate residences. In such cases, even if their combined incomes don’t change, their household incomes decline. For them, divorce was a luxury that they couldn’t have afforded in earlier decades.

Take the case of an immigrant (legal or otherwise) who takes a first job at the minimum wage. What impact does his job have on the measured median? His low income lowers the median U.S. household income. But that doesn’t mean that others are worse off because he is earning less.

Or what about the college grad who takes a first job at $30,000 and moves into a rented apartment? Her income is way below the median ($61,372), so will bring that measure down. Is anyone worse off?

Or consider the auto executive who retires from his $150,000 job, moves to Florida and lives on his $80,000 pension. Here again, the median income falls, but no one suffers as a result.

Finally, look at these scenarios 10 years later. The immigrant has gained work experience, occupational contacts, improved language skills and maybe even some community college education. Ten years later he is making $38,000 a year, a long way from his minimum-wage beginnings. Other immigrants or youth have replaced him at the bottom of the wage ladder. We still have minimum-wage workers who depress the median, but they aren’t the same workers of 10 years earlier.

The next time you hear someone complaining about income inequality or citing the shrinking middle class myth, just apply a little common sense to the notion and move on.

It really boils down to common sense. Unfortunately, common sense is not common; it’s a damn superpower.

– The Rational Ram

Source of LA Times op-ed cited:

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