economics

Is Middle Class Stagnation a Myth?

Economics, George Mason University
Economics, CUNY
Genesis
Response
Penultimate
Finale

Donald J. Boudreaux

Economics, George Mason University

September 14th, 2020
I appreciate Professor Milanović’s polite response. It contains, however, claims that are irrelevant to this debate, as well as interpretations of experiences and of data that are, well, debatable.
The question of whether and by how much economic inequality has risen recently differs from the question of whether or not ordinary Americans have economically stagnated. The latter question is about the trend in absolute living standards. Because the total amount of material wealth can and does grow, simple arithmetic reveals that everyone can become more prosperous even if economic inequality rises.
For the same reason, Americans can all grow wealthier even as foreigners do so.
As far as human experiences go, I disagree that my noting today’s widespread availability of goods and services that were nonexistent decades ago is absurd. The fact that wonders such as smartphones and Lasik surgery didn’t exist in the past does nothing to alter the fact that, if people today treasure having access these wonders, such access causes people’s material prosperity to be higher than it would be otherwise.
On the data front, the Consumer Price Index (which Professor Milanović uses to adjust for inflation) notoriously overstates inflation, chiefly by failing to account for consumers substituting to lower-priced goods when prices of other goods rise. Using the CPI thus masks as ‘inflation’ some real income gains. Nevertheless, even using the CPI, a September 2018 Census Bureau report offers evidence that the “hollowing-out” of America’s middle class is indeed occurring largely by Americans becoming richer rather than poorer. This table, constructed from the Census report by economist Mark Perry, depicts this happy trend.
Professor Milanović and I could endlessly play “my-data-are-better-than-your-data” without ever changing the mind of the open-minded other. Data can be tortured to confess to almost any crime – a fact that, however, doesn’t mean that data never tell the truth.
So I content myself here with quoting economist David Autor, who recently explored changes in Americans’ occupations from 1970 through 2016: “[T]he share of employment in low-skill occupations fell by almost a percentage point, from 31.4 to 30.6 percent. Thus, in aggregate, occupational polarization appears to be a case of the middle-class joining the upper-class, which is not something that economists should worry about.”
The economist Michael Strain, using a procedure different than that used by Autor, reaches a similar conclusion.
As sectors that have not performed well for Americans, Professor Milanović singles out health care, education, and housing. Yet these sectors aren’t representative of the economy at large. It’s true that these sectors have indeed performed poorly, but these are about the only sectors to have done so. Other sectors – for example, food, clothing, and consumer electronics – have performed so well that the net result is positive real income growth for most ordinary Americans.
And because health care, education, and housing are all distorted by unusually large amounts of government involvement, an excellent way to further improve ordinary Americans’ lives is to reduce the role of government in these sectors.
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