Inequality is such a fact of American life that it’s easy to shrug off, the NYT reminds its readers. But the Gray Lady also admits today we are in uncharted terrain.
Over the past two years, 19 households have added $1.8 trillion to their coffers, (that’s roughly the size of the economy of Australia), according to economist Gabriel Zucman
Into this fragile situation enters artificial intelligence, which threatens to make a bad situation worse.
Now, in steps the WSJ’s Jason L. Riley, who discusses study after study showing that the populists of the left and right are wrong in their gloomy predictions.
Forget about the laments of capitalism being dead, China eating our lunch, or the middle class is shrinking. A study from the American Enterprise Institute, by Stephen Ross and Scott Winship, pushes back on this glum narrative. In fact, the WSJ this very week highlighted a story whose research demonstrated upward mobility in the U.S. is alive and kicking.
The two authors divided households into five categories:
- poor or near poor
- lower middle class
- core middle class
- upper middle class
- rich
Technically, the middle class has been getting smaller, but that’s only because more families have ascended the income ladder, reports the Journal.
The Author’s Conclusion
“We find that the ‘core’ middle class has shrunk—but so too has the share of Americans with income too low to reach the middle class. The shrinking core middle class is due to a booming upper-middle class. Only the relatively worse-off parts of the middle class have shrunk, and by less than the upper-middle class has grown.”
In steps Mr. Riley: “In 1979, the upper middle class was 10% of all families. By 2024, it was 31%. Over the same period, the share of families with income below the core middle class declined from 54% to 35%.”
Richard Fry of the Pew Research Center:
“Family incomes rose significantly across the entire income distribution, pushing more families into higher income categories,” the study found. Other studies show similar patterns. Yes, the rich have gotten richer over the decades, but so have the non-rich.
Other research tracked individuals (rather than households) and found that upward economic mobility has been the norm as people gain experiences/senority, continues Mr. Riley.
A University of Michigan study found that nearly 30% of people who were in the bottom quintile of earners in 1975 had risen to the top quintile by 1991, and only 5% of individuals initially in the bottom quintile had remained there. A U.S. Treasury Department analysis, “Income Mobility in the U.S. from 1996 to 2005,” concluded: “More than 50 percent of taxpayers in the bottom quintile moved to a higher quintile within ten years.”
Still, Riley reminds readers, President Joe Biden insisted that “trickle-down economics hollowed out the middle class.” “Progressives like Sen. Bernie Sanders claim the affluent have enriched themselves to the detriment of everyone else.”
Meanwhile, President Trump says that bad trade deals, deindustrialization and mass migration are destroying the American Dream, and MAGA Republicans such as Sen. Josh Hawley assert that U.S. workers haven’t seen a real wage increase in 30 years.
Riley argues the suggestion that there has been no appreciable gain in income or material well-being in recent decades for the tens of millions of workers who populate the country’s middle class “has no basis in reality.”
Moreover, the trends in trade and immigration that populists on the progressive left and MAGA right complain about have coincided with economic advancement rather than stagnation.
Those who attempt to blame declines in U.S. manufacturing on China or the North American Free Trade Agreement get the order wrong, explains Mr. Riley.
Manufacturing jobs as a share of all jobs began their rapid and steady decline in the 1950s, some four decades before Nafta took effect and five decades before China joined the World Trade Organization in the early 2000s. Factory jobs decreased due to technology advancements and productivity gains—it takes fewer workers than before to produce more goods—not because of misguided free-trade arrangements. Ending those arrangements won’t bring back manufacturing jobs, which have continued to decline despite the sweeping new tariffs Mr. Trump imposed last year.
Blaming low-skill foreign labor for phantom middle-class wage stagnation also doesn’t pass scrutiny. During Mr. Trump’s first term, legal and illegal immigration were increasing before the pandemic. Yet wages were rising, fastest for less-skilled workers, while unemployment and poverty rates dropped to historic lows.
Backing Riley, economist Michael Strain notes:
U.S. wages have increased by roughly a third over the past three decades, a period that includes large-scale immigration as well as free-trade agreements with Mexico, Canada, Europe, Asia and other partners. Strain adds, “a 34% increase in purchasing power over the last 30 years is not reasonably described as stagnant growth.”
“Populist rhetoric is designed to appeal to emotion, not to reason,” writes Mr. Riley.
… the political class has no problem stoking voter grievances, real or imagined, to advance their various agendas, be it wealth redistribution, industrial policy or some other big-government scheme.
It’s up to us to separate the rhetoric from the reality.
