1 Chart That Confounds A Narrative
An assumption that underlies a lot of online economics discourse is that the middle class is in decline and, relatedly, that income inequality is a major problem in the United States.1
Some good news, then: It appears that, while the middle class has shrunk in the last 50 to 60 years, that’s because there are now fewer people in low-income brackets and more people in high-income brackets.
Note, of course, that the chart is adjusted for inflation (“constant 2022 dollars”). It would indeed be right useless if not.
The numbers are more abstract than what follows2, but even if the entire 9% decline in low-income households was only from people moving into the middle class, that would mean the entire 24% increase in upper-income households came from the middle class, which is also a good outcome. You could wish that low-income fell even farther as the middle class remained constant, but I still think it’s a good thing that the number of upper-income households has tripled since the ’60s.
The three things that arguably took far more out of people’s budgets in 2022 compared to 1967 are housing, education, and healthcare. Despite CPI’s reputation for undercounting those markets, all three are indeed accounted for in CPI. And even if you think they are incorrectly weighted (which they may well be), those markets are out of control for reasons beyond income or tax policy.
The supply of housing is kept artificially low in many jurisdictions.
Education has been taken over by administration costs of dubious necessity.
Healthcare is probably the most controversial as to why our cost control sucks, so I won’t get into it.3
With all that in mind, I don’t want to make any sweeping arguments based on a single chart.4 I just find its counternarrative implications interesting. Do you?
I happen to be more concerned with the low side of the scale and less so with the upper side of it. If there are fewer poor people, I consider that a good outcome even if “the rich get richer.”
Income statistics don’t track individual people, they track categories, which individuals cross into and out of all the time. (Think about your own professional life. How much do you make now compared to your first job out of high school or college?)
Just keep in mind, if your solution is Medicare-for-all paid for by income tax increases on the wealthy, it’s quite a task to make the numbers add up. Maybe you can, but maybe you can’t.
On a different but somewhat related note, the 400 richest Americans are worth $5.4 trillion. Forget taxing them more for a minute; confiscating their entire net worth—most of which isn’t liquid, but bear with me—would pay for less than a year of the federal government, which had $6.8 trillion worth of expenditure in 2024. Then what? (There’s no number for how much the next 400 make, but it’s going to be far less.)
Especially as it doesn’t indicate where, geographically, the gains came from, if they are largely in higher cost-of-living areas (where housing supply is, again, a key driver) or not.