Enlightenment Now: The Case for Reason, Science, Humanism, and Progress

But even in the lower and lower middle classes of rich countries, moderate income gains are not the same as a decline in living standards. Today’s discussions of inequality often compare the present era unfavorably with a golden age of well-paying, dignified, blue-collar jobs that have been made obsolete by automation and globalization. This idyllic image is belied by contemporary depictions of the harshness of working-class life in that era, both in journalistic exposés (such as Michael Harrington’s 1962 The Other America) and in realistic films (such as On the Waterfront, Blue Collar, Coal Miner’s Daughter, and Norma Rae). The historian Stephanie Coontz, a debunker of 1950s nostalgia, puts some numbers to the depictions:

A full 25 percent of Americans, 40 to 50 million people, were poor in the mid-1950s, and in the absence of food stamps and housing programs, this poverty was searing. Even at the end of the 1950s, a third of American children were poor. Sixty percent of Americans over sixty-five had incomes below $1,000 in 1958, considerably below the $3,000 to $10,000 level considered to represent middle-class status. A majority of elders also lacked medical insurance. Only half the population had savings in 1959; one-quarter of the population had no liquid assets at all. Even when we consider only native-born, white families, one-third could not get by on the income of the household head.⁴⁵

How do we reconcile the obvious improvements in living standards in recent decades with the conventional wisdom of economic stagnation? Economists point to four ways in which inequality statistics can paint a misleading picture of the way people live their lives, each depending on a distinction we have examined.

The first is the difference between relative and absolute prosperity. Just as not all children can be above average, it’s not a sign of stagnation if the proportion of income earned by the bottom fifth does not increase over time. What’s relevant to well-being is how much people earn, not how high they rank. A recent study by the economist Stephen Rose divided the American population into classes using fixed milestones rather than quantiles. “Poor” was defined as an income of $0–$30,000 (in 2014 dollars) for a family of three, “lower middle class” as $30,000–$50,000, and so on.⁴⁶ The study found that in absolute terms, Americans have been moving on up. Between 1979 and 2014, the percentage of poor Americans dropped from 24 to 20, the percentage in the lower middle class dropped from 24 to 17, and the percentage in the middle class shrank from 32 to 30. Where did they go? Many ended up in the upper middle class ($100,000–$350,000), which grew from 13 to 30 percent of the population, and in the upper class, which grew from 0.1 percent to 2 percent. The middle class is being hollowed out in part because so many Americans are becoming affluent. Inequality undoubtedly increased—the rich got richer faster than the poor and middle class got richer—but everyone (on average) got richer.

The second confusion is the one between anonymous and longitudinal data. If (say) the bottom fifth of the American population gained no ground in twenty years, it does not mean that Joe the Plumber got the same paycheck in 1988 that he did in 2008 (or one that’s a bit higher, owing to cost-of-living increases). People earn more as they get older and gain experience, or switch from a lower-paying job to a higher-paying one, so Joe may have moved from the bottom fifth into, say, the middle fifth, while a younger man or woman or an immigrant took his place at the bottom. The turnover is by no means small. A recent study using longitudinal data showed that half of Americans will find themselves among the top tenth of income earners for at least one year of their working lives, and that one in nine will find themselves in the top one percent (though most don’t stay there for long).⁴⁷ This may be one of the reasons that economic opinions are subject to the Optimism Gap (the “I’m OK, They’re Not” bias): a majority of Americans believe that the standard of living of the middle class has declined in recent years but that their own standard of living has improved.⁴⁸