America's middle class: 50 years of amazing progress
By Scott Sumner
You see a lot of hand wringing about the plight of America’s middle class, so I thought I’d check the data. But which data? You might start with average incomes, but these are skewed by the rapid growth in income of the top 1%. So most experts believe that median income is a better metric. The next question is household income versus family income. I choose family for two reasons:
1. The data series for family income goes way back, whereas household income starts being collected in the mid-1980s.
2. Households include single individuals, whereas families are multi-person households. I was technically “poor” from age 18 to 26, but I don’t think anyone was too concerned about my plight. Nor should they have been. I was a household, but not a family. I think when people talk about the plight of the middle class they tend to envision families.
The next question is whether to use real or nominal income? I think most people believe real income is a better measure of living standards. So here’s real median family income from 1966 to 2016:
household family income has soared from $48,800 in 1966 to about $72,700 in 2016, an all-time high. And keep in mind that 1966 was a golden year for the US economy, a period where living standards had reached highs that were far above almost any other time or place in human history. And from that point we’ve gone still higher, much higher.
And it gets even better. Most economists think that the CPI (used to construct this data series) seriously overstates inflation. They tend to prefer the PCE price index. Using that index to deflate median family income, I came up with this graph:
Now the real median family income has nearly doubled, soaring from $48,800 to $92,900. Live must be pretty sweet for the median American family.
Let me anticipate some objections:
1. There are more two-income families today. But does anyone really think people are working harder than in 1966? Lots of grueling, boring factory jobs have been replaced by office work where people spend 1/2 the day surfing the web (which is consumption disguised as work.) Women do far less housework than before. Those affluent women with grueling jobs sometimes have maids to help out around the house. It doesn’t seem to me that people work harder than in the 1960s. In addition, families tend to be much smaller, so that $92,900 is shared among a smaller number of family members.
2. We are richer than ever, but the growth rate has recently slowed. Yes, but that’s a pretty weak argument. There’s no iron law of economic growth that says the world will continually experience the sorts of growth rates in family incomes than we saw in 1945-73. That was a very unusual period of time.
My point is that all the hand wringing about middle class families is off base. They are doing spectacularly well. Maybe their already extremely high living standards are improving at a slower rate than before, but that hardly counts as a crisis, (or “carnage” to use Trump’s language.) And I’d add that the past 4 years have seen rapid growth in real median incomes.
I’m sure I missed something here, so I look forward to your comments below.
PS. If your eyes are telling you that living standards are declining, then I suggest you read this post, and get new glasses. There’s a reason why new homes being built today are far nicer that the sort of “Levittown” homes built after WWII to house the middle class:
PPS. In a recent MoneyIllusion post, I pointed out that birth rates in America continued to plunge in 2016, despite soaring median income in recent years. A commenter Alec Fahrin pointed out that the early data from 2017 point to a continued decline in birth rates. The widely held view that the Great Recession is responsible for lower birth rates seems to have surprisingly little empirical support. Whatever is causing the plunging birth rate in places like Germany and America; it’s not “hard times”. If you want high birth rates, go to central Africa.