Thursday, May 24, 2018

Long Live the Upper Middle Class!

Jordan Weissmann at Slate has a great article ("Actually, the 1 Percent Are Still the Problem") taking down the absurd Atlantic cover story essentially blaming the upper middle class for economic inequality and the mobility problems of all those below them on the economic ladder, including the poor. As Weissman notes, the article by Matthew Stewart is essentially a rehash of Brookings economist Richard Reeves' argument in his book, Dream Hoarders. Stewart's take makes no more sense, and probably less, than Reeve's original analysis.
Weissmann points out:
"Reeves’ and Stewart’s arguments start to fall apart....when they try to explain why we should supposedly pay less attention to the 1 percent. In Dream Hoarders, for instance, Reeves argues that the biggest cleavage in American class is between the top 20 percent of highest-earning households and the bottom 80 percent. “Americans in the top fifth of the income distribution—broadly, households with incomes above the $112,000 mark—are separating from the rest,” he writes. (As of this year, the figure is closer to $121,000.) But even a cursory glance at how America’s income distribution has changed over the past three decades shows why it doesn’t make sense to talk about the whole top 20 percent as a cohesive group or to give short shrift to the rise of the 1 percent. According to the U.S. Congressional Budget Office, the share of after-tax income going to households in the 81st to 90th percentile dropped a bit between 1980 and 2014. The share belonging to the 96th to 99th percentiles rose slightly. And the most dramatic change, by far, has been the rise of the 1 percent.....
Stewart and Reeves are right to point out that the American upper class is bigger than just the top 1 percent. There are, indeed, many layers of economic privilege in this country. But they’re doing it in a way that essentially asks us to forget a lot of what we’ve learned about how income and wealth are really concentrating in this country. The 1 percent vs. the 99 percent may not be a perfect shorthand for what ails the economy, but it’s a whole lot more useful than what they’ve offered up."
I would also add the following to Weissmann's analysis. First, as economics columnist Noah Smith put it:
'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.'
Second, I would 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.
About this article
Why blaming “the 9.9 percent” for income inequality makes no sense.

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