The Dead Middle Class

Cross-posted from the other site.

Lots of people are linking up this article that has 22 statistics that prove the middle class is dying.

They dance around a truth here which that the recession has hit hard and that the last decade saw a lot more wealth gains for the rich than the poor — more so than in the 90’s and 80’s. They don’t know the reason for this, which is the accelerating destruction of the free enterprise system to the benefit of big powerful businesses. But their general point, that the middle class is disappearing, can not be supported by their data. You will rarely see a more cherry-picked group of stats in your life. But no one wants to look closely at it because it plays to their pre-conceived notions.

Let’s take this silliness apart, shall we?

83 percent of all U.S. stocks are in the hands of 1 percent of the people.

In 1962, that figure was was 94%. In 1983 it was 93%. So this is actually improving. And where did I get these numbers? From the same chart they did.

61 percent of Americans “always or usually” live paycheck to paycheck, which was up from 49 percent in 2008 and 43 percent in 2007.

Beware statistics without context. It’s a recession. Of course, more people are living from paycheck to paycheck than were two years ago. What were they doing 10 years ago? 20? 30? As it is with children, so it is with statistical manipulators — when they leave information out, it’s because they don’t want you to see it.

66% of the income growth between 2001 and 2007 went to the top 1% of all Americans.

Possibly alarming, but poorly sourced and, like as not, a heavily biased number. Such figures are often based on adjusted tax income or exclude benefits like healthcare and retirement contributions.

But there’s a bigger problem buried in that bullshit number — class immobility. They intrinsically assume that that top 1% in 2007 is the same top 1% from 2000. This is not the case. In fact, class mobility is quite strong:

Income mobility of individuals was considerable in the U.S. economy during the 1996 through 2005 period with roughly half of taxpayers who began in the bottom quintile moving up to a higher income group within 10 years.

Among those with the very highest incomes in 1996–the top 1/100 of one percent–only 25 percent remained in the group in 2005. Moreover, the median real income of these taxpayers declined over the study period.

Median incomes of those initially in the lower income groups increased more than the median incomes of those initially in the high income groups.

In short, their view of wealth is static. Once poor, always poor. But that’s complete garbage. Class mobility remains a powerful force in our society. Studies of groups don’t show this. But longitudinal studies of individuals do.

When I was a graduate student, my income was low as was my wealth. Now my income is a little better and my wealth is … well, doing OK, I guess, considering the circumstances. So what’s the deal? Am I the oppressor or the oppressed? Do I need to start chasing myself around the plasma TV with pitchforks and torches?

36 percent of Americans say that they don’t contribute anything to retirement savings.

A staggering 43 percent of Americans have less than $10,000 saved up for retirement.

Again, no context. Is this up or down? Is it getting better or worse? Does this maybe something to do with defined benefit pensions? And the lie of social security?

24 percent of American workers say that they have postponed their planned retirement age in the past year.

Meaningless. That just means we’re in a recession. I’d be concerned if more Americans weren’t delaying retirement when the value of the retirement nest egg drops. Again, is this stat up or down?

Over 1.4 million Americans filed for personal bankruptcy in 2009, which represented a 32 percent increase over 2008.

First … did I mention were in a recession? I’m sure I must have done. A few years of data during an economic crisis do not provide evidence for a supposed decades-long trend.

Second, bankruptcies were very low in the years following the overhaul of bankruptcy laws because of the stampede of people declaring bankruptcy before the new laws took effect. So naturally, it’s rising rapidly as we return to normal. In fact, maybe the authors should take a look at the graph that accompanies their manipulative article. Bankruptcies are still lower than they were between 2000 and 2005 and have clearly simply risen back to their pre-reform level. This is the rankest sort of statistical manipulation but something that works on many gullible people who would rather quote an article than think about it.

Third, why is this necessarily a problem? The United States has some of the most generous bankruptcy laws in the world. It allows people who are crushed by debt to reset their finances, a privilege that is not afford in many other countries. Declaring bankruptcy is awful, but not being able to declare it is worse. It’s one of the few mechanisms that can ease the pain of a recession. Bankruptcy effectively transfers wealth from rich to poor, from creditors to debtors.

Only the top 5 percent of U.S. households have earned enough additional income to match the rise in housing costs since 1975.

Notice the key word here — “households”. A lot of the statistics used to prove the middle class is being destroyed are based on measures per household. But households have steadily shrunk in the last few decades due to declining birth-rates and high rates of divorce. So when you measure household anything — it could be household handjobs — it’s going to be headed down. There’s also been a steady rise in low-interest 30-year mortgages and government tax credits. This tends to drive up the cost of housing but spread the pain over longer periods of time.

For the first time in U.S. history, banks own a greater share of residential housing net worth in the United States than all individual Americans put together.

See “We’re in a recession”. And again, look at the article for the figure. Housing prices have plunged, so people’s equity has shrunk below their debt. This is a result of the housing crisis (one aided and abetted by some liberal policies) not some decades-long conspiracy. There has not been a giant surge in bank evil; there’s been a plunge in housing prices.

Also, they do not make the point that this is necessarily hitting the middle class hardest. It might be, but I’d prefer some data rather than a scary graph and some hand waving.

In 1950, the ratio of the average executive’s paycheck to the average worker’s paycheck was about 30 to 1. Since the year 2000, that ratio has exploded to between 300 to 500 to one.

This is one of the few salient points buried in here. I don’t like the growth in executive salaries. Not because of any pie in the sky communist bullshit but simply because it indicates an american business sectors that has gotten increasingly stupid (and increasingly cosy in the circles of power within our ever-growing government). I also suspect it’s a bit misleading, since the average worker gets $10,000 in benefits that don’t count toward this figure and many corporate perks were moved to income during the tax reform in the 1980’s.

As of 2007, the bottom 80 percent of American households held about 7% of the liquid financial assets

This is mainly a restatement of the first point and, I suspect, suffers from the same problem of not looking at how this has changed with time. Notice also the “liquid” word squeezed in there. By using that, they can eliminate any wealth considered illiquid, such as houses.

The bottom 50 percent of income earners in the United States now collectively own less than 1 percent of the nation’s wealth.

Again, getting better or worse? See their first bogus stat. It showed 0.3% of wealth in the bottom 40% in 1962; 1.8% by 2001.

Average Wall Street bonuses for 2009 were up 17 percent when compared with 2008.

This tends to happen when you bail out wall street firms with no conditions and Democratic Congressmen like Chris Dodd protect big bonuses.

In the United States, the average federal worker now earns 60% MORE than the average worker in the private sector

Holy shit, he actually said something interesting. And even true! As I’ve blogged before, the employees unions fight this statistical reality tooth and nail, insisting they are doing complicated jobs while all of us schlebs are breaking rocks into gravel. It’s not true, as USA today conclusively showed. And it’s actually worse than this, when you include benefits, which are typically several times those in the private sector. Click here to see the latest outrage (RTFLC is not responsible for any strokes that occur as a result of reading that story).

The top 1 percent of U.S. households own nearly twice as much of America’s corporate wealth as they did just 15 years ago

First, this is a misrepresentation. The report they link to is that the wealthiest 1% have a larger share of corporate income, not wealth. I can not find the original CBO report that this is based on but I suspect that a contributing factor is the changes in tax laws which makes it easier to declare wealth and get it taxed rather than shelter it. In other words, the wealth may have always been there, just hidden. I also need to see how retirement accounts are accounted for and see about that pesky “household” thing.

Given the first statistic in this article — that the share of stocks among the wealthiest 1% has actually fallen, I suspect this point is somewhat exaggerated.

In America today, the average time needed to find a job has risen to a record 35.2 weeks.

Recession, see.

More than 40 percent of Americans who actually are employed are now working in service jobs, which are often very low paying.

Actually, service jobs pay, on average, about the same as manufacturing jobs, depending on how you define service jobs. That 40% are not all working at Walmart, for fuck’s sake.

For the first time in U.S. history, more than 40 million Americans are on food stamps, and the U.S. Department of Agriculture projects that number will go up to 43 million Americans in 2011.

Again, we’re in a recession. And the Feds have vastly expanded the eligibility for food stamps and have entire organs, such as Americorps, that go around encouraging people to get on food stamps. 40 million is close to the number of Americans living in poverty. That absolute number is larger than ever because our population is larger, not because the rate has skyrocketed.

This is what American workers now must compete against: in China a garment worker makes approximately 86 cents an hour and in Cambodia a garment worker makes approximately 22 cents an hour.

Because the future of America is in textiles. Not computers or medicine or manufacturing. Textiles. Where are the Lowell mills when you need them?

Notice also what’s left out: “This is what the American consumer now gets: cheaper clothing and growing wealth in foreign countries that can then trade with us.”

Approximately 21 percent of all children in the United States are living below the poverty line in 2010 – the highest rate in 20 years.

Until relatively recently, that rate was falling or steady. It rose sharply in the late 70’s, early 80’s, fell for the rest of the 80’s, jumped again in the early 90’s recession, fell for the rest of the decade and has risen slowly for the last few years. This statistic is also complicated by shrinking households and changing definitions of income.

Any child poverty is too much, but it tends to be very sensitive to the economy. Long-term, it’s been relatively flat.

Despite the financial crisis, the number of millionaires in the United States rose a whopping 16 percent to 7.8 million in 2009.

Again, a relevant point. That’s almost 10% accuracy in the entire article!

The top 10 percent of Americans now earn around 50 percent of our national income.

False. It’s 40%. And complicated by the household issue again. And implies something that is not true, which is that the middle class is losing ground. Wealth has grown for the lower income brackets, just more slowly. (Source). And see again the point I made about class mobility.

I understand the lower classes are being hit hardest in the recession. But this uninformed whining has been going on for decades. In The Progress Paradox, Gregg Eastebrook talks extensively about how the middle class has more free time, more disposable income and more opportunities than it ever has — and all we do is complain. We have an absurdly rose-tinted view of the past, thinking America was like Leave it to Beaver and ignoring the reality of what America actually was. Previous generations were working longer weeks, taking fewer vacations, enjoying fewer consumer goods and experiencing less of life. These are simple facts. Your parents weren’t taking a week off to tour Germany. If they were lucky, they might get a weekend to make another mouth to feed.

The breakthrough realization for me occurred when my wife and I were on our honeymoon (hey, it can’t be sex and booze all the time). We went on a cruise and one day had lunch with someone who was talking about how badly the middle class was being squeezed. That is, they were complaining about their financial while on a luxury cruise. They had multiple people looking after them, were eating food so rich you could gain weight just looking at it and were enjoying a lifestyle that, only decades ago, was the exclusive domain of the rich.

We are facing problems. A growing government sector, an exploding government pension system and the increasing politicization of our economy, with concomitant empowerment of Big Business. Massive and persistent unemployment; but unemployment that could fade if our economy gets moving again. We’re hurting, no question. But to argue that the middle class is being systematically wiped out is simply ignorant. And to put up 22 cherry-picked and ignorant stats to back it up is mathematical malpractice.

Addendum: Drew Carey.

Addendum: A more entertaining and thoughtful (although also inaccurate IMHO) analysis can be found here (H/T: Astropixie).