Stagnation Contest

by Russ Roberts on February 29, 2008

in Standard of Living

Spencer suggests in a recent comment that no one is really claiming that middle class incomes are stagnant and to dispute this claim is to attack a straw man. I don’t think he’s right, though I always appreciate the perspective of our readers who do not agree with everything said here at the Cafe. So I thought we’d have a contest to find examples from the web or the media that make the claim that our standard of living is stagnant or that the middle class can’t get ahead and so on. Or better yet that the middle class is falling behind. Or that all the gains of the last x years have gone to the top 1% or the top 20%.

I’ll kick things off with a quote from Michelle Obama from a recent speech:

And things have gotten progressively worse throughout my lifetime, through Democratic and Republican administrations. It hasn’t gotten better for regular folks.

I saw many versions of this quote in the news and the blogosphere but I struggled to verify it. I found an audio clip here. The quote starts at the 3:55 mark of the clip. To be eligible for the contest, you must provide a URL or verifiable source for the quote. Incidentally, Michelle Obama was born in 1964 but I’ll give her some wiggle room for when she believes the decline in the quality of life for regular folks began.

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{ 49 comments }

Randy February 29, 2008 at 11:13 am
Floccina February 29, 2008 at 11:24 am

http://www.rollingstone.com/politics/story/12699486/paul_krugman_on_the_great_wealth_transfer/print

The broader picture is equally dismal. According to the federal Bureau of Labor Statistics, the hourly wage of the average American non-supervisory worker is actually lower, adjusted for inflation, than it was in 1970. Meanwhile, CEO pay has soared — from less than thirty times the average wage to almost 300 times the typical worker's pay.

He said "non-supervisory worker is actually lower, adjusted for inflation, than it was in 1970".

Also here but this is just about recent years:

None of the above. The reason most Americans think the economy is fair to poor is simple: For most Americans, it really is fair to poor. Wages have failed to keep up with rising prices. Even in 2005, a year in which the economy grew quite fast, the income of most non-elderly families lagged behind inflation. The number of Americans in poverty has risen even in the face of an official economic recovery, as has the number of Americans without health insurance. Most Americans are little, if any, better off than they were last year and definitely worse off than they were in 2000.

colson February 29, 2008 at 11:28 am

A whopping 48 million American's fail to earn enough to crack the middle class with health care, pension and decent wages, according to a report issued by the progressive Center for Economic and Policy Research.

"The middle class is shrinking. It is getting harder and harder to reach, and that gap (between rich and poor) is definitely getting bigger," said Alan Barber, a spokesman for the Washington-D.C. based group.

— Seattle PI

The ranks of the working poor are swelling as more families slip into poverty, health benefits are lost and low-wage employees bear the brunt of many corporate cutbacks. That means more employees — many of them in service jobs that are essential to the economy — are working full-time, only to find they can barely support their families.

"This is a very interesting sociological change. We've created a new class of poor. There is this huge group of people who want to work, who are working, but it's a form of being indentured," Coltoff says. "America has always been built on the belief that you can do better, but we have shut down the ladder to the middle class."

Sherry Byrum, 48, feels there is no way up. The Spokane Valley, Wash., woman works full time at a day care, earning about $9 an hour, and earns $8.43 an hour providing home care for a disabled girl. The number of hours she works each week varies; health insurance costs $71 a week.

From USAToday

Since 2001, median wages in nearly half of all states have failed to keep pace with inflation. From 2001 to 2006, 21 states experienced real wage decline, while only two states, Arkansas and North Dakota, experienced real annualized wage growth of at least 2.0% per year (see figure). While the national economy recovered jobs lost from the last recession, wages for middle-income workers remained stagnant. During this period, national median wages increased only 1.2%, or 0.2% per year. In the previous five years, 1995 to 2000, median wages increased 1.5% per year.

from Economic Policy Institute

The median hourly wage for American workers has declined 2 percent since 2003, after factoring in inflation. The drop has been especially notable, economists say, because productivity — the amount that an average worker produces in an hour and the basic wellspring of a nation’s living standards — has risen steadily over the same period.

As a result, wages and salaries now make up the lowest share of the nation’s gross domestic product since the government began recording the data in 1947, while corporate profits have climbed to their highest share since the 1960’s. UBS, the investment bank, recently described the current period as “the golden era of profitability.”

Until the last year, stagnating wages were somewhat offset by the rising value of benefits, especially health insurance, which caused overall compensation for most Americans to continue increasing. Since last summer, however, the value of workers’ benefits has also failed to keep pace with inflation, according to government data.

from NYTimes

Eric February 29, 2008 at 11:28 am


Stagnant Wages? Made in USA

My favorite quote: "The emblem of the new economy might be a 35-year-old, listening to an iPod, living in a house much smaller than the one he grew up in."

At least Kuttner doesn't appear to have a problem with immigration.

Jeff S. February 29, 2008 at 11:30 am

Spencer is going to get creamed on this.
http://blogs.wsj.com/washwire/2008/02/01/obama-sounds-populist-themes/

Second paragraph: "…Obama, an Illinois senator, blasted the Bush administration for employing economic policies that favored the rich and ignored the poor and middle class. "Hard work is no longer enough to keep you from falling on hard times,’’ Obama said.

Joshua Macy February 29, 2008 at 11:31 am

http://rodrik.typepad.com/dani_rodriks_weblog/2008/02/mr-kristol-you.html
From Dani Rodrik:

People like me with graduate degrees have done great. But the median compensation (that includes fringe benefits, by the way) of high school graduate men has declined by about 10 percent since 1980! Mr. Kristol: that means that for a high-school graduate, the odds that his compensation would have fallen by more than 10% is 50-50. Note that even college graduates have not seen any income gains since around 2000.

Jeff S. February 29, 2008 at 11:34 am

Fish in a barrel.

http://www.cbsnews.com/stories/2007/04/15/opinion/polls/main2684929.shtml

4/15/2007. "But has any of this wealth trickled down to the middle class?

"According to the latest CBS News Poll, most Americans — and most of those with mid-range incomes — don't think so; instead, many think the middle class has experienced tougher times. 59% think that life for middle class Americans has gotten worse in the last 10 years. Just 30% think it’s gotten better."

colson February 29, 2008 at 11:34 am

Notice the caveat in the last paragraph I quoted:

"Until the last year, stagnating wages were somewhat offset by the rising value of benefits, especially health insurance, which caused overall compensation for most Americans to continue increasing."

I think it's a bit two-faced. If something is "somewhat" offset you can expect it is offset or it isn't. Obviously it is if overall compensation rose – which would invalidate "somewhat" and "stagnation"

FreedomLover February 29, 2008 at 11:36 am

The common thread in all this is lack of personal responsibility. It's always someone else's fault.

FreedomLover February 29, 2008 at 11:39 am

http://rodrik.typepad.com/dani_rodriks_weblog/2008/02/mr-kristol-you.html
From Dani Rodrik:

People like me with graduate degrees have done great. But the median compensation (that includes fringe benefits, by the way) of high school graduate men has declined by about 10 percent since 1980! Mr. Kristol: that means that for a high-school graduate, the odds that his compensation would have fallen by more than 10% is 50-50. Note that even college graduates have not seen any income gains since around 2000.

Posted by: Joshua Macy | Feb 29, 2008 11:31:41 AM

Why should high school graduates have rising median income? They have no skills worth employing except for McDonalds and Walmart. Regaring college graduates, depends on which kinds. For engineers, they have had some gains since 2000, although that's mitigated by offshoring and H-1B workers.

Art Woolf February 29, 2008 at 11:39 am

Our socialist (his term) U.S. Senator says “The great economic crisis facing the United States is the shrinking of the middle class and the loss of millions of good paying jobs,” Sanders said. “We must do everything that we can to reverse that trend and make sure that good-paying professional jobs in this country are filled by Americans, not by people brought in from other countries by corporate interests.”
(http://www.sanders.senate.gov/news/record.cfm?id=275552)
Then again, he's been saying this for the past 30 years.

Eric February 29, 2008 at 11:40 am
FreedomLover February 29, 2008 at 11:40 am

War on the Middle Class: How the Government, Big Business, and Special Interest Groups Are Waging War on the American Dream and How to Fight Back

Posted by: Randy | Feb 29, 2008 11:13:49 AM

Randy, you didn't strike me as a Lou Dobbs-type. Sure your don't believe in some conspiracy to wage war on the middle class?

Randy February 29, 2008 at 11:46 am

Trust me, FreedomLover, I am not the Lou Dobbs type. In fact, I was watching the news on CNN while waiting for a plane the other day when Lou Dobbs started into his spiel. I couldn't keep from laughing out loud at one of his dumbass comments. People were looking at me so I had to get up and leave. Nope, not a fan, just posting for the contest.

FreedomLover February 29, 2008 at 11:48 am

Oh thanks! I was worried there for a second. Lou Dobbs is one of the "worst people in the world" right now. Thanks Keith Olbermann.

Yanick February 29, 2008 at 11:52 am

An interesting article published in the Washington Post last May suggests that all income groups, from the bottom fith to the top fifth, enjoyed a real increase in income between 1991 and 2005:

"the bottom fifth of families with children, whose average income in 2005 was $16,800, enjoyed a larger percentage increase in income from 1991 to 2005 than all other groups except the top fifth."

Ron Haskins, from the Brookings Institution signed the text, entitled "The rise of the bottom fifth".

http://www.washingtonpost.com/wp-dyn/content/article/2007/05/28/AR2007052801056.html

FreedomLover February 29, 2008 at 11:53 am

Yanick:

Yeah but is that a real increase adjusted for inflation?

Lee Kelly February 29, 2008 at 12:02 pm

Russell,

There is a difference between saying that the middle class "can't get ahead" or "is falling behind", and that they have suffered a "decline in the quality of life". It is possible that nobody has experienced a "decline in the quality of life", and yet some people "can't get head" or are "falling behind".

The question should be asked, who or what are the middle class unable to get ahead of or are falling behind?

Sam Grove February 29, 2008 at 12:08 pm

What happens if you add in each family's share of government debt?

John Dewey February 29, 2008 at 12:13 pm

The "progressive" Economic Policy Institute continued its liberal propaganda war last year:

“In a climate where too many workers lack the bargaining power they need to claim their fair share, we expect to see patterns like those in Figure 2, which clearly shows how income gains have been skewed toward those already at the top of the income scale. Between 2000 and 2006, the average income of the lowest fifth is down 4.5%, the middle fifth is down 2.5%, and only the top fifth is up, by 1%.


But when the recession ended in late 2001, poverty and median income did not improve. “

Economic Policy Institute: Income picture

EPI overstates the decline since 2000 by using an “average of the middle fifth” rather than the median. Real median household income was down from the 1999-2000 bubble year, but only 2%.

EPI conveniently uses the bubble years in making the gloomiest of comparisons. Real median household income actually increased 6.1% from 1996 to 2006, and increased 10.3% from 1986 to 2006.

The claim that median income did not improve after the 2001 recession is completely misleading, as it apparently compares 2001 median incomes with subsequent years. Job losses from the 2001 recession and post-9/11 slowdown continued well into 2002. The proper recovery statistic would be a comparison of 2002 and 2006 real median income, which would have revealed an increase of 1.4%.

John Dewey February 29, 2008 at 12:17 pm

Sam Grove: "What happens if you add in each family's share of government debt?"

I assume by "share", you mean the portion that each family will repay via higher taxes in the future. In that case, the income of everyone in the top half will be reduced, as they're the ones who will foot the bill. Median incomes should remain unchanged.

Lee Kelly February 29, 2008 at 12:26 pm

The "progressive" Economic Policy Institute continued its liberal propaganda war last year.

The remarkable thing is that the "liberal propaganda war" is waged like this. I mean, why would anyone expect government to "correct" these trends, even if they were true?

When politics and economics clash, the consequence is always decreasing prosperity and incrasing inequality; something that muirgeo is always keen to bring to our attention. It is incredible that these figures could ever be interpreted as propoganda for modern liberalism (i.e. smiley-faced fascism), when you actually stop to think about it.

John Dewey February 29, 2008 at 12:48 pm

Economic Policy Institute claims the median household income gain from 2005 to 2006 was an illusion:

"Historically, typical families could expect to see annual increases in their earnings to help cope with financial challenges, improve their standard of living, or just save for a rainy day. These expectations of economic progress are no longer being met. …

For full-time, year-round workers, earnings for both men and women have fallen for three years in a row, and between 2005 and 2006, annual median earnings fell by $482 for men, and $388 for women. These median earnings are $2,353 below peak levels for men and $1,335 below peak levels for women.

Taken together, the increase in household incomes at the median was likely due to an increase in full-time workers, more hours worked, and/or changes in family composition."

Typical families see income and earnings decline

Of course, an increase in hours worked is exactly what happens with a booming economy. So is an increase in fulltime workers, as previously underemployed workers are utilized more. Both factors increased household incomes in the 1999-2000 bubble years, but EPI conveniently fails to point that out.

Marcus February 29, 2008 at 12:49 pm

Does Barack Obama, Democratic Presidential candidate, count as somebody? Right from his economic on his campaign site:

Wages are Stagnant as Prices Rise: While wages remain flat, the costs of basic necessities are increasing. The cost of in-state college tuition has grown 35 percent over the past five years. Health care costs have risen four times faster than wages over the past six years. And the personal savings rate is now the lowest it's been since the Great Depression.

How 'bout this drivel from Robert Reich?

It's Not Just the Business Cycle

The fact is, middle-class families have exhausted the coping mechanisms they have used for more than three decades to get by on median wages that are barely higher than they were in 1970, adjusted for inflation. Male wages today are in fact lower than they were then: the income of a young man in his 30s is now 12 per cent below that of a man his age three decades ago. Yet for years now, America’s middle class has lived beyond its pay cheque. Middle-class lifestyles have flourished even though median wages have barely budged. That is now ending. Americans are beginning to feel the consequences.

spencer February 29, 2008 at 12:51 pm

You are putting words in my mouth.

I did not say stagnant.

I said falling.

Again, you are creating a strawman.

the point is that real income growth has slowed sharply over the past 20-30 years,
but you make comparisons of the current to 30 years ago and say things are fantastic.

The trend growth rate of real family income from 1950 to 1980 was 2.3%. Since 1975 it has been 1.3%. By comparison that is stagnation.

If you want to argue that we should be happy with 1.3% growth vs 2.3% growth that is fine. But do not ignore the point that since we started running structural deficits and depending on foreign debt to finance consumption the growth in real income has slowed sharply.

Just do not try to prove me wrong by claiming I said something i did not say.

Marcus February 29, 2008 at 12:57 pm

Spencer, Robert Reich does in fact make the claim that wages for 30 year old males has fallen. Read my previous post.

John Dewey February 29, 2008 at 1:00 pm

ZinOH, that's a good point about economic mobility. I think Professors Boudreaux and Roberts have discussed such mobility several times before (see links below). Perhaps that's why some regulars here may not have brought it up right now. I'm glad you did.

Economic mobility is real

Different data

Mobility

muirgeo February 29, 2008 at 1:01 pm

Here's something right from Cafe Hayek. The middle class is shouldering a greater burdon of taxes.

"Although income only rose 75%, and expenditures for the mortgage, car and health insurance rose by even less than that, the tax bill increased by $13,086 — a whopping 140% increase. The percentage of family income dedicated to health insurance, mortgage and automobiles actually declined between the two periods."

Yanick February 29, 2008 at 1:03 pm

@freedomlover:

Yes, "real" means ajusted for inflation. Otherwise, we would say "nominal" income.

John Dewey February 29, 2008 at 1:05 pm

spencer, Feb 29: "I did not say stagnant. I said falling."

Spencer, Feb 28: "the strawman you keep pushing that liberals claim there has been no growth does not deserve a rebuttal."

Sorry if I misunderstood you also, Spencer. But the words "no growth" mean the same thing as "stagnant" to me.

Yanick February 29, 2008 at 1:08 pm

@freedomlover:

I should have written "…enjoyed an increase in real income…" instead of "…enjoyed a real increase in income…"

My appologies.

Yanick

John Dewey February 29, 2008 at 1:12 pm

From the American Heritage dictionary:

"Stagnant
3.a. Showing little or no sign of activity or advancement; not developing or progressing; inactive: a stagnant economy."

Doesn't "no sign of advancement" sound a little bit like "no growth"? Anyway, that's the definition I would have used when I read your argument.

Again, sorry for misunderstanding what you meant. But it's clear to me that liberal propagandists have claimed middle class incomes are stagnant.

FreedomLover February 29, 2008 at 1:13 pm

muirgeo:

The top 10% pay 90% of the taxes.

FreedomLover February 29, 2008 at 1:15 pm

More evidence that the middle class is NOT being squeezed:

Middle Class tax burden lowest in decades:

http://www.house.gov/jec/news/2008/Feb/pr110-35.pdf

From a peak of 19.2% in 1981 to 14.2% in 2005.

Eric February 29, 2008 at 1:21 pm

Spencer: "I will be glad to debate the real issues with you of why growth has slowed sharply over the last 20-30 years, but the strawman you keep pushing that liberals claim there has been no growth does not deserve a rebuttal."

Posted by: spencer | Feb 28, 2008 10:43:21 AM

I was looking for evidence to disprove your claim that the statement "liberals claim there has been no growth" is a strawman. (ie, an argument that we made up and attributed to liberals)

Many of these articles claim there has been no growth. They were largely written by liberals (and also nutcases like Lou Dobbs, who is the devil) or rely on evidence from liberals and liberal-biased sources, like the EPI. The claim is not a strawman.

The question about growth rates is harder; I'm not sure we can choose between faster growth and slower real growth rates without artificially restricting the size of the labor force.

Martin Brock February 29, 2008 at 1:25 pm

You already know who'll win this contest, so it's facile.

Here's "John McCain's Top 10 Class-Warfare Arguments Against Tax Cuts".

http://www.humanevents.com/article.php?id=24421

FreedomLover February 29, 2008 at 1:33 pm

Eric:

I think we need to rely less on Lou Dobbs as a source and go straight to the CBO figures which prove that there is not a middle class squeeze.

muirgeo February 29, 2008 at 1:34 pm

This visual defines the story as well as any. It's simply not right considering productivity trends. There is a reditribution of wealth from the finance and banking people who push all sorts of products that add nothing to the productivity pie but still take a big bite out of it. Our modern finance and banking system is many steps removed from the invisible hand. In fact it has the invisible hand cuffed somewhere in one of their vaults. And I'm amazed at the number of supposed "free-marketeers" who make every sort of excuse in the book for the reality of the issues while undermining their own supposed liberal economic ideology.

Hell if I was a classic liberal economist I'd want to divorce my ideology from this house of cards economy and take none of the blame to come. I dopn't even know how to debate people when they aren't even true to their own beliefs.

Martin Brock February 29, 2008 at 1:36 pm

Middle Class tax burden lowest in decades:

Predictably, you write "tax burden" and link a report on the income tax, ignoring the payroll tax and other taxes that have risen and that middle income people pay in higher proportions.

Your report shows that higher income people are paying a higher proportion of the income tax. This fact is an artifact of the Laffer Curve effect just as Bulldawg describes it. Wealthier people are realizing more taxable income. The fact doesn't imply that middle income people are paying lower income taxes, only that wealthier are paying more. The fact doesn't even imply higher incomes of wealthier people, only that more of it is taxable.

Martin Brock February 29, 2008 at 1:36 pm

Middle Class tax burden lowest in decades:

Predictably, you write "tax burden" and link a report on the income tax, ignoring the payroll tax and other taxes that have risen and that middle income people pay in higher proportions.

Your report shows that higher income people are paying a higher proportion of the income tax. This fact is an artifact of the Laffer Curve effect just as Bulldawg describes it. Wealthier people are realizing more taxable income. The fact doesn't imply that middle income people are paying lower income taxes, only that wealthier are paying more. The fact doesn't even imply higher incomes of wealthier people, only that more of it is taxable.

Randy February 29, 2008 at 1:51 pm

Thank you John Dewey and Eric. You saved me the trouble of looking up Spencer's original "strawman" comment.

As for Spencer's point that the rate of growth has slowed, isn't that to be expected? Afterall, we had to recover from the Hoover/FDR decade of collapse and then half a decade of nothing but armaments production. How could the following few decades have been anything but spectacular? And I'd still much rather live in 2008 than 1970, no matter how good the unions had it then.

Randy February 29, 2008 at 1:56 pm

Muirgeo,

So women's wages have been steadily improving and men have managed to kick back a bit and put their wives to work… I don't see the problem.

Sam Grove February 29, 2008 at 1:59 pm

So what's the point of all this?

Randy February 29, 2008 at 2:05 pm

Sam Grove,

The point? Its Friday :)

FreedomLover February 29, 2008 at 2:06 pm

As usual the facts stare poor Martin in the face, and he argues the opposite. Poor Martin, living in delusion-land. Apparently he's not well acquainted with the scientific method.

FreedomLover February 29, 2008 at 2:09 pm

Sam:

The point is disprove the notions of Lou Dobbs and Co that there is no "middle class stagnation". It's a big lie, a myth. However, most people seem to believe it, and it will result in a disaster.

Martin Brock February 29, 2008 at 2:11 pm

Hell if I was a classic liberal economist I'd want to divorce my ideology from this house of cards economy and take none of the blame to come.

I saw a very depressing video at fora.tv a few days ago titled "The Conservatives Have No Clothes". While chiding Bushniks for hypocrisy for expanding the state out of one side of their mouths, the "liberal" panelists cast all of their dispersion on, you guessed it, libertarians out to "destroy government". It was all about the horrors of a massive state marching in the wrong direction, and the solution is a massive state marching in the right direction.

Meanwhile, around here, I hear about the triumphant increases in Federal revenue following marginal income tax cuts while choir boys ignore tax increases more costly to them and cheer a warfare state fueled by monetary expansion. And never mind the divergence of middle incomes from higher incomes paralleling the divergence of state employee incomes from private sector incomes. Even mentioning this fact is "unfair".

Why do the neo-libs cast more dispersion on classical liberals than on the neo-cons? The answer is obvious. They don't perceive the neo-cons as a threat. They want big government too, and once the choice is narrowed to neo-lib big government vs. neo-con big government, they win.

Martin Brock February 29, 2008 at 2:14 pm

As usual the facts stare poor Martin in the face, and he argues the opposite. Poor Martin, living in delusion-land. Apparently he's not well acquainted with the scientific method.

You say absolutely nothing here.

Jeff S. February 29, 2008 at 2:15 pm

"Your report shows that higher income people are paying a higher proportion of the income tax."

Martin, I don't see how that report shows what you claim? It might be common sense, and true, but I can't get there from that one-page link.

Also, regarding the payroll tax: do you mean that "middle people pay in higher proportions" than do people above the FICA cap? I can't see how this graph, for the middle-fifth, wouldn't continue to show a decline even if the payroll tax were added. Maybe I'm missing something.

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