Berk's Blog

Stories Are Not Facts. Stop Telling the Middle Class They Have Failed.

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Today, Vice president Joe Biden was officially appointed to head a new middle class task force whose job it apparently is to increase union membership and continue to make sure most Americans resent rich people, Republicans and success. Of course, the President, in front of a bunch labor leaders, suggested that organized labor is the solution to the problem, not the problem. What problem? The problem is not a diminished middle class, the problem is dwindling union membership, union dues and the power of the labor leaders, it seems.

And now on CNBC, they are talking about the “demise of the middle class”. What on earth are they talking about? As many psychologists tell us stories are not facts. Human beings are not rational in the sense that they are born numerate. Shaped in a world of campfires and stone tipped spears, our intuition is terribly lousy with numbers but it is really good with stories. It appears that the boomer left, those in power in the modern Democrat party, are rubbing raw the resentments of the people and fanning their latent hostilities to the point where facts and rational discourse have been replaced with stories.

Let’s consider the facts. If you look at the chart below. No doubt that median household income since 2001 looks like it hasn’t gone anywhere at best. And as the story goes, something is really, really wrong with our growing economy if it leaves the median household out of all that growth. And this is the story that the Democrats have been using to suggest that the middle class has disappeared and that the rich receive all the benefits of the growing economy over the last seven years.

But wait one minute. Which company do you know writes checks to a household? A household is a group of people that live together. The Census Bureau tells us that most of those groups contain at least one specific person who earns a paycheck. Those people are called “earners”. The amount of income earned by a household depends to a great degree on the number of “earners” in that household.

Now if the amount of earners per household over say the last 30 years have not changed that much then the number that is being used called “household income” would be relevant. But look at the red line below. Since the late 60s the average number of persons living in a household has declined from around 3.3 persons to 2.6 persons.

And that means that the real median household income has indeed stagnated from the end of the technology bubble until the end of 2007. In other words, household income went down. And then went back up to the place that it started before the recession of 2001.

But the average household size keeps declining. What about the real median income per earner? The real median income per household member declined much less during the Bush years than it did during the Clinton years and has indeed recovered to pre 2001 recession levels.

The question that we all should be asking rationally Is, did the middle-class income earner participate In the overall economic growth? It’s a better question because it takes away the confusion caused by differences in the number of earners per household over time.

The chart below shows the result for the period-2007. Note that any possible definition of the “middle-class” which shows that the middle-class earners’ incomes did not stagnate or decline. In fact, they have grown in tandem with the 3.3% average growth rate of overall disposable income per capita.

It is simply false to claim that the middle income earners’ wages did not grow at the same rate as GDP growth. Therefore, middle income earners have participated In the economy’s growth equally. In fact, the lowest quintile has experienced 3.9% growth, faster than quintile two, three or four.

This from Professor Mark J. Perry’s Blog:

Bottom Line: … between 1994 and 2007, the rich have gotten richer, the middle class has gotten richer, and the poor have gotten richer, all at about the same rate.