How to Stop the Hollowing

I have some points of disagreement with Robert Samuelson’s latest Washington Post column in which he takes exception to the notion that the American middle class is being “hollowed out”:

We’ll be hearing a lot about the middle class in the coming months. That’s one sure bet for 2016, as both parties compete for votes. What’s less sure is whether we’ll get an accurate assessment of the middle class’s condition. By now, the conventional wisdom is familiar: The top 1 percent has skimmed most income gains for itself, producing decades of stagnant living standards for most Americans. Wall Street has slaughtered Main Street.

Now comes a report from the Pew Research Center that paints a more complex picture. It’s not that the Pew study contradicts all the conventional wisdom. It finds (as have others) that economic inequality is increasing. One of the study’s main conclusions is that the middle class is being hollowed out, as more Americans find themselves in either upper- or lower-income households. The extremes grow at the expense of the center.

Consider. In 1971, about 61 percent of adults lived in middle-income households (defined as three-person households with incomes from $41,869 to $125,608 in today’s dollars). By 2014, that share had dropped to 50 percent. Meanwhile, the share of low-income households (households with incomes of $41,868 or less) grew from 25 percent to 29 percent, and the share of upper-income households (incomes above $125,608) increased from 14 percent to 21 percent.

But the study convincingly rebuts the notion that the living standards of most Americans had stagnated for many decades. Pew calculated household incomes, adjusted for inflation, all along the economic spectrum and found that, until the early 2000s, most households reaped slow but steady increases. Growing inequality did not siphon off all gains for those who are not rich . Here’s how Pew describes this period:

For example, I think he might want to take into account disposable income, debt load, housing costs as a proportion of total income, and what proportion of household actually fit the definition of middle-income that he’s using before drawing any conclusions.

But why quibble? I want to focus on where I can agree with him:

We need a prudent agenda — not a vendetta against the rich or the poor but a purging of policies that abet inequality with few offsetting benefits. Tax breaks that favor the rich, starting with the infamous “carried interest” subsidy, should be abolished. Limits on unskilled immigrants, who inflate the ranks of the poor, should be enacted as part of comprehensive immigration legislation. Half of Hispanic immigrants have low incomes, Pew says.

That’s his list of ways to bolster the middle class. I’ll present some of mine.

• Start helping the poor by giving them money rather than professional services. How much that benefits the poor is debatable and it increases income inequality.
• Rationalize our system of intellectual property. Giving so much to the owners of intellectual property increases income inequality.
• Stop subsidizing the financial sector and the real estate sectors. Those subsidies are major contributors to income inequality and mostly benefit the highest income earners. If you must subsidize them, increase the taxes on those sectors in the amount of the subsidies.
• Our immigration system needs a lot more reform than that. Abolishing the emphasis on family reunification and the diversity lottery, for example, are vestiges of the America of a half century ago, largely counter-productive now. Prevent H-1B and L-1 visas from being used as tools to lever the wages of middle income people down.
• How about free trade pacts rather than managed trade pacts that injure the middle class to the benefit of the wealthiest? If you insist on those managed trade pacts, why not tax the winners to help the losers?

Those would be something anyway.