American middle class isn’t stagnating but is better off than in the ‘70s

A frequent comment at several blogs I follow and discussion on this blog is the dramatic improvement in life generated by technology over the last few decades. Look here, here, here, and here. For a longer term perspective, look here.

Don Boudreaux and Mark Perry expand the discussion beyond technology to explain the middle class is much better off today than in the 1970s.  Check out their article in the Wall Street JournalThe Myth of a Stagnant Middle Class.

The claim they are addressing is the idea that only the richest people are better off over the last 30 years:

A favorite “progressive” trope is that America’s middle class has stagnated economically since the 1970s. One version of this claim, made by Robert Reich, President Clinton’s labor secretary, is typical: “After three decades of flat wages during which almost all the gains of growth have gone to the very top,” he wrote in 2010, “the middle class no longer has the buying power to keep the economy going.”

They then proceed to prove

This trope is spectacularly wrong.

The statistical calculation may be accurate (maybe), but that ignores a long list of other factors beyond the statistical average of different groups at different times.

They point out over the last 30 years an increasing proportion of an employees compensation is outside the paycheck. Health care and paid leave for example, don’t get counted in wages. Thus total comp has gone up for that reason but isn’t in the stats.

The article points out the mix of people in the work force has changed. The economic boom of the ‘80s and ‘90s allowed lots more people to enter the workforce. (The ‘00s and ‘10s haven’t been so hot). That influx of new workers were at lower skill levels, which of course pulls down any average calculation.  The accountants reading this will immediately understand the impact of a change in mix.

They then look at some other measures of how the middle class is doing.

In terms of life expectancy, everyone is doing better:

Happily, an American born today can expect to live approximately 79 years—a full five years longer than in 1980 and more than a decade longer than in 1950.

Anyone want to go back to the medical technology of 30 years ago? I didn’t think so.

Here is one very simple illustration – in the mid 1980s, a diagnosis of HIV infection was an announcement of your impending death. Today, it barely affects your life expectancy. Costs are severe and the disruption extensive, but it is a toss-up whether the HIV or a heart attack or other chronic illness will do you in.

And then there are the changes in technology and deregulation, which have made the purchasing power of a current dollar far more powerful than 30 years ago.

Back then, air travel wasn’t common. Deregulation increased competition which reduced prices which means going on vacation by air is now normal.

Technology has made available astounding things and drastically dropped the cost of so many items. 

When I started in public accounting, only the partner had a car phone, which was physically attached to the car. The cost was so high that only partners had one.

Today, I bet it would be really odd that any brand new staffer in a CPA firm didn’t have a smartphone. Far better and cheaper technology is normative at the entry-level now that at the partner level then.

The tremendous contribution of these professors is looking at the wage-hour cost for stuff.

Start by looking at combining a stereo, TV, VCR player, still camera, camcorder, typewriter, filing cabinet, spreadsheet, computer with capability of an IBM 360, facsimile machine, radio transmitter, am/fm radio, and modem into one device. And it fits in your shirt pocket. That is astounding just by itself.

Then consider the cost of buying all that stuff in 1980 versus buying one smartphone today. The cost of all those things has shrunk tremendously.

Check out the full article. It’s obvious the middle class is far better off today than 30 years ago. I don’t understand how someone can reach any other conclusion.

The professors’ final comment:

Despite assertions by progressives who complain about stagnant wages, inequality and the (always) disappearing middle class, middle-class Americans have more buying power than ever before. They live longer lives and have much greater access to the services and consumer products bought by billionaires.

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