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3 charts that show Biden is right, the middle class ‘has been buried the last 4 years’

Image Credit: Marc Nozell (Flickr) (CC BY 2.0)

Image Credit: Marc Nozell (Flickr) (CC BY 2.0)

Vice President Joe Biden is spot on when he says the middle class “has been buried the last four years.”

1. According to an analysis of Census Bureau data by Sentier Research, August 2012 median annual household income of $50,678 —  5.7% lower than the median of $53,718 in June 2009, the end of the recent recession and beginning of the “economic recovery.”

 

2.  Real disposable personal income has been flat since the recovery began and remains at depressed levels:

 

3. The U-6 unemployment rate — which includes part timers who wish they had full-time work — remains at stratospheric levels:

 

19 thoughts on “3 charts that show Biden is right, the middle class ‘has been buried the last 4 years’

  1. Question:

    Why do we measure economic well-being using income? This seems to me to be a red herring. Consumption would be a much better indicator. I mean, let’s say we have a society. Half the population makes $1 a day. The other half makes $1,000,000 a day. In this society, the total cost of everything (including luxuries) is $1 per day. The standards of living between the two groups would be equal, but, by the income definition, half the population would be in poverty. That doesn’t make sense.

    On the flip side, let’s say one of our people making $1,000,000 a day doesn’t spend any of it. He has no home, no food, nothing. Can he really be said to be rich?

    • let’s say we have a society. Half the population makes $1 a day“..

      O.K., try a dollar a day living for a couple weeks and then come back and tell us how happy you are…

      Better yet, get a few of those ‘maybe happy living on a dollar a day‘ folks and let them try the million dollar route for a couple of weeks…

      Then see how many of them would be happy to return to their dollar a day status…

      • Or you could try it my way, retire like I did w/ a million in the bank. And live at a reduced rate thanks to Obama and Bernanke, below what the charts above show as ‘middle class’ on around 40k net a year.
        When you retire, it is absolutely critical to NEVER touch the principal or you’ll lose income.
        Even worse, the portofolio I built up over the years for my retirement is built with tax free muni’s, the vast majority here in California where I live. And my portofolio is at risk due to the state being run by a bunch of Dems that can’t wait to fund their union patrons forever, whether they run the state and the munis into BK.

    • I’m hearing a lot of “you are wrong” but no why.

      Look, the reason I am asking this question is there are seemingly massive contradictions in some of the data.

      Income inequality, as measured by the Gini coefficient, is rising (income is becoming less equal). However, new research from Stanford, and echoed in older papers, shows that consumption inequality is falling (consumption is becoming more equal).

      In other words, the standard of living among the classes is getting closer.

      By measuring economic welfare with income, you would miss this. That seems to me to be a major flaw of the income measurement.

      So, my question remains: why do we use income to measure well-being?

      One other point I’d like to make:

      Money gives you nothing. You cannot eat it. You cannot give you shelter or warmth. You cannot clothe yourself in it. It is not until you exchange that money for goods/services that you gain anything.

      My contention is simple: consumption is what determines economic well-being, not income.

      If someone would like to have a reasoned conversation with me on this topic, I’d invite you to. But if we are just going to hurl insults, then please do not waste my time.

      Thank you.

      • Jon,
        You are–in essence–saying that a decline in the standard of living is good thing.

        You mention the standard of living closer like it’s a good thing. Let’s delve:

        The poor, by definition, do not have disposable money. They are effectively at a consumptive “floor” (they spend what they have to and that’s it). You state a drop in consumption inequality, so that means those with the money (e.g. disposable income, disposable wealth) are spending/consuming less.

        You say this means standards of living are getting “closer”. Are you trying to say the poor’s standard of living is going up?

        If the poor’s standard of living is not going up, it is (at best) staying the same. That means the non-poor’s standard of living is going down. Is that good?

        This is why income is a good measure, because is says how workers (i.e. exclude the non-working rich and poor) are trending. A median income drop means that the workers are getting closer to the consumptive floor.

        • Not necessarily. What if goods are getting cheaper?

          What if the hours worked per good (the amount of time you need to work in order to acquire said good) falls? This is exactly what is happening now. Goods are becoming cheaper in terms of the hours needed to work. Because of this, the standards of living are rising.

          This is precisely my point. Although real income is stagnant/falling, the standard of living is not. In fact, the standard of living has never been higher. How many of the poor in America have at least two cars? Have a/cs? Have cable, television, internet, smartphones, Xboxes, food, dishwashers, climate controls, etc? A lot more than did just 10 years ago. And even more so than did 30 years ago.

          They are effectively at a consumptive “floor” (they spend what they have to and that’s it).

          I agree with you here. But the thing is, that floor is rising.

          You state a drop in consumption inequality, so that means those with the money (e.g. disposable income, disposable wealth) are spending/consuming less.

          That is incorrect. It could also be that the poor are consuming more at a faster pace than the wealthy.

          This is why income is a good measure, because is says how workers (i.e. exclude the non-working rich and poor) are trending. A median income drop means that the workers are getting closer to the consumptive floor

          This may be true for any single snapshot in time, but to extrapolate trends from it doesn’t make sense. For example, what we are seeing now: real wages have stagnated but the standard of living has skyrocketed. By using the income method, this could not happen, yet here it is.

          • There is some sort of disconnect there. How can the floor be rising if the median value of people’s real income is declining? That would require massive deflation, which we know is not occurring. In fact, prices have been inflating as median income has fallen. Median income is a better measure (statistically) than average, as it negates the effects of unusually high, or low, incomes.

            You believe the standard of living is increasing for the poor, on the basis of some Gini thing. But statistically all the relevant measures point the other way. I think I’d question the veracity of the Gini coefficient if I were you. . .look for disconnects or holes in their methodology.

          • Yashmak,

            I do owe you an explanation, but it is late and I am tired and hungry.

            I promise I will give a detailed explanation tomorrow.

          • Ok, so let’s start here:

            There is a difference between something’s price and its cost. A price is just a monetary number. It is a proxy for its cost, but does not incorporate all of the costs of the thing.

            The costs of a thing are what you have to give up in order to obtain it. In economics, there are the “seen” costs, which are things like its price, the labor you’d need to supply to afford that price, etc. Then, there are the “unseen” costs (more commonly known as opportunity costs). These are more questions like “what else could I have spent my money/time on?” These vary greatly from person to person (unlike the seen costs). However, for the sake of simplicity, I am focusing primarily on the seen costs, specifically labor hours.

            On the Gini Coefficient: This explanation will get technical. I will do my best to explain it in layman’s terms, but please bare with me.

            The Gini coefficient is a mathematical calculation used to discuss inequality. It can be used by pretty much anything. The most common use is when discussing income equality, but you can use it to measure any distribution. The essential mathematics behind it is this: you divide the population into quartiles (diving the population into 4 equal groups). Then, plotting on a graph, you ask “how much of the income does the bottom quartile control? How much does the bottom half control? How much does the bottom 3 quartiles control? How much does the entire population control?” As you can see, the questions are cumulative. In the end, you would get a chart like this. You have the line of perfect equality (a 45 degree line. 25% of the population controls 25% of the income. 50% of the population control 50% of the income, and so forth). Then you have the Lorenz curve, which is the curve we plotted. The Lorenz curve shows the actual distribution of whatever we are measuring. The Gini Coefficient then measures the ratio of the area between the Lorenz Curve (marked “A”) and the area of everything under the Line of Perfect Equality. The scale is from 0 to 1. 0 is perfect equality (the sample is distributed equally) and 1 is perfect inequality (the sample is controlled entirely by one group). The Gini coefficient is a fun statistical tool used in economics, biology, sociology, ecology, chemistry, agriculture, engineering, and even sports!

            Ok, so now we have that out of the way, I can begin my explanation. A number of studies conducted over the years (and more recently an informal one by Dr. Don Beaudreaux at George Mason) has shown the cost of obtaining many goods, as measured by hours worked, has plummeted. Despite stagnant wages, the amount of time a person has to work to afford the basic necessities has fallen. I do not have the study in front of me, so I will give some contrived numbers just to give you an idea what I am talking about: In 1980, a man had to work 1 day to afford his weekly grocery bill. In 1990, He had to work .75 day to afford it. By 2012, that was down to .5 day. This allows him to spend more of his paycheck on luxuries (such as big screen TVs, smartphones, etc), even though his income is the same. So, although his income is the same, his standard of living is increasing. Why? Because costs are falling.

            Falling costs are a hallmark of a free-market economy. Businesses, needing to compete for customers, are constantly lowering their costs and subsequently passing this along to consumers.

            So, in conclusion: falling costs are raising the standard of living. So why does it matter that incomes are stagnant or falling? If you can afford more, why does it matter?

            A personal story: On an inflation adjusted basis, I am making less than my granddad did when he was my age. However, my standard of living is significantly higher: my apartment is bigger than his was, my food bill (as a % of my income) is lesser, I go to far more sporting events and concerts and leisure activities than he did. I have a car, he didn’t. This doesn’t even include the advances in technology for the past 60 years (internet, cell phones, computers, etc).

            Standards of living are based on what we consume, not how much we make. The problem with the poor is not that they don’t make enough; it’s that they do not consume enough. They don’t consume enough food, water, shelter, heat, etc. Money is a means, not an ends in itself. We should stop treating it as such.

  2. Jon Murphy,
    If you earn $1 per day and everything you need/want costs $1 per day, you must produce everything you buy. or everyone’s output is worth $1 per day.
    So what’s your solution for the old, disabled, and children? Do they not get any goods and services? Must they work to earn their $1? Reminds me a physicist joke…. Punchline “I have the solution,…if I assume round chickens” BBT

    • You’re overthinking it. Please stay within the parameters of my exercise:

      Half the population makes $1,000,000/day
      Half the population makes $1/day
      The grand total of everything you could possibly want is $1/day

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