Chart of the day

Everyone (including the Financial Times) knows that the U.S. middle-class is shrinking— and that’s because the share of income going to those at the very top has increased enormously and average incomes for most of the population have declined over the course of the past three decades.*

But that’s not the story Stephen J. Rose (pdf) wants to tell. According to him, only those at the very bottom (6 percent) have lost ground and the real story is the growth in the size of the upper middle-class—what he calls “a massive shift. . .in the center of gravity of the economy.”

However, Rose’s conclusion is just an illusion created by the bizarre way he divides up the population.

For example, Rose sets the lower bound of the upper middle-class at $100,000 (ranging up to the “rich,” at $349,999), which is five times the poverty level. However, there’s nothing middle-class about that threshold, not when you consider that (according to the World Wealth and Income Database) the average income in the United States in 2014 was $55,133 while the top 10 percent threshold was $118,140, the top 5 percent threshold was $167,220, and the top 1 percent threshold was $387,810.

Even with such a strange treatment of income thresholds, Rose finds an enormous increase in inequality between 1979 and 2014: combined, the share of income going to the rich and upper middle-class more than doubled, from 30 to 63.1 percent, while the amount of income going to everyone else—middle-class, lower middle-class, and poor—fell precipitously, to less than 40 percent.

That, in the end, regardless of the names attached to income groups, is the real story. It’s a case of relative immiseration: those at the very top were able to capture a large share of the growing surplus while everyone else—who were forced to have the freedom to work for falling wages—was being left behind.

 

*According to the World Wealth and Income Database, the share of income captured by the top 1 percent more than doubled, from 8.03 in 1979 to 17.85 in 2014, while the average income for the bottom 90 percent of the U.S. population fell (in 2014 dollars) from $34,607 in 1979 to $32,352 in 2014.