Our Declining Middle Class and More Good News

We often hear, in the most sepulchral tones, about the “disappearing middle class.”  And here’s the thing about the disappearing middle class: it is.  In 1967, about 54% of Americans were classified by the Census Bureau as “middle class.”  Today, using constant 2020 dollars, only about 40% are – a hefty drop.  Importantly, the middle class is more than just a group of people of middle incomes, it’s come to symbolize stability, a body politic with the values and ethics on which an enduring, democratic society can be built.  So those sepulchral tones are appropriate, right?  They sound the tocsin of a decaying society and economy, right?

Wrong.

What’s drowned out by the dirge is another relevant factoid – the lower class too is diminishing.  In 1967, it made up about 35% of the total U.S. population.  In 2020, that number had dropped to about 26%.  Together, the declines of the lower and middle classes necessarily mean something else – the upper class is expanding, and dramatically!  From 1967 to 2020, the portion of the populace that qualifies as the upper class has more than tripled from about 11% to 33.6%.  There are now substantially more people in the upper class than in the lower.

The simple fact is that, over that time, the economy of the U.S. has expanded far faster than the population and that wealth has found its way into far more hands than ever before.  (Something similar is happening worldwide as well.)  That’s cause for celebration of course, but good news seems always to take a backseat to its opposite and, if it can be spun as bad news, then, according to much of the press, so much the better.

One of the ways that’s accomplished is to ignore our increasing prosperity and focus on the expanding gap between the wealthy and the rest of us.  Here’s a Pew Research piece on exactly that.  Now, I consider Pew Research to be a reliable source of information and am always happy to use its research when I can.  But, before I get into the reality of increasing earnings disparities, consider this quotation from the Pew report:

The growth in income in recent decades has tilted to upper-income households. At the same time, the U.S. middle class, which once comprised the clear majority of Americans, is shrinking. Thus, a greater share of the nation’s aggregate income is now going to upper-income households and the share going to middle- and lower-income households is falling.

That quotation addresses essentially the same information that I took from the American Enterprise Institute’s “Carpe Diem” blog and referred to above.  It’s all there – the increased income shares of upper-income households and the falling shares of the two lower categories - but note the different spin.  Nowhere does Pew mention the obvious – that those three facts add up to increased prosperity for more people and reduced financial distress for more.  What’s not to like?

The increasing income gap conceals many things that those who fret about it seem loath to mention.  One is that it’s entirely possible for that gap to be widening – as it is – and at the same time for all classes to be improving their level of income.  The middle and lower classes can be moving up, while the wealthy do so as well just at a greater rate.

And, that’s what is in fact happening.  We know that not only from the AEI information on upward mobility, but from the fact that we hear very little in the way of class resentment (at least from those we’d expect to express it).  Middle- and lower- income people generally don’t seem to resent Bill Gates’s wealth as long as they themselves are comfortable with their own aspirations and ability to realize them.  They remind us of what novelist Joseph Heller said to a man far wealthier than he, “I have what you’ll never have – enough.”

Plus, there’s another aspect to the widening gap that’s seldom mentioned.  The Pew article, like so much other commentary on economics, is mostly about “households,” but when we compare households, we run the risk of comparing unlike things.  Consider:  John and Jane are married.  John earns $50,000 per year and Jane earns $36,000.  That places them exactly at the median of middle-income households in 2018.  But then they divorce.  Now John and Jane make up two “households,” neither of which comes close to the median of middle-class incomes.  By divorcing, John and Jane just increased the income disparity between high- and middle-income households, despite the fact that their incomes remained unchanged.

But the nature of the households being compared is far more than just an off-the-cuff hypothetical example of mine.  In fact, it’s a core part of the disparities among the three classes.

This table, also from the Census Bureau, tells the tale.  It’s altogether clear from its figures that living with a married partner (or not) is one of the two strongest predictors of one’s financial well-being.  (The other is having a bachelor’s degree or more.)  A whopping 83.3% of those in the lowest fifth of earnings are single or single parents.  By contrast, just 22.7% of those in the highest bracket are.  And there’s a steady decline in non-married status as we move from quintile to quintile up the income scale.  In short, there’s a strong correlation between marital and financial status.

Therefore, income gaps among upper, middle and lower classes reflect, to a significant degree, our high divorce rate and our increasing tendency toward single-parent childrearing.  In its discussion of those income gaps, it’s something Pew Research never mentioned.  Indeed, it rarely is by anyone.

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