Wednesday, October 4, 2017

Don't Knock the Upper Middle Class! Grow It Instead.

It's become a bit fashionable to knock the upper middle class lately. Supposedly, they're "hoarding opportunities", thereby keeping less affluent people down. Bloomberg's excellent economics columnist, Noah Smith, has some stern words for those who point the finger of blame at the upper middle class. 
The real problem isn’t that people are hoarding their spots in the upper-middle class; it’s that there aren’t enough spots to begin with. Instead of focusing on who gets into Harvard, the U.S. should make it cheaper and easier for poor and working-class kids to go to the big public universities that are the real drivers of upward mobility. Instead of moving heaven and earth to ensure that the competition for plum jobs is fairer, the U.S. should focus on increasing the number of plum jobs.
The American Dream may be out of reach for many, but not because it’s being hoarded. The dream doesn’t come in a fixed lump to be parceled out among winners and losers. The goal should be to rebuild the middle class by moving more people into the ranks of the well-off, not to knock down the few who have managed to get there early.
I completely agree with this. Indeed, I'd go farther and argue that the growth of the upper middle class should be celebrated as an indicator of the high living standards that advanced market economies are capable of delivering.

What do we mean by an upper middle class standard of living? To begin with, since families and households vary considerably by size, the same income can mean very different living standards when that income supports a single person or an entire family of four or five. Thus, to clarify this question, it is useful to look at a standard household size and adjust households’ income to fit that standard size. Using a three person household as the standard, economist Stephen Rose has shown that the median adult in the US today enjoys a standard of living equivalent to $65,000 for a family of three.

Using the same standard, Rose defines the upper middle class as those adults whose household incomes are the equivalent of $100,000 a year for a family of three, but less than $350,000. By this measure, over a quarter (29 percent) of US adults are in the upper middle class today. Interestingly, this analysis indicates that the biggest change since 1979 in class positions defined by these standardized income levels has been a dramatic rise in the size of the upper middle size, more than doubling from 13 to 29 percent of adults. The rich ($350,000+) have, as popular perception suggests, also increased, but they are still a very small group, only 1.8 percent of adults.

Also consistent with popular perception, the middle middle class ($50,000-$100,000 in adjusted income) has declined over this time period (down 7 points to 32 percent of adults). But it is also the case that the lower middle class ($30,000-$50,000 in income has declined (down 7 points to 17 percent), as has the poor/near poor (less than $30,000, down 4 points to 20 percent). Thus, the rise of the upper middle class deserves a place of greater significance in the left’s calculations going forward since this group appears to be absorbing the much-publicized declines in middling income groups.

Applying some standard per capita income growth rates to these data, the median adult by midcentury would have an adjusted income of $98, 000 at 1.2 percent growth, $108,000 at 1.5 percent growth and $124,000 at 1.9 percent growth. That means that around half or more of the country by that time would enjoy the living standards of today’s upper middle class (or even better).

Thus, a reasonable aspiration for the left should be to make upper middle class affluence (by today’s standards) a majority lifestyle in coming decades and to raise the rest of population in advanced countries as close to that level as possible. In short, we should be calling for a mass upper middle class not trying to get rid of it.

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