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Tuesday, September 05, 2006

The Economics and Politics of the Middle Class

Steven Rose, writing at American Prospect, says the Democrats are making a mistake by constantly talking about what's wrong with the middle class. This is the first entry in a series of posts American Prospect has planned for this week on "the economic politics of the middle class." There is also a response to this essay:

Steve Rose has been my friend and intellectual colleague for many years and I hold him in the highest regard. But I strongly disagree with his recent piece for the Progressive Policy Institute and the earlier version posted on Donkey Rising.

I may summarize the response and other rebuttal later, but for now, here's a shortened and unchallenged version of the piece by Steven Rose:

What's (Not) the Matter With the Middle Class?, by Steven Rose, American Prospect: For more than a decade, the Democratic Party -- the self-proclaimed party of the middle class -- has consistently lost the middle class at election time. In 2004, voters with family incomes between $30,000 and $75,000 went for Bush by 6 percentage points, while Congressional Democrats lost this group by 4 points. Among white middle-class voters (one-third of the electorate), Bush won by 22 points and Congressional Republicans by 19 points. ...

Democrats like to pin their defeats on national security and culture issues alone, but the progressive economic message is also to blame. What progressives generally say about the economy is unrelentingly pessimistic -- stagnant wages, rising costs, overwhelming burdens of debt. It's a message that doesn't resonate with the middle class -- not only because it's overly negative (by itself political poison), but because it's simply flat out wrong. ... $23,700 [is] the household income at which a white voter was more likely to vote Republican than Democratic in the 2004 congressional races.

No question, the middle class faces challenges, such as rising costs for health care and college tuition and the declining real earnings for non-college-educated men. There's also no question that the wealthy have received the lion's share of economic growth over the past 25 years. Nevertheless, absolute living standards for the middle class have only improved, even if relative increases in income don't match the gains at the top.

Let me take on the three most repeated overstatements about the middle-class "squeeze:" first, that middle-class incomes and standard of living are slipping backward; second, that middle-class families are "drowning in debt;" and third, that employers are abandoning their obligations to provide health and retirement benefits to their workers.

The myth of the stagnating middle class: It's true that the middle class is shrinking -- but that's because more families are better off. The share of prime-age adults in households with real incomes above $100,000 rose by 13.1 percentage points from 1979 to 2004. The share of households making less than $75,000 dropped by 14 percent. Fully 41 percent of prime-age American adults are in households with incomes above $75,000.

Rosegraph1

Among married-couple households the picture is even brighter. In 2004, the median income for these households was $70,000, and $78,000 for couples with two earners.

Two final points: even assuming household incomes have risen, isn't it just because wives are working longer and harder? And aren't higher prices eroding the middle-class standard of living? No and no. ...

Drowning in debt -- or investment? Another major source of angst is the rise in consumer debt, which is at historically high levels. But in focusing exclusively on debt, progressives ignore the other side of the ledger -- assets. Consider:

  • A majority of Americans have no credit card debt. And of the 46 percent of Americans who do, the Federal Reserve's Survey of Consumer Finances says the median balance is $2,100...
  • Middle class assets are up. Real median net worth for all households rose from $69,000 in 1989 to $93,000 in 2004 -- an increase of 35 percent. ...
  • Bankruptcies are rare. Only 1.5 percent of households declare bankruptcy in any given year.

The number of people who can't manage their debts is somewhat higher. ... But no evidence suggests that large numbers of middle-class families are maxing out their credit cards to pay the rent or buy groceries.

The overstated pension and insurance crisis: The third major worry is the purported decline in employer-provided benefits. One oft-cited analysis says the percentage of workers with employer-provided health insurance dropped from a peak of 71 percent in 1981 to 56 percent in 2003. But that analysis counts workers who are on their spouse's health insurance as uninsured. The Census shows that coverage varied between 72 percent and 76 percent of the workforce from 1987 through 2004. ... In the last four years, the percentage of workers with employer-sponsored insurance fell from 74.4 percent to 70.7 percent, but it's too early to know if this is part of a trend or a blip caused by the Bush recession.

Sharply rising insurance costs have meant that both employers and employees are paying more. However, the share of premiums paid by employers has remained constant for the past 20 years.

Finally, the percentage of companies offering retirement benefits has scarcely budged since 1987. The big shift has been from defined benefit to defined contribution, but again, this is a mixed picture. While some workers could see lower benefits, other workers, such as women and younger workers, could get a better deal. Traditional pensions are ideal for workers who stick with one company for a very long time. Women tend to cycle in and out of the workforce and younger workers tend to switch jobs with some frequency. For them, a portable 401(k) is a better long-run bet.

The middle-class story of the last 60 years is largely one of success. The wealthy have done better than everyone else, and the bottom 25 percent (75 million people) often face tough times. But repeatedly highlighting the troubles of this bottom group is not likely to resonate with the rest of the population. ...

Rather than documenting how the middle class is falling behind (it isn't), progressives might do better finding ways to help more middle-class families succeed. ... One way to do this, for example, is to look at the characteristics of the top income quintile and use public policy to replicate that success.

Two things set the top quintile apart: people in the top quintile are much more likely to have finished college, and they are much more likely to be in married, two-earner families. We can move more people up the ladder by doing two things: one, by helping more students graduate from college, and two, by supporting two-earner families in balancing work and family. This means such things as broad-based tuition tax relief, paid family leave, and more tax breaks for child care costs.

Solutions such as these can help progressives go a long way toward winning back the middle class.

Whether the middle class is better off or not since some arbitrary point in the past, focusing on balancing the demands of work and family would be, I think, good politics in any case. While problems should certainly be pointed out, particularly those that arise from Republican policies directed at special interests or other constituencies, people want to know how the policies advocated by Democrats will help them meet all of the challenges they face day to day, not how poorly they are doing relative to others.

    Posted by on Tuesday, September 5, 2006 at 01:35 AM in Economics, Politics | Permalink  TrackBack (1)  Comments (48)

          

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    » The middle class is disappearing... from Greg Mankiw's Blog

    And becoming the upper class. So says Stephen Rose at the American Prospect: It's true that the middle class is shrinking -- but that's because more families are better off. The share of prime-age adults in households with real incomes above $100,... [Read More]

    Tracked on Tuesday, September 05, 2006 at 06:21 PM


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