Why is the Middle Class Shrinking?

For a generation, Democrats and others on the left have lamented the loss of the middle class.  Some Republicans have also addressed that concern.  They call it “the shrinking middle class.”  The most offered up solution is government intervention – the political redistribution of wealth.

The inference is that millions of Americans are falling into the lower economic class.  This belief drives much of the left-wing agenda of more government assistance and opposition to tax reductions to stimulate the economy.

Their theory declares that it is necessary to take money away from wage earners (taxpayers) and provide it to folks in the lowest income brackets.  That SOUNDS good – rather charitable, in fact.  But the entire concept is predicated on political advantage for the politicians rather than economic benefit for … for … for anyone.

Let’s first take a look at the contention that every year more and more people are falling out of the middle class and into the ranks of the poverty class. 

According to the most authoritative source, the U.S. Census, that is simply not true.  In fact, it is the poverty population that is actually shrinking.

The poverty rate in 2019 was 10.5 percent.  That means that 90 percent of all Americans live above the poverty level.  That makes the American people the wealthiest in the world in all comparative economic categories.

Purchasing power is a more accurate indicator of wealth – and poverty.  If you were to categorize the entire world population in terms of buying power, the United States would virtually have no measurable poverty at all.  The poorest of Americans live far better – and have greater purchasing power – than half the world.

The one group that is shrinking according to government statistics is the poverty class.  That 2019 figure of 10.5 percent is down from 11.8 in 2018.  That is the fifth consecutive year that the percentage of those living in economic poverty has declined – a 4.3 percent drop, in fact.  The poverty rate in 2014 was 14.8.  The most significant rise out of poverty has been the poorest of the poor within the minority populations.

If the poverty class is shrinking AND the middle class is shrinking, there is only one conclusion.  A lot of one-time middle-class folks have been entering the upper class.  That is not surprising.  Over the years there have been innumerable reports and feature articles about the millionaires next door – people who have amassed significant wealth while working at what might be called ordinary jobs.  There are store clerks, carpenters, warehouse workers who have retired with significant accumulated wealth, including million-dollar pension funds.

A person’s economic class is not just dependent on what they earned, but what they amassed – their purchasing power.  Go into any middle-class neighborhood and you will find people with multiple vehicles, boats and summer homes.  They dine out frequently.  They take long vacations in exotic places – often out of the country.  I grew up in what was then called a lower middle class family.  My parents could not afford any of those luxuries.

Some studies suggest that family incomes are growing at a slow rate. 

That may be true.  But that may be because as the incomes go up, the RATE of growth naturally descends.  If you have a growth rate of 10 percent on an income of $20,000, you get an extra $2,000.  If your income is $100,000 a lower rate of growth – let’s say five percent – will get you an increase five times greater, or $10,000.

I understand that there is a hand full of billionaires who are racking up big gains on big incomes, but they are gaining their wealth through ownership – not wages.  The Zuckerbergs, Musks, Gates, Buffets and Bezos are merely the Rockefellers, Carnegies and Fords of today.  Their wealth is fabulous, but in many ways unique – and arguably meaningless — in calculating economic classes.  There are just too few of them.  The economy is much bigger than them – regardless of Senator Bernie Sanders obsession with class warfare.

By all historic and contemporary measure, we Americans are a VERY rich people – collectively, the richest on earth.  Capitalism and free markets are what made us such.  We will continue to be the richest people on earth if we do not succumb to the utopian and socialist snake oil that somehow government redistribution of wealth is a better plan – when it never has been.

So, there ‘tis.