Yes, the middle class really is falling behind

There’s a provocative new op-ed Thursday in the Wall Street Journal from economists Donald Boudreaux and Mark Perry, who argue that the middle class isn’t stagnating, even though middle-class incomes have flatlined for decades. Their basic point is that middle-class living standards keep going up and that middle-class consumers have “more buying power than ever before."

Health care and gasoline are basics, too! (Kevin Clark, The Washington Post)
Health care and gasoline are basics, too! (Kevin Clark, The Washington Post)

Here are their two key paragraphs:

“No single measure of well-being is more informative or important than life expectancy. Happily, an 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. These longer life spans aren't just enjoyed by "privileged" Americans...

“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.”

It’s undeniable, and a great thing, that Americans are living longer. But the second point – that we’re spending less on “basics” – well, that turns out to depend a lot on what you call “basic.”

Boudreaux and Perry count the basics as food, clothing, shelter and cars. Fine. But what if we add in gasoline (to run those cars), health care (to help us live longer) and education (which is increasingly required for getting and keeping a middle-class job)? Then the math looks a lot different.

Using consumer spending data from the Bureau of Economic Analysis, I calculated that the Boudreaux/Perry group of basics took up about half of total consumer spending in the United States in 1970. By 2011, it was down to 35 percent. That’s basically what Boudreaux and Perry found, too.

But if you expand the “basics” group to include gas, health care, health insurance, medical prescriptions and education, there’s little change over the last 40 years. That group of basics ate up 64 percent of American consumer spending in 1970, and 62 percent in 2011.

Put a different way, we spend less of our incomes today on clothes and food. We spend more on doctors and fuel. It’s hard to see how the former are “basics” and the latter are not.

Jim Tankersley is the editor of Storyline, where he explains complex public policies and illuminates their human impact.
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Dylan Matthews | January 24, 2013