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Donald Boudreaux and Mark Perry: The Myth of a Stagnant Middle Class
Wall Street Journal ^ | 01/24/2013 | Donald Boudreaux and Mark Perry

Posted on 01/24/2013 6:25:41 AM PST by SeekAndFind

A favorite "progressive" trope is that America's middle class has stagnated economically since the 1970s. One version of this claim, made by Robert Reich, President Clinton's labor secretary, is typical: "After three decades of flat wages during which almost all the gains of growth have gone to the very top," he wrote in 2010, "the middle class no longer has the buying power to keep the economy going."

This trope is spectacularly wrong.

It is true enough that, when adjusted for inflation using the Consumer Price Index, the average hourly wage of nonsupervisory workers in America has remained about the same. But not just for three decades. The average hourly wage in real dollars has remained largely unchanged from at least 1964—when the Bureau of Labor Statistics (BLS) started reporting it.

Moreover, there are several problems with this measurement of wages. First, the CPI overestimates inflation by underestimating the value of improvements in product quality and variety. Would you prefer 1980 medical care at 1980 prices, or 2013 care at 2013 prices? Most of us wouldn't hesitate to choose the latter.

Second, this wage figure ignores the rise over the past few decades in the portion of worker pay taken as (nontaxable) fringe benefits. This is no small matter—health benefits, pensions, paid leave and the rest now amount to an average of almost 31% of total compensation for all civilian workers according to the BLS.

Third and most important, the average hourly wage is held down by the great increase of women and immigrants into the workforce over the past three decades. Precisely because the U.S. economy was flexible and strong, it created millions of jobs for the influx of many often lesser-skilled workers who sought employment during these years.

(Excerpt) Read more at online.wsj.com ...


TOPICS: Editorial
KEYWORDS: inflation; middleclass; stagnation

1 posted on 01/24/2013 6:25:55 AM PST by SeekAndFind
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To: SeekAndFind

WHY WE’VE NEVER HAD IT SO GOOD ( ACCORDING TO THE AUTHORS ):

CONSIDER:

* American born today can expect to live approximately 79 years—a full five years longer than in 1980 and more than a decade longer than in 1950.

* Americans are also much better able to enjoy their longer lives. According to the Bureau of Economic Analysis, spending by households on many of modern life’s “basics”—food at home, automobiles, clothing and footwear, household furnishings and equipment, and housing and utilities—fell from 53% of disposable income in 1950 to 44% in 1970 to 32% today.

* While income inequality might be rising when measured in dollars, it is falling when reckoned in what’s most important—our ability to consume. Before airlines were deregulated, for example, commercial jet travel was a luxury that ordinary Americans seldom enjoyed. Today, air travel for many Americans is as routine as bus travel was during the disco era, thanks to a 50% decline in the real price of airfares since 1980.

* What’s true for long-distance travel is also true for food, cars, entertainment, electronics, communications and many other aspects of “consumability.” Today, the quantities and qualities of what ordinary Americans consume are closer to that of rich Americans than they were in decades past.


2 posted on 01/24/2013 6:28:26 AM PST by SeekAndFind
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To: SeekAndFind

Stand up Bob,Oh.......!


3 posted on 01/24/2013 6:29:20 AM PST by Dr. Ursus
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To: SeekAndFind

The middle class isn’t stagnant - it is showing plenty of movement.

It is sliding into the lower income class - that’s movement.


4 posted on 01/24/2013 6:53:46 AM PST by Iron Munro (I Miss America, don't you?)
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To: Iron Munro

And regardless of the statistical arguments, the vast majority in the middle class FEEL and BELIEVE this is happening.

In the present paradigm that means it may as well be reality. And that means Obama is winning the argument that our current economic and social systems must be “changed”.


5 posted on 01/24/2013 6:56:22 AM PST by Buckeye McFrog
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To: Buckeye McFrog

Arguments like these are intended to make people accept the “new normal”...

and worse, to think that it’s either always been this way or that this way is better than it’s ever been.


6 posted on 01/24/2013 6:58:43 AM PST by MrB (The difference between a Humanist and a Satanist - the latter admits whom he's working for)
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To: Buckeye McFrog

The libs have been complaining about the “stagnant” middle class since Reagan. Thomas Sowell does an excellent job about once a year popping the myth.


7 posted on 01/24/2013 7:03:26 AM PST by 1rudeboy
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To: Buckeye McFrog
And regardless of the statistical arguments, the vast majority in the middle class FEEL and BELIEVE this is happening.

And thus, they are not spending - which is making it come true. Regardless of arguments over the merits of thrift, our economy was not built to handle a sudden shift away from a consumerist mentality. Job losses will continue to mount, and people will be forced to spend even less...which will lead to even more job losses. The Great Contraction is well underway.

8 posted on 01/24/2013 7:08:33 AM PST by Mr. Jeeves (CTRL-GALT-DELETE)
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To: 1rudeboy

I call BS on this article. Take travel..say I want to fly to San Diego to surf... Plane fair, renting a car, hotel and hotel taxes..parking fees..$6:00 hotdog ..$5:00 beer at beach. Rentng a board. Getting lesson. I’d bet your into prices that were unimaginable 20 years ago.

My brother took his 3 kids to Wrigley Field last summer. Between tickets,parking, food and a few trinkets it was $450.00. He’s a wealthy guy and said never again


9 posted on 01/24/2013 7:16:26 AM PST by Blackirish (Forward Comrades!!!!!!!!!)
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To: Blackirish
No one is saying that prices are down. Boudreaux and Perry argue that we are spending less of our disposable income on travel now, versus then.

As for prices at Wrigley Field, there's a heck of a lot more going-on there than just inflation.

10 posted on 01/24/2013 7:27:24 AM PST by 1rudeboy
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To: 1rudeboy

What you’re saying doesn’t make sense. Wages have scarcely gone up since the 80s. Flying out to go sking in Colorado for a week used to be something a upper middle class family could afford. Now it’s solely for the rich. I could keep Giving examples....


11 posted on 01/24/2013 7:35:40 AM PST by Blackirish (Forward Comrades!!!!!!!!!)
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To: 1rudeboy

What you’re saying doesn’t make sense. Wages have scarcely gone up since the 80s. Flying out to go sking in Colorado for a week used to be something a upper middle class family could afford. Now it’s solely for the rich. I could keep Giving examples....


12 posted on 01/24/2013 7:35:40 AM PST by Blackirish (Forward Comrades!!!!!!!!!)
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To: Blackirish

I can cite a personal example.

In the 70s, when I was a kid, my father was able to afford his mortgage, my stay-at-home mom, me, and did I mention we went to Europe every other year to visit relatives in Sweden and Italy? And on those years we didn’t go to Europe, we went to places like Japan, Egypt, etc.

My father was a baker. Yes, a baker.

Purchasing power was obviously higher in the past. How many families could afford to do what I just mentioned on a working-class salary today?

By 2010s standards, I had a childhood of the rich and famous. Yet my parents were solidly working-class.


13 posted on 01/24/2013 8:21:32 AM PST by AnAmericanAbroad (It's all bread and circuses for the future prey of the Morlocks.)
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To: Blackirish
Pointing to increases in the price of luxuries makes no sense. The price of my favorite champage has gone from $50 to $160 per bottle in fewer than ten years. It doesn't mean that inflation is 200% over the same period.

Cubs tickets and ski vacations in Colorado are also luxury items. (Incidentally, I am nowhere near "upper middle class," and I can still afford a Colorado ski vacation--it's new ski equipment I can't afford, but that's another issue altogether).

14 posted on 01/24/2013 8:22:48 AM PST by 1rudeboy
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To: AnAmericanAbroad
How many cars did he own? Did your mom have a washer and dryer? Dishwasher? Did your house have a/c? How many square feet? Attached garage? Etc.?

Now, ask yourself, if your dad bought your mom a washer and dryer, how many hours did he work for it? How much of a proportion of his take-home pay did he spend for them?

15 posted on 01/24/2013 8:26:16 AM PST by 1rudeboy
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To: 1rudeboy

He owned two cars. Well, three at one time, but he restored one and sold it off. Yes to both washer and dryer. Dishwasher...well, I was the dishwasher. And “grounds maintenance”. House had central air and heating, and it was 1550 sq.ft. With attached garage.

I honestly don’t know how many hours we would’ve worked in the 70s for a washer and dryer. I know he NEVER used credit cards.....he despised them, and always paid cash, and always negotiated prices, like when the central air and heat was installed. He managed to negotiate a 15% reduction in the price....he had the gift of gab I guess. :) He didn’t replace things too often, like the TV. We had the same TV set for 18 years as I recall. He also performed all of his own auto maintenance, as well as pretty much all the construction around the house (he had a knack for building things, as well as being something of an electrician). He was also a very good hunter, so I grew up eating venison until it was coming out my ears, LOL.

But he and my mother loved travel, and I inherited the sand in my shoes from them, I’d say.


16 posted on 01/24/2013 8:36:58 AM PST by AnAmericanAbroad (It's all bread and circuses for the future prey of the Morlocks.)
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To: SeekAndFind

The authors mentioned women and immigrants moving into the workforce dragging down the average, but it should also be mentioned that the population of Blacks and Hispanics is larger than thirty years ago as well. Those two ethnic groups tend to have more low-paying jobs than other ethnic groups even ignoring the illegal population.


17 posted on 01/24/2013 8:43:01 AM PST by driftless2
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To: AnAmericanAbroad
(Not picking a fight, just using your dad as an example): Boudreaux has argued in the recent past, by comparing prices from the Sears catalog--and looking at BEA wage/income levels, that the percentage of income spent to purchase a "typical" item such as a washer is lower now than it was in the 1970's. Note: percentage.

In other words, your father worked "harder" to buy that washer for your mom in the 1970's. Boudreaux argues that it is an example of how living standards have increased. It's really not that controversial of an argument, and he provides the numbers. If people feel differently than I agree, they have a problem.

18 posted on 01/24/2013 8:48:00 AM PST by 1rudeboy
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To: Blackirish
"never again"

Granted that's outrageous (one reason I don't go to ballgames) but nevertheless, the parks are filled. Who then is going to the games? Just the rich? I doubt it. I'll assume that most of the fans are non-rich. And if people are willing to pay those crazy prices, the clubs are quite happy to charge them the limit.

But going to a ballgame is hardly a necessity. And the facts are the cost of feeding, clothing, and sheltering a family are a lot less than 30-50 years ago. Candy bars are also a lot higher, but they're hardly a staple food.

19 posted on 01/24/2013 8:48:56 AM PST by driftless2
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than = then


20 posted on 01/24/2013 8:49:50 AM PST by 1rudeboy
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To: AnAmericanAbroad
I grew up in the fifties and sixties with six siblings and one parent working for money. We were poor, and "vacation" was a trip to visit my grandparents who lived 600 miles away. My father drove non-stop to get there. I remember a total of two "vacation trips" like that in my childhood.

Now I have two siblings who are worth more than a million and maybe a third, but my older brother won't tell me how much he has. I live in a nice home. Last year I visited my youngest brother who was struggling financially for a number of years. His house is nicer than mine. In short, I might be the poorest member of my siblings, and I did alright. Most of my siblings have traveled extensively overseas. We all have a lot more than what my parents had material-wise.

21 posted on 01/24/2013 8:56:16 AM PST by driftless2
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To: driftless2
Incidentally (and I mean it, because Cubs tickets are still a luxury good), the Cubs announced that ticket prices are going down for the 2013 season.

So even though it's a near-monopoly product, even the Cubs understand that the quality of their product does not match the market demand for tickets to see it.

22 posted on 01/24/2013 8:58:22 AM PST by 1rudeboy
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To: SeekAndFind

There’s not much concern about middle class salaries decreasing. The real concern is with the middle class being tossed in the ditch, hundreds of thousands per month, again. I doubt that many readers will be distracted from that.


23 posted on 01/24/2013 9:30:19 AM PST by familyop (We Baby Boomers are croaking in an avalanche of rotten politics smelled around the planet.)
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To: 1rudeboy

I have no doubt that he worked longer hours to buy that washer and dryer than the average person would work today. I know lots of people who sometimes come across old newspaper ads from the 30s and 40s, and they’re like, “Wow! Look how cheap a car was back then” or “I could buy a house for $_________ “. Yes, that’s all quite true. However, I come back with how much did people make back then, and what level of disposable income did they have?

I admit my childhood was likely an anomaly, in that my parents were frugal when they needed to be, but knew how to save income in order to do extraordinary things. Part of that meant when I was a child, I wasn’t wearing Calvin Klein jeans....I was wearing Toughskins (and being ribbed for it, I might add). I wasn’t wearing Nikes. I was wearing shoes from K-Mart. Hell, I didn’t even get a pair of brand-name sneakers until I was 15, a pair of Pumas, that I’d worked for and saved up to buy.

Oh yeah.....Toughskin jeans. Memories of childhood, LOL :)


24 posted on 01/24/2013 9:32:14 AM PST by AnAmericanAbroad (It's all bread and circuses for the future prey of the Morlocks.)
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To: 1rudeboy
It's sort of ironic...while the prices for things normally very cheap or in the budget of the average American like tickets to professional sporting events or entertainment are now insanely expensive, the prices for the necessities of living have gone down. That's a demonstrable fact.

In the last two years my wife and I have gone to concerts of well known entertainers like Paul Simon, Neil Diamond, Elton John, Rod Stewart, Stevie Nicks, and a few others. The prices for our tickets were usually over $100 per seat. And there were also the hotel and restaurant prices. While I've always wanted to see some of those entertainers live, I balked at the ticket prices. But the look from my wife told me I'd better agree to go.

25 posted on 01/24/2013 10:25:21 AM PST by driftless2
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To: SeekAndFind
Karl Marx ***HATED*** the middle class. He came up with a plan to get rid of the middle class.

His plan included:

Progressive taxes
government confiscation of all inheritances
Nationalization of all industry
Nationalization of the banks
A government crackdown on the money supply

So here we sit in 2013 and Obama wants:

Progressive taxes
government confiscation of all inheritances
Nationalization of all industry
Nationalization of the banks
A government crackdown on the money supply

And everyone is shocked that the middle class is taking it on the chin?

But what can I say? Middle classers keep voting for it....
26 posted on 01/24/2013 2:46:23 PM PST by Tzimisce (The American Revolution began when the British attempted to disarm the Colonists.)
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To: Tzimisce
Boudreaux highlights a comment on his blog, by George Leef, regarding this column:

The trope is well refuted by Boudreaux and Perry, but (as they doubtless know) its function has never been to catalyze serious economic analysis. It functions merely as an excuse for interventionist politicians who want excuses to further expand the power of government in order to reward their political allies. The trope suckers voters into supporting politicians who claim that they’re for the struggling middle class, but intend to succor union leaders, environmental zealots, the education establishment and so on. Expanding the scope and cost of the government is exactly the opposite of what would actually benefit the middle class, namely lower taxes, increasing private investment, a more efficient educational system, and less waste of our limited resources on political boondoggles.

27 posted on 01/24/2013 2:53:26 PM PST by 1rudeboy
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To: 1rudeboy

I try to explain this to my fellow middle classers and they sneer and call me a racist.


28 posted on 01/25/2013 12:04:25 AM PST by Tzimisce (The American Revolution began when the British attempted to disarm the Colonists.)
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