American politicians fall over themselves praising the middle class, but if you look at one rather telling piece of data, they don’t seem to have done much to help those in America’s vast middle: Over the past three decades, the wages of median workers have remained essentially the same, adjusted for inflation, while the wages and the wealth of the top one percent have skyrocketed.
But some argue that this oft-cited factoid doesn’t tell the whole story. In a recent Wall Street Journal op-ed, economists Donald Boudreaux and Mark Perry take on what they call “the myth of a stagnant middle class.” In fact, they claim, the middle class is actually doing much better than reported.
For one thing, they argue, the Consumer Price Index, the standard gauge of inflation, “underestimat[es] the value of improvements in product quality and variety.” In other words, we pay about the same for sleek, tiny MP3 players with many gigs of storage as we once did for balky, cumbersome 8-Track tape players.
For another, they add, looking at wages by themselves ignores the considerable rise in “fringe benefits” like health insurance, which now make up about a third of the total compensation for civilian workers.
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Meanwhile, they point out, the average wage has been held down by an influx of less-skilled women and immigrants into the workforce. Naturally, those with fewer skills get smaller paychecks.
And there are even clearer indications, they say, that life for middle-class Americans is better than ever: Not only do they live longer, but they’re “also much better able to enjoy their longer lives,” spending an ever-smaller percentage of their income on “basics” like food, shelter, clothing,and cars. Today, Boudreaux and Perry suggest, middle-class Americans consume a lot more like the rich than they used to. Once upon a time, only the rich could afford to fly. Now we all can, and do.
Moreover, they add,
[w]hat’s true for long-distance travel is also true for food, cars, entertainment, electronics, communications and many other aspects of “consumability.” Today, the quantities and qualities of what ordinary Americans consume are closer to that of rich Americans than they were in decades past. Consider the electronic products that every middle-class teenager can now afford—iPhones, iPads, iPods and laptop computers. They aren’t much inferior to the electronic gadgets now used by the top 1% of American income earners, and often they are exactly the same.
Even though the inflation-adjusted hourly wage hasn’t changed much in 50 years, it is unlikely that an average American would trade his wages and benefits in 2013—along with access to the most affordable food, appliances, clothing and cars in history, plus today’s cornucopia of modern electronic goods—for the same real wages but with much lower fringe benefits in the 1950s or 1970s, along with those era’s higher prices, more limited selection, and inferior products.
Unsurprisingly, Boudreaux and Perry’s op-ed has ignited a small firestorm of controversy amongst economists and policy wonks. On the Washington Post’s Wonkblog, Jim Tankersley noted that B&P’s definition of consumer “basics” curiously omits things like “gasoline (to run those cars), health care (to help us live longer) and education (which is increasingly required for getting and keeping a middle-class job)” – all of which have gotten notably more expensive in recent years. If you work these things back into the equation, you find that Americans are spending as much on basics now as they ever were.
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At the New York Times, economist Paul Krugman has a more fundamental criticism of B&P, pointing out that the real reason that so many middle-class families can afford all those proverbial iPads and iPhones is that they now have a second wage-earner helping to pay the bills. Since 1970, while the average work hours per week for men have remained essentially the same (around 40), the number of hours worked by women has shot up from 14 or so to 25 as more women, and more mothers, have entered the workforce. In other words, Krugman writes, “what we have is a situation in which American families have more stuff, but they have managed to afford that stuff only by being two-income families, with ever less family time.”
B&P are correct in noting that better technologies have improved the lives of middle-class Americans in many ways. Heck, the development of more effective migraine meds alone has brought about a revolution in my life. And as an avid consumer of media, I’m thrilled by the choices available today. Back when I was a kid, we owned a handful of 8mm silent movies that we would watch from time to time. And while I enjoyed repeatedly watching the Keystone Kops get hit in the face with pies, I’m happy that I now have instant access to more movies than I’ll ever be able to watch. Indeed, if I were to watch a movie a night every night, it would take me a year and a half just to get through my Netflix instant queue.
But the notion that “middle-class Americans consume a lot more like the rich than they used to” is pure poppycock. Some amongst the 1% spend more on frivolous luxuries per year than most of us make in a lifetime. But the real advantages of wealth go far beyond diamond-encrusted iPhones and $1,000 omelets.
The children of the wealthy have opportunities, freedoms, and connections, that middle-class Americans don’t. Success in America depends not only on hard work, but also, to a degree that most people don’t want to admit, on being in the right place at the right time — as author Michael Lewis infamously reminded graduating students at Princeton in a commencement address this June. (Lewis noted that his brief career on Wall Street, which kick-started his much longer career as a bestselling author, came about because he happened to be seated next to the wife of a prominent investment banker at a dinner party.) Economist Tom Hertz has quantified some of the benefits of being born rich, showing that children born into families in the wealthiest ten percent are more than twenty times more likely to remain rich than children born into the poorest ten percent are to become rich.
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Wealth also offers a certain degree of shelter from the vicissitudes of economic life — something that’s become increasingly valuable in recent years. A recent paper published by researchers from the Brookings Institute, the Congressional Budget Office, and Wellesley College makes a convincing case that “household income volatility” has increased noticeably in recent years. To put it more bluntly: “The share of households experiencing a 50 percent plunge in income over a two-year period climbed from about 7 percent in the early 1970s to more than 12 percent in the early 2000s before retreating to 10 percent in the run-up to the Great Recession.” No doubt the percentage increased in the economic turmoil of the late 2000s, which wasn’t included in their research.
B&P are no doubt aware of all this, but choose to ignore it in favor of simpler soundbites. To middle-class Americans, their message seems to be “let them eat iPads.”
