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More Bad News For The Middle Class

I’ve been dishing a lot of bad news about the middle class lately, and now I’m afraid I have more. The Census department confirmed today that median household income continued to drop in 2011, the second year of the economic “recovery.” It dropped by about 4 percent, which is pretty close to the estimate produced in late August by two former Census statisticians at Sentier Research (4.8 percent). Unlike Sentier, the Census didn’t conclude that median income fell more during the recovery than during the recession; it found that median income fell by about the same amount in both periods. But that’s hardly cheering. The Census calculation of how much median income has dropped since 2007 (8.1 percent) is a bit higher than Sentier’s (7.4 percent). The time frames for the two studies were slightly different, so there may be no discrepancy at all. The point is: Yes, economically you are worse off today than you were four years ago, assuming you’re a typical American household. (But you should still vote for Obama, even though Obama didn’t do a very good job last week telling you why.)

Income inequality is getting worse. We already knew that the rich resumed increasing its share of the nation’s collective income in 2010, when a remarkable 93 percent of the recovery ended up in the pockets of the one percent. “I would strongly suspect,” Jared Bernstein of the Center on Budget and Policy Priorities said today in a conference call, “that that kind of trend, at least directionally, ... continued in 2011,” given the new Census data and the run-up in the stock market. What‘s new in 2011 is that a commonly-used statistical measure for income inequality—one that doesn’t do a particularly good job of measuring the one percent’s rapidly-growing share of the nation’s income, but measures very precisely the broader-brush income gulf between middle-class and upper-middle class workers--that this measure, the Gini index, saw its first statistically significant one-year rise since 1993. When we look at growing income share for the one percent we’re looking at the pigs-feeding-in-the-trough condition of the economic elite. When we look at the Gini we’re looking at the declining condition of the middle class. The higher it goes, the worse off the middle class is.

The Gini index has been mostly rising over the past decade, but it never before rose enough to attract much attention. In 2011, though, it rose s full1.6 percent. Overall, the Gini is up 5.2 percent since 1993. Most of that growth took place during the aughts. During the Clinton years the Gini index was relatively stable, and during the Reagan years it went up a lot. Under George W. Bush and now Barack Obama, it’s once again going up a lot.

There’s been a lot of argument about how much the middle class has declined, and what the causes are. But everybody agrees that it’s declined. I think (and argue in my book, The Great Divergence) that there are a lot of causes, foremost among them a rising educational premium (first for college graduates, now for holders of advanced degrees) and the precipitous decline of labor unions. If we don’t increase high school graduation rates, and make higher education more affordable, and make pre-school universal, and increase union membership, then middle-class decline will continue. Inequality between the middle class and the upper middle class is mostly a separate phenomenon from inequality between the one percent and everyone else, but they are connected in one key respect: As corporations have become more attentive to stockholders and less attentive to workers (because very few workers in the private sector are still unionized), resources have been shifting from labor to capital. You don’t believe me? Ask J.P. Morgan. For a more detailed examination, see the Economic Policy Institute’s new edition of The State of Working America (pp. 99-106). The authors attribute fully one-third of the one percent’s doubling of U.S. income share since 1979 to the shift from capital to labor. That’s money that used to go to working people.

We also need to increase opportunities for upward mobility. The U.S. is still pretty good at moving people up from the middle class to the upper-middle class (at least if you’re white), but it’s dismally bad at replenishing the ranks of the middle class from the poor--so bad, in fact, that on international measures of intergenerational mobility, the U.S. lags most of western Europe. A thriving middle class is a necessary precondition for a free representative government. As the late Harvard sociologist Barrington Moore famously observed, “No bourgeois, no democracy.” Maybe the U.S. can become the exception to that rule, but I wouldn’t count on it.