¡¿”No one actually knows who is in the middle class”? That is crazy. It isn’t rocket science.

Ezra Klein complains today that “no one actually knows who is in the middle class” because he wants to define a dollar income that can define the “middle-class line” like the way we define the poverty line.

In the New York Times, Dionne Searcey and Robert Gebeloff try to create [a middle-class line], defining “middle class” as households making more than $35,000 and less than $100,000. Using this definition shows that the ranks of the middle class have been thinning for decades.

middle class

That is a silly definition of middle class.  Poverty at least potentially refers to some absolute level of material deprivation, but “middle” is nothing if not a relative term.   You cannot have a middle without something above it and below it.  If the lower class gets more income, it must shift our definition of the middle income and this has been a natural process throughout history.  The absolute definition of middle class in the above graph would have been laughable 100 years ago.  The best way to define middle class is to describe statistical properties of the income distribution. Two easy ways to statistically define the middle class are the middle tercile (the middle third) and the middle majority (the 50% centered around the median).   The only reason that we don’t have a good definition for the middle class is a shocking lack of creativity and clarity by thought leaders like in Ezra Klein (as displayed in his essay) and political leaders like Obama.  Obama loves to talk about the middle class in a fuzzy way that includes pretty much everyone, but the middle cannot include everyone.  At the very most, could be defined to include the middle majority, but no more or concept ceases to describe the middle.  Even using the middle majority requires lumping together the 75th percentile with the 25th percentile which are two groups that experience very different economic conditions.

The above graphic is confusing because the authors interpret it as demonstrating that middle class people were actually becoming better off from 1967 to 2000, even though the graph is declining which makes it look like the middle class is in decline.  The reason why they have such a counter-intuitive interpretation of the graph is that people were moving from the middle class to the “high” class.  The graph also appears to show that both the middle and high income classes have been falling into the lower class since 2000.  That is a bit misleading too because high income people have done very well since 2000.  Even as their numbers have fallen, their incomes have risen, so a better measure would show that incomes of the richest have been rising, not that the richest have been hurt by shrinking numbers of people.  The above graphic uses an odd, misleading measure that would be useless for comparing the US with most countries in the world (and most of history) where almost everyone would be in the low category.

Middle class is still an important concept throughout history and around the world, so we need a better definition that applies across time and geographic boundaries.  The income of the median, middle tercile and the middle majority are three obvious statistical measures that are all superior to the odd examples used above.

The median income is the simplest measure of the state of the middle class.  Or if you want to use average incomes, then take the average income of the middle tercile.  Either of these measures would more accurately show that the middle class did poorly for most of 1967-2013, with some partial recoveries like during the 1990s and since 2011.  You can see the very modest improvement in the fortunes of the middle class since 2011 on the latest graph of median income (red line) from Sentier Research:

HouseholdIncomeIndex_UnemploymentRate_12_2014A recent New York Times poll found that only 1% of people think of themselves as upper class and 12% consider themselves upper-middle class.  71% of Americans consider themselves to be middle class or working class (which the poll put as being between middle class and lower class.  If you add in the people who are in the upper-middle class, that means that 83% of Americans are not upper class (the top 1%) nor lower class (the bottom 15% in the poll).  That shows a ridiculous lack of class consciousness that has been a longstanding confusion because elites have avoided using a straightforward definition like the middle majority.  90% of Americans would agree that the top 10% richest Americans are NOT in the middle class, but 90% of the richest Americans think that they are part of the broad middle class.  If nobody can define middle class, then it is a useless term and should be discarded in favor of the middle majority.  That is a clear, self-explanatory concept.

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Posted in Middle class

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