Two weeks ago I argued that assertions of American middle-class economic stagnation are deeply mistaken. In reality, America’s middle-class is thriving and growing more prosperous.
Alas, across the political spectrum optimistic assessments of the condition of America’s middle class are unpopular. Many people simply do not want to believe that ordinary Americans today are, on the whole, immensely more prosperous than were ordinary Americans when LBJ or Gerald Ford worked in the Oval Office.
Why this passion for pessimism continues to burn so hotly is something of a mystery, perhaps one worth exploring in a future column. In this column, though, I offer yet further reasons to celebrate the economic fate of America’s middle class.
America’s Middle Class Is Indeed Shrinking
The complaint is encountered constantly that America’s middle class is shrinking. And it’s true; America’s middle class is indeed shrinking. But it’s shrinking not because middle-class Americans are becoming poor; it’s shrinking because middle-class Americans are becoming rich. No one has been as resolute in documenting this fact as has American Enterprise Institute economist Mark Perry (who, full disclosure, was in the late 1980s one of my research assistants at George Mason University).
Take a look at this graph that Mark included in this recent post at his superb blog, Carpe Diem. It shows that the percentage of middle-income American households fell from 53.8 in 1967 to 51.2 in 1977 and then to 41.3 in 2017. (Middle-income households are defined as those whose annual incomes are between $35,000 and $100,000 when measured in constant 2017 dollars.)
This fact, taken alone, seems ominous. But it’s not ominous at all. Over the course of these same 51 years the percentage of high-income American households – those earning annual incomes of more than $100,000 (again, measured in constant 2017 dollars) – more than tripled. It went from 9.0 percent in 1967 to 13.9 percent in 1977 and then, by 2017, to 29.2 percent.
The percentage of poor American households over the past half-century fell from 37.2 to 29.5.
That’s Because More Women are Working!
A common response to these happy data is this: “Of course household income is higher. Because there are more women working today than in past decades, household incomes are bound to be higher.”
But there are three reasons – two minor, one major – why this response does not discredit the argument that ordinary Americans are becoming more prosperous.
First a minor reason. It’s true that a much larger percentage of working-age women are in today’s American workforce than was the case for most of the past. But women’s participation in the labor force peaked about 20 years ago. Today it’s about where it was in 1995. And yet the percentage of high-income households is today higher – and the percentage of low-income households lower – than in 1995. So higher household earnings are not the result exclusively of more women working.
A second, (relatively) minor reason is that the number of people in the typical American household is today lower than in the past. With any given amount of household income now being shared by a smaller number of people than in the past, each person’s share of income today is higher.
Here’s the third and major reason. More women today are able to work in the market than in the 1960s, ‘70s, and ‘80s because of this market-driven reality: many goods and services that were once most efficiently produced in-house by stay-at-home wives – goods and services such as meals, clothes laundering and ironing, and housecleaning – are today produced more efficiently either outside of the household (such as tasty and nutritious prepared meals of the sort that in the past were much less available to ordinary Americans than they are today) or within households in ways that today consume far less time and effort than was needed in the past (such as washing and ironing clothes, and cleaning cookware and dinner dishes).
There have been many big improvements, such as increased availability of automatic dishwashers, frost-free freezers, microwave ovens, and robotic vacuum cleaners. And there have been even more small improvements, such as coffeemakers that can be set to turn on and off automatically, plastic sandwich and freezer bags with built-in easy-seal tops, wrinkle-free and stain-resistant fabrics, and falling clothing prices which reduce the need for mom to mend the likes of torn and worn shirts, pants, and coats. Oh, and let’s not overlook this time-saver: greater reliability of appliances, which means less need for someone to wait at home for repairmen.
In short, households today still get the valuable goods and services once produced by non-income-earning stay-at-home wives, but households now get, in addition, whatever other goods and services are purchased with the incomes earned by women who work outside of the home.
Combine the above facts with one more: expenditures on food as a share of family disposable income in the United States have fallen significantly. In mid-1960s America, the percent of family disposable income spent on food was about 15. In the mid-1970s it was about 13. Today, American families spend on food less than ten percent of their disposable incomes, despite the fact that Americans now eat a much higher percentage of their meals at restaurants.
Ordinary Americans are indeed today much richer than they were during any imagined past golden age.
Yes, yes, I know: what about the costs of education, housing, and health care? Haven’t these risen? Yes they have. But for reasons that I’ll explain in a follow-up column, these cost increases should cause us to want to rely more, not less, on free markets.