A Snippet on Alleged Middle-Class Stagnation

by Don Boudreaux on October 19, 2011

in Cleaned by Capitalism, Complexity & Emergence, Everyday Life, Growth, Myths and Fallacies, Standard of Living, The Economy

While preparing a talk on income differences among various statistical classifications of Americans, I ran across this informative, data-based brief article – from September 2008 – by Minneapolis Fed economist Ronald Wirtz.  Here’s his concluding paragraph:

Historically, society has gauged progress by the growth in “things obtained”—whether it be housing, health care, education, entertainment or sundry consumer goods and services—because people tend to purchase things that make life more convenient, pleasurable and productive. And virtually across the board, the middle class is consuming more of everything, which makes the notion of a stagnant middle class an argument that doesn’t fit well in the garage.

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{ 93 comments }

kebko October 19, 2011 at 4:36 pm

This is misleading, because even among the poor, garages are typically much larger than they were 30 years ago.

;-P

Dan J October 19, 2011 at 5:51 pm

ha.. indeed. the garages are larger for even the poor. The cost to build a larger garage is now afforded to those who earn less. They need more room for most stuff that they collected.

Gil October 20, 2011 at 12:21 am

Conclusion, such people aren’t poor.

rbd October 19, 2011 at 4:39 pm

So the argument that wages have stagnated doesn’t square with how middle class American’s are able to purchase so many more goods and services. I suppose that prices of those goods and services, relative to incomes, have fallen, enabling us to purchase more of them. We’ve also been more inclined to use debt to purchase goods too.

I think that line of thinking holds water.

Don Boudreaux October 19, 2011 at 4:44 pm

The hypothesis that increases in consumer debt drove much of the improved living standards (up to 2008) is plausible, but is challenged by the fact that such improvements were the norm long before the recently burst housing bubble began to inflate and make possible all those home-equity loans. As Mike Cox and Richard Alm document with a great deal of solid data in their 1999 book “Myths of Rich & Poor,” improvements of the sort that Wirtz discusses in his 2008 article were happening throughout the 1970s, ’80s, and well into the 1990s.

Methinks1776 October 19, 2011 at 5:04 pm

I wonder if people with zero down mortgages were more likely to take out HELOCs as soon as they built nominal equity. If you have the risk profile of a renter, there’s incentive to pile on the debt for the small price of a possible ding to your credit if things don’t work out.

kyle8 October 19, 2011 at 6:06 pm

Indeed relative prices have fallen along with the increase in International trade.

In the 1970′s a middle class person like myself could not just go to a local grocery store and buy Lobster, Caviar, Casaba melons and other exotic fruit, and various imported wines and cheeses. Not only would I have had to go to a specialty shop to get these things, but I would not have been able to afford them.

Now I have a supermarket near my house that has all of these things at a reasonably low price.

vidyohs October 19, 2011 at 6:41 pm

My family’s experience supports Don’s point. My dad did not do debt, except for the house and the auto, nothing else. He didn’t get it until he could pay cash, and my years through 1947 through 1959 was witness to a slow but steady accumulation of the luxuries that make life not only tolerable but pleasant. And, he did that on a meatcutter’s income, which barely qualified us as lower middle class in income.

Economic Failure October 19, 2011 at 7:03 pm

Yes, your deal old dad did it the old fashioned way – he earned it. You, on the other hand, took the easy way out working for the Dept. of Defense which is part of the federal government. You were working for the government “butcher” shop. Didn’t want to try and make it on your own? You are what’s wrong with this country. It’s full of badmouthing, loony right-wing hypocrites pulling government pensions.

kyle8 October 19, 2011 at 7:54 pm

you should change your name to Epic Failure

Economic Failure October 19, 2011 at 8:36 pm

http://www.nytimes.com/2011/10/20/business/citigroup-to-pay-285-million-to-settle-sec-charges.html?hp

The thieving rich are only caught rarely. The punishment rarely fits the crime. What are you hiding, teabagger?

Greg Webb October 19, 2011 at 10:38 pm

Epic Failure, you are what’s wrong with this country. It’s full of badmouthing, loony left-wing hypocrites pulling government welfare checks and subsidies.

Martin Brock October 20, 2011 at 5:07 am

You’re both right, Greg.

Greg Webb October 20, 2011 at 10:43 pm

Nah, Martin. I’m right and Epic Failure is wrong.

vidyohs October 19, 2011 at 8:26 pm

To know know me is to love love love me, and you do yes you do yes you do, do wop do wop!

I have video of your last outing:
http://www.youtube.com/watch?v=4es6LC5v7Qw

vidyohs October 19, 2011 at 8:27 pm

The video shows why you hate guns and shooters, the guns are smarter than you are! Bwa ha ha ha ha!

vidyohs October 19, 2011 at 8:29 pm

BTW my little twit, I like the latest manifestation of your name, it pretty much explains why you hate freedom so much. Bwa ha ha ha ha! Looser.

Gil October 20, 2011 at 12:23 am

Probably wanted to reclaim his father’s taxes.

Miles Stevenson October 19, 2011 at 4:49 pm

I think one of the reasons so many studies and reports of lower and middle-class households claim stagnation, is that they don’t actually study those households. They really just look at inequality. Most people I’ve talked to who are concerned about this, seem to have little interested in looking at specific households over time. They simply point out that wealthy people today are much wealthier than they use to be, which creates a larger gap, and therefore inequality has increased. I often see very little attention paid to comparing average households to average households over time. But that still often gets reported as “stagnation”.

It reminds me of how some people will claim that the government in “decreasing spending”, even though spending is still going up, and what they really mean is that they are decreasing the “rate” at which spending increases.

Economic Failure October 19, 2011 at 4:59 pm

Wirtz was paraphrasing Bush:

Explaining what he meant when he said “We ought to make the pie higher,” Bush said, “It is a very complicated economic point I was making there. Believe me, what this country needs is taller pie.”

Andrew October 19, 2011 at 4:59 pm

If Median inflation adjusted household income has stagnated since 2000 at ~50k (2010 dollars). How is the middle class capable of consuming more goods without increased debt?

Logically how is that possible?

Emil October 19, 2011 at 5:15 pm

Probably because the official inflation rates are probably far from perfect (as has been pointed out several times by this blogs authors)

Jeffry Erickson October 19, 2011 at 6:27 pm

As a recent example of this point see Russ Roberts’ interview with Bruce Meyer from October 3rd over at EconTalk.org (http://www.econtalk.org/archives/2011/10/bruce_meyer_on.html). He makes the case pretty persuasively that after properly correcting for inflation the poor and middle class are doing better than commonly portrayed and the gap between the rich and poor is greatly overstated.

Mattiacci October 19, 2011 at 5:19 pm

It’s certainly possible: People could have dipped into their savings.

That said, I’m sure that’s not a huge part of the change when you’re looking at the post-2000 data.

Ken October 19, 2011 at 5:46 pm

Andrew,

There are two ways: 1) As Emil points out, inflation is likely miscalculate and 2) it costs less to produce the same thing, i.e., economic efficiency.

Regards,
Ken

Andrew October 19, 2011 at 6:03 pm

Ken,

The way I see it, the only way economic effeciency would be relevant to the middle class consuming more on the same level of income, would be if it lowered prices. However the prices of goods have not decreased so does this tell us that the increases in work productivity have not been matched in either increased wages for workers or decreased costs of goods for workers?

kebko October 19, 2011 at 6:14 pm

Andrew,

You’ve probably heard the explanations that households have changed in size and demographics, and that non-wage compensation has been the source of much of the growth.

Additionally, there has been an acknowledged trend of increased time in education in early adulthood and returement in late adulthood. This puts many households statistically below median income levels who are living based on past or future earnings. Look at your social security earnings history. I’ll bet if you treated each year as a data point, you would look like a population with high inequality.

Andrew October 19, 2011 at 6:25 pm

Thank you Kebko, that makes more sense.

Ken October 19, 2011 at 6:45 pm

Andrew,

The price of goods has dropped significantly since the 1970′s. Also, see Ehrlich-Simon bet.

Regards,
Ken

Economic Failure October 19, 2011 at 5:05 pm

Ronald A. Wirtz’s Education
Marquette University M.A., Journalism
1993 – 1995

Strange, that you would call this guy an economist.

Ken October 19, 2011 at 5:41 pm

EF,

I know what you mean. Some people actually consider Bill Gates and Steve Jobs programmers when neither one of them actually had a degree! I mean everyone knows the only place you can learn something is in college and the only time you can consider yourself to be in a particular profession is only after a college or university blesses you with a piece of paper to that affect, amaright?

Regards,
Ken

Economic Failure October 19, 2011 at 7:20 pm

You’ve made some kind of point, but I think it is twisted logic. Please stop.

Ken October 19, 2011 at 7:29 pm

EF,

I can see how it might be difficult for you to understand even the basics of the human language, hence unable to comprehend what I’ve written above. You have my sympathy.

Regards,
Ken

Nikolai Luzhin, Eastern Promises October 19, 2011 at 10:09 pm

Ken

what are you so hostile about

who ever said, “the only place you can learn something is in college>”

Truman was entirely self-taught.

one doesn’t go to college because it is “the only place you can learn something.” one goes because it is the easiest.

same with buying a book; reading is a very inexpensive way to gain experience. If you had any skills or insight you could see aspects in both Jobs and Gates where they would have benefited from completing a formal education.

Most anyone who has ever studied Alexander the Great, e.g. Boyd, credits his marvelous mind as having been developed by Aristotle. At Mieza, Aristotle taught Alexander and his companions about medicine, philosophy, morals, religion, logic, and art. Under Aristotle’s tutelage, Alexander developed a passion for the works of Homer, and in particular the Iliad; Aristotle gave him an annotated copy, which Alexander was to take on his campaigns.

In sum, you just sound jealous

Ken October 19, 2011 at 10:40 pm

Like you, EF is an ignorant fool. Read his post to which I responded. Like you he’s just a troll.

Trust me I’m not jealous of you or him. And I really doubt that you’ve ever “studied” Alexander the Great.

Regards,
Ken

Seth October 19, 2011 at 11:55 pm

“If you had any skills or insight you could see aspects in both Jobs and Gates where they would have benefited from completing a formal education.”

You are blessed with the fatal conceit.

Gil October 20, 2011 at 12:28 am

That’s spelt “amirite”.

Ken October 20, 2011 at 12:47 am

Whatevs.

House of Cards October 21, 2011 at 6:09 pm

Strange, that you would call this guy an economist.

Henry Hazlitt had no formal college education at all, and no college diploma.

Adam Smith’s formal education was in philosophy.

dave smith October 19, 2011 at 5:06 pm

I’ll believe the middle class is shrinking when politicians stop trying so hard to get their vote.

Economic Failure October 19, 2011 at 5:27 pm

Politicians want a majority or plurality of the votes as needed. I don’t get your comment/joke.

Jason October 19, 2011 at 5:28 pm

Speaking of households how has the weathly household changed over time? They have all this extra money where is it going? Are they spending on themselves or is it being invested? How did a multimillionaire live in the 70s, 80s, 90s and today?

Economic Failure October 19, 2011 at 5:31 pm

You’ve asked 4 questions. You’ve reached your limit for the day. It is time to think outside the sandbox in which you are playing. Recess is over.

Seth October 19, 2011 at 6:00 pm

I hope they’re living much better. They’ve been making cooler stuff.

Economic Failure October 19, 2011 at 7:29 pm

You hope that the rich are living better than the rich of another period. Do you care about anybody else? Where is the empathy? No shame is your game.

Ken October 19, 2011 at 7:41 pm

EF,

Caring about one group of people, now implies you don’t care about any other group of people? So when a man tells his daughter he loves her, this man’s son can safely assume his father doesn’t love him?

The stupid is strong with this one.

Regards,
Ken

Seth October 19, 2011 at 6:01 pm

…they earned it. Why is it your business whether they are spending on themselves or investing?

Economic Failure October 19, 2011 at 7:13 pm

Why is it your business if he cares if the wealthy are spending more on themselves or investing more? Or if they are better off than the robber barons of the past? It is an empirical question with profound ramifications. If you want to remain a shallow librarian that is your business. Mind your own business.

kyle8 October 19, 2011 at 7:57 pm

If you want to remain an ignorant troll eaten up with envy and class warfare that is your own business.

Economic Failure October 19, 2011 at 8:05 pm

I’d rather be an ignorant troll than a teabagger patsy for the rich.

kyle8 October 19, 2011 at 9:12 pm

brilliant reply

SMV October 19, 2011 at 8:00 pm

Can you tell me what a shallow librarian is? Short stack of books?

Seth October 20, 2011 at 12:06 am

“Why is it your business if he cares if the wealthy are spending more on themselves or investing more?”

If he gave me a good answer, I might learn something. Isn’t that what we’re doing here?

“It is an empirical question with profound ramifications.”

Please educate me. What are the important ramifications of knowing whether wealthy people today spend more on themselves or invest than those of the past?

I can see the important ramifications of knowing if they are better off.

Economic Failure October 20, 2011 at 2:46 am

A billionaire, for example, can spend his money building hospitals, or trying to find a cure for cancer. Or a billionaire, can use his money buying big diamonds and other ostentatious, indulgent crap. You don’t see a difference?

http://www.thehindu.com/opinion/op-ed/article2543445.ece

Economic Failure October 20, 2011 at 2:50 am

This one is bad hedge fund manager who tears down mansions to build bigger ones.

http://www.dailymail.co.uk/news/article-1393974/Billionaire-David-Tepper-tears-43-5million-Hamptons-house-build-one.html

Seth October 20, 2011 at 1:13 pm

All that tells me is what you think your value judgements are.

That doesn’t convince me that how billionaires use their resources are any of my concern, anymore than I should be concerned about how you use yours.

But, I trust, given your stated preferences of building hospitals and curing cancer that you spend a good deal more of your resources (time, income, wealth) on these pursuits than you do on, say, commenting here.

Ken October 19, 2011 at 5:37 pm

Don,

This seemed to be pretty good resource on the middle class stagnation myth as well.

Regards,
Ken

Economic Failure October 19, 2011 at 7:18 pm

When I was a young boy, my sister broke open her piggy bank to buy candy to fill a pinata they she made. I took a bat and busted open the pinata spilling all the candy on the ground. I picked up all the candy and began to gorge myself. My sister was quite upset with me.
Even at that young age, I realized that I did something wrong. Why don’t you get it? You are a pathetic librarian.

Economic Failure October 19, 2011 at 7:26 pm

Yes, you have no sense of shame. And that’s a shame.

Ken October 19, 2011 at 7:30 pm

BWAHAHAHAHAHAHAHAHA!!!!

Dan H October 20, 2011 at 3:53 pm

Again with the librarians… What do you have against librarians?

And yes, the example you gave is an example of “stealing”. Stealing is taking something that is NOT YOURS. So why do you want to steal property from some people and give it to others?

ColoComment October 19, 2011 at 5:37 pm

I don’t know where else to put this, even though it’s off topic:

Congratulations on making Notable & Quotable in today’s WSJ with your letter to Sen. Lee!

muirgeo October 19, 2011 at 6:33 pm

Yeah because we can just ignore the need for mom to go to work, the need to dig into equity and the massive amounts of debt taken on to maintain an equivalent amount of consumer spending lost to wages.

http://www.mybudget360.com/wp-content/uploads/2010/07/household-debt.jpg

Methinks1776 October 19, 2011 at 6:45 pm

Yeah because we can just ignore the need for mom to go to work…

You mean instead of having her right where you want her – at the stove, barefoot, pregnant and dependent on you?

You progressives are something else.

muirgeo October 19, 2011 at 7:32 pm

Heck no I am jealous of the Mr. Mom’s out there who have a working honey and get to play with the kids all day. I just feel bad that most mom’s don’t have the choice like my mom did to hang around with her coffee clatch and take care of the house. Mother is the #1 most important job EVER! We need to support mom’s however the choose to run their homes. But needing two working parents just to get by is not a good thing.

Craig S October 19, 2011 at 7:43 pm

Funny how progs of yesteryear “fought” for more women to enter the workplace and claimed the reason there weren’t more working women was because of sexism. Now we have one saying its a problem brought on by necessity. Most working women I know, we working before they had kids. Considering the age of women when they get married and have their first child, I don’t think its purely anecdotely.

Ken October 19, 2011 at 7:47 pm

Yeah, that job the father’s have of providing food, shelter, medicine and all the other material needs necessary for survival certainly can’t be number one.

Regards,
Ken

Methinks1776 October 19, 2011 at 8:35 pm

Frankly, your mother’s job sounds repulsive to me. Particularly the part about being your mother.

brotio October 19, 2011 at 11:47 pm

:D

Methinks1776 October 19, 2011 at 8:39 pm

And the shame of it all is not only are you incapable of differentiating between changing your shitty diapers, cleaning up your vomit, scrubbing your toilets and “playing with the kids”, but she couldn’t even return you for a refund.

Mesa Econoguy October 19, 2011 at 11:38 pm

Yes, your mother did a stellar job at teaching you how to be a blinkered, arrogant, clueless parasite. It’s terrific she could do that and spend so much time with you.

Maybe she should have gotten off her lazy ass and done something productive other than foist another unproductive, ignorant leech onto society.

muirgeo October 20, 2011 at 12:49 am

Wow… Mesa hitting the bottle heavy tonight… ruff day? Too bad.

SmoledMan October 20, 2011 at 7:55 pm

muirgeo – interesting that you get all hot & bothered at the idea of someone having a bad day or drinking too much.

Seth October 20, 2011 at 12:08 am

Yes. They were forced to take on that debt, weren’t they?

muirgeo October 20, 2011 at 12:47 am

Anyway like I said……
It’s a fact that wages have stagnated and the differences were made up by both parents working, digging into equity and going into debt.

Pretty much laying bare Don’s claims that looking at consumer spending helps make his argument. It doesn’t… any intelligent person can see and of course his defenders “came to the rescue” as all can see with their sordid little ad him tirades because they can’t counter with anything substantial. And sadly Don will at some point need to remind them of the comment policy after one of them goes crying to him to via email to… “make him stop… make him go away”.

Ken October 20, 2011 at 1:17 am

Wages haven’t been stagnating. It is a myth perpetuated by the ignorant, e.g., you.

Regards,
Ken

Libt October 20, 2011 at 6:45 am

Wages have not be stagnating, you think repeating a lie long enough will make it true ?

Ryan Vann October 20, 2011 at 12:07 am

Hello hello anybody home huh? think mcfly think!

http://static.seekingalpha.com/uploads/2008/8/14/saupload_jq2.jpg

Stone Glasgow October 20, 2011 at 2:24 am

Many people think “wealth” is always relative. In the future, when the average family has a personal aircraft and a 6,000 sq ft mansion, many people will claim that they are poor because other people own spacecraft.

Economic Failure October 20, 2011 at 3:18 am

You denigrate poor people with your asinine comment.

Libt October 20, 2011 at 6:50 am

Economic Failure, the fact is that is exactly how you define what poor is, people who have less than others. Prove me wrong, show me how being poor defined 20 year, 50 years, 100 years is the same, clearly not, poor is just a pointless emotive word you use, without giving it much thought.

Economic Freedom October 20, 2011 at 11:20 am

Your comment is even more asinine than the preceding one.

vikingvista October 20, 2011 at 4:05 pm

Is that why you couldn’t come up with a substantive response?

Libt–

That’s what victory with an angry cretin looks like. Nice work.

House of Cards October 20, 2011 at 5:43 pm

And what’s even more asinine is your lame attempt to steal someone else’s username — as if the more knowledgeable contributors to this board can’t tell the difference.

House of Cards October 20, 2011 at 5:40 pm

No he doesn’t. He’s completely correct. You denigrate people who know more than you do by calling him asinine. But, then, denigration is a basic debating technique of the knee-jerk left.

Jack Fraser October 20, 2011 at 10:25 am

Ironically, a footnote in the third chart demonstrates the most to me on increasing living standards for the middle class:

*Item not included in 1996 survey.

(RE: cellular phones)

Dan H October 20, 2011 at 11:07 am

And not only have prices dropped for new technologies, but the technologies themselves are getting much more advanced. I can do more on my blackberry (which cost me nothing after signing a two-year contract with Verizon) than I could on a laptop from 1998. My blackberry can store more data and has greater computing power.

If you want a little laugh check out these gems. They aren’t even 10 years old: http://www.mobiledia.com/phones/date/q3-2002.html

steve October 20, 2011 at 7:05 pm

The price of consumer electronics has gone down. Housing, education and medical care have all increased.

Steve

SmoledMan October 20, 2011 at 7:54 pm

But a man can live on iPod alone.

Methinks1776 October 20, 2011 at 8:07 pm

And yet, we consume more of all of those things. Our houses are bigger, more people go to college and more of us are getting nipped and tucked, in addition to receiving life saving medicine than ever before.

Jaye October 20, 2011 at 9:57 pm

Hmmm….Consumer electronics mostly unregulated. Housing, education and medical care mostly regulated. Correlation or causation?

Julian - Sofas piel October 21, 2011 at 9:05 am

Adelante, seguro que todo saldrá bien, ahora os necesitáis unos a otros, en España tenemos un problema de crisis mal entendida, no se dijo la verdad por nuestro mal gobernarte, ahora estamos sufriendo más de lo que nos merecemos, pero saldremos con el trabajo de todos. saludos.

Genesismaster October 21, 2011 at 12:41 pm

Just reposting translation from Google Translate:

“Go ahead, sure that everything will be OK, you now you need one another, in Spain we have a problem of crisis misunderstood, not told the truth by our bad gobernarte, we are now suffering more than we deserve, but we will work of all. greetings.”

I’m gonna guess that gobernarte is government. In which case on that point you’re probably right.

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