Has US middle class income stagnated over the past 30 years?

Mark Bahnisch at LP (quoting excerpts from another blog) in a thread titled ” The politics of failed economic doctrines” says it has. Here are some other quotes propagating what looks like a myth

Since the mid-1970s, however, income growth has been confined almost entirely to top earners.
—Robert H. Frank,
NY Times, March 9, 2008

The modern American economy distributes the fruits of its growth to a relatively narrow slice of the population.
—David Leonhardt,

NY Times, April 9, 2008

Almost all the benefits of economic growth since [the 1970s] have gone to a small number of people at the very top.
—Robert Reich,
Financial Times,Jan.29, 2008

The Minneapolis Fed in a study called “where has all the income gone” calls it nonsense and is quite pointed in the fact that such claims are dangerous as they could actually steer public policy to non-existent problems and thereby push scarce resources in the wrong direction. The Fed goes further and suggests misdirected policy could be moving resources from the very poor to a group that has done very well over the past 30 years in addition to poisoning public attitude toward free trade, globalization and free markets factors which have actually helped rising living standards in the US and elsewhere.

The Fed’s Conclusion

The claim that the standard of living of middle Americans has stagnated over the past generation is common. An accompanying assertion is that virtually all income growth over the past three decades bypassed middle America and accrued almost entirely to the rich. The findings reported here—and summarized in Chart 8—refute those claims. Careful analysis shows that the incomes of most types of middle American households have increased substantially over the past three decades. These results are consistent with recent research showing that the largest income increases occurred at the top end of the income distribution. But the outsized gains of the rich do not mean that middle America stagnated.

Why does the debate about Middle America matter? Because an accurate assessment of the economic progress of middle America is a crucial input in formulating good public policy. Claims of long-term Middle America stagnation—such as those quoted at the beginning of this article—are often part of a broader argument about the adverse impact of globalization, outsourcing and free trade.

And middle class stagnation is used as motivation for a specific set of policies. But if Middle America has not stagnated—as this analysis has shown—then this motivation for those policies is without merit. Furthermore, if it is understood that Middle America has indeed experienced substantial gains, policy priorities may change. For example, more emphasis might be placed on policies that promote continued economic growth or that target deeply rooted poverty rather than middle class stagnation. But regardless of the specific policy, policymakers and the public should base their decisions on an accurate assessment of how the economy has impacted and continues to impact people’s lives.

It took me all of two minutes to find this conclusive study basically putting the kibosh on the idea that middle class income in the US has not only not stagnated but also risen at a healthy clip over the past 30 years.

If they’re in denial of this sort of economic research put out by a respectable authority like the Minneapolis Fed how can they possibly be trusted on anything else let alone the economics?

14 thoughts on “Has US middle class income stagnated over the past 30 years?

  1. It’s not particularly relevant what a bunch of poorly informed sociology students think, but it is serious that our own PM seems to be intent on discreditng all the good that free markets and free trade have done for this country since Bob Hawke first embarked on those essential reforms in the 80s.

    The more i hear about Rudd, the less i like. He appears to have absolutely nothing for which he believes in or stands for, except the acquisition and retention of power.

    And now we are told that tax cuts are off the agenda to be replaced by yet more subsidies to Big Business. At least the Liberals have the courage to come out in favour of tax cuts.

    All the libertarians who claimed not to notice any difference between the two parties must be scratching their heads in amazement..

  2. It’s not only MarkB peddling this pseudo crap, Pomm. Quiggin is peddling the myth like a dog with a new bone.

  3. “All the libertarians who claimed not to notice any difference between the two parties must be scratching their heads in amazement”
    .
    Not really, the Howard government showed that both parties are quite happy to have big government, big government intervention and pork pork pork. It’s far easier to say these things as opposition than actually do them in power.

  4. Yes, but I think it’s clear the Libs were the lesser of two evils – even with Howard’s increasing pork over the years. The hope, amongst many, was a period in exile would force libs to refocus. Unlike others here, I have little faith in Turnbull, other than to say he’s a whole lot better than Rudd.

  5. Over at Quiggin’s thread on this subject.

    “Mark, if you look at this post, and those linked here, and compare to the Minneapolis Fed, you’ll see that all the main points made by the Fed piece have been covered here. As the illustration article suggests, the Fed piece is very much a “glass half full” interpretation of some fairly gloomy data.

    But as the post says, I agree with the Fed that an excessive focus on median households takes attention away from the poor, who have clearly done much worse.”

    Only thing is the Fed doesn’t agree with Quiggin at all. The Fed says that middle class income has actually grown and grown in quite a healthy way- between 43-63% over the 30-year period.

    Quiggin on the other hand runs a thread critical of ‘ neo-liberalism”: parts of which were first introduced under the Hawke and Keating governments.

    Now Quiggin is playing at the leftist reversal trick saying he agrees with the Fed when in fact the body of the post indicates the opposite is true,

    Here is in his own words:

    “The idea that policies favorable to the wealthy, such as financial deregulation and favorable tax treatment of capital income, will ultimately benefit everybody has been described, pejoratively, as ‘trickle down’ economics.”

    and

    “By contrast, the gains to households in the middle of the income distribution have been much more modest. Between 1973 (the last year of the long postwar expansion) and 2007, median household income rose from $44 000 to just over $50 000, an annual rate of increase of 0.4 per cent. (More on this here and here)

    Thus, in statistical terms the US offers little support to the trickle down theory. It is equally important, however, to look at how the theory is supposed to work. The general idea is that, the more highly owners of capital and highly-skilled managers are rewarded, the more productive they will be. This will lead both to the provision of goods and services at lower cost and to higher demand for the services of less-skilled workers who will therefore earn higher wages.”

    First off, no serious free market economist has ever referred “trickle down”. It is an utter nonsense first coined by lefties in the 80’s critical of the Reagan reforms.

    Secondly, Quiggin’s entire thread is about the middle class and the bottom rungs not doing well at all. However when he gets caught with his silly pantaloons down his ankles he plays the usual leftist reversal trick, such as I never said this.

    One other thing, the wages of the very bottom of the US quintile has been greatly influenced by having to compete with 12 million illegals representing about 50% of the bottom quintile working population in the US. That’s something of course Quiggin doesn’t know or he left out.

    He also uses what i think is basically innumerate swill suggesting now that middle class income may have risen because US household formation is smaller than it was in the 1970’s. Well yea however why assume that if household formation suddenly became larger household income would fall? In other words why would household formation suddenly fall to say one family income when the stats didn’t support that. This is blind ideology trying to fit like a herd of of elephants through a key hole.

    And this is the guy throwing around the term denialist all excited like a gold prospector in a whore house after just finding a huge nugget of gold. As usual its fools gold.

  6. How does all that square with the following material (originally posted here)? Which if either are we to believe, and why?

    There is a graph referenced in the Art of the Possible post “when you see a turtle sitting on a fencepost” to illustrate “Virtually the entire increase in [US] economic output over the past thirty years has gone to the rentier classes and to corporate management“. The original is at “If America had $100 and 100 people” (via “Outsourced chart wonkery“).

  7. P.M

    I’m not sure what is you’re driving at with those links

    1. has compensation for management etc. increased at a faster rate over the past 30 years? Yea it has. But so what? Who is to say the 70’s was a good comparison and why?

    2. That really doesn’t have that much to do with the salient points made by the fed’s study which is despite the assertions middle class income has barely budged for the past 30 years evidence shows it has in fact risen between 40 and 60%.

    It’s point two that I’m talking about.

  8. I have little faith in Turnbull, other than to say he’s a whole lot better than Rudd.

    Turnbull is trying to do the old Rudd trick of “Me too.” The guy is useless, and I might be over estimating him with that assessment.

  9. JC, the material I cited contradicts your point no. 2. Now, both positions cannot be right (although they could both be wrong). So, what is really going on, and what additional material or argument if any is there to justify picking one description over the other?

  10. PM

    I took a quick look at your material and it suggests nothing of the sort. One talks about the widening gsp between the rich and everyone else, something that was not disputed in the Fed piece. In fact it wasn’t even discussed as the wasn’t the point of the study.

    Why don’t you present an argument as to why you think the minn fed is wrong and then I’ll be happy to respond.

  11. JC, why don’t you read what I wrote and not jump to conclusions about my views? Also, check out the material (it’s not mine, incidentally) for what it says about the fate of lower quintiles in absolute terms as well as what it says what it shows about relativities.

    I will observe that the article does two dubious things:-

    – Very dubiously, it recognises current employer and state payments towards later retirement benefits etc. as current income. Not only is that assuming that the full benefits will materialise (what if the system collapses first, like a Ponzi scheme?), there is scope for double counting if the current retired are having their benefits counted as current income (and if not, how does this affect shuffling people between quintiles and blurring the stratifications over the course of life?).

    – Less dubiously, but still misleading, the article generally takes the median but talks about “middle America”; even though that would normally work, there is the scope for some upper quintile stuff to affect that, depending on just how the other stratifications interact with the manipulation.

  12. PM

    You really didn’t offer views at the start.

    You didn’t write much other than giving me three links (for homework) one of which I opened that to seemed to be talking about something else entirely (the rising gap)

    there is the scope for some upper quintile stuff to affect that, depending on just how the other stratifications interact with the manipulation.

    Yea and the bottom would too the other way which is why it’s called the median, PM.

  13. marry it up with a study done by the dallas fed a few years ago studying consumptions patterns and it looks like the minn fed study is pretty much on he right track rather than the spurious bullshit that middle class income has foundered for 30 years.

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