Our research of consumption and income patterns suggests that both the poor and middle classes, lifted by a rising economic tide, have actually made substantial gains in the past 30 years. And while the Great Recession has certainly taken a harsh toll in recent years, these long-term gains hold vital lessons for politicians to uphold pro-growth policies at a time when they’re hearing populist cries to remake the economic order.
Those looking for bad news about the middle class can find plenty of it in standard measures of economic status.
The most recent figures from the Census Bureau suggest a level of income today that is no higher than two decades ago. Numbers such as these have prompted Washington Post pundit Harold Meyerson to declare, “Post-industrial America turned out to be a bust.” Others have called the past three decades the “Great Regression.”
But when you account for taxes and measure inflation correctly, there has actually been considerable improvement in the material well-being of the middle class over the past three decades. Median income and consumption have both risen by more than 50 percent in real terms.
In addition, for families with income in the middle 20 percent, there have been noticeable improvements in the homes they live in and the cars they drive. Living units are bigger and are much more likely to have air conditioning and other features. The quality of the cars that these families own has also improved considerably. The data are clear: middle-class Americans are better off today than they were three decades ago.
This improvement is due, in part, to policy changes including lower tax rates and a more-generous child tax credit that leave middle-class families with more disposable income. But the most important factor is economic growth.
When the economy grows, the middle class is better off. To be sure, some groups (most notably very rich households) have benefited from economic growth more so than the middle class, but this does not cancel out the substantial progress that the middle class has made.
Both Republicans and Democrats are guilty of confusing policies appropriate to fight a recession with those to promote continued, long-run progress.
The Republicans are overly worried about additional deficit spending when the economy is sluggish and government borrowing costs are low.
The Democrats are emphasizing declining living standards and a battered middle class, when living standards for the vast majority of people have risen and the long term changes in the material circumstance of the middle class have been good.