Is the Middle Class Disappearing?

The claim that the middle class in America has been losing ground provides much of the heated rhetoric in this year's contentious election campaign. But is it true? The answer is not so simple. Without disputing the notion that many Americans are suffering economically -- and without opining on what the causes or solutions may be -- it is worthwhile to consider the matter further.

Last year, a Pew Research Center report found that slightly less than half of American households are "middle-income" as defined in the study. That's down from 61% in 1971. So the middle class appears to be shrinking. But the study shows that this occurred due to more people joining high-earning households (7% growth), whereas the share of low earners grew at a slower rate (4%).

"[T]he shrinking middle class is less about decline than polarization," concluded the web site FiveThrirtyEight. Such polarization becomes evident when you look at the declining share of the income going to middle-class households -- from 62% in 1971 down to 43% in 2015.

These trends may be explained in part, according to FiveThirtyEight, by the fact that the "typical American household has changed dramatically over the past three decades." For one thing, the U.S. population has grown older. Retirees often have less income as they live off of savings. In another demographic trend, there has been a rapid rise in immigration. This has "pushed down median incomes because immigrants, on average, make less money."

This still leaves unanswered what it means to be middle-class these days. In a Wall Street Journal article in 2013, economists Donald Boudreaux and Mark Perry argue that "while income inequality might be rising when measured in dollars, it is falling when reckoned in what's most important -- our ability to consume." For example, "[t]oday, air travel for many Americans is as routine as bus travel during the disco era, thanks to a 50% decline in the real price of airfares since 1980."

In addition, technology is becoming more affordable. iPhones and iPads are readily available to a large portion of our population. Prices have declined in real dollars for many items that are far superior to their ancient predecessors. My family bought its first color television in 1973 -- a 19" GE that cost around $400. This purchase is equivalent to shelling out $2,134 today. But you don't have to pay that kind of money to get a much larger, more sophisticated television.

Unfortunately, poverty exists. Polarization has increased. But to say the middle class is shrinking doesn't tell the whole story. A more nuanced discussion may be in order.

Words of Wisdom

A rich man is nothing but a poor man with money. -- W.C. Fields