ALS: thoughts on freedom

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?

February 3, 2009 Posted by jc | General | 14 Comments