William Galstone underscores the point I made last week:
In the 30 years that the Federal Reserve Board has been collecting these data, the gap between upper-income and middle-class families has rough doubled. In 1983, the median net worth of upper-income families was 3.4 times that of their middle-income counterparts. In 2013, that figure stood at 6.6 times. Although the increase occurred by fits and starts throughout the past three decades, it accelerated dramatically during the Great Recession and its aftermath.
The key point, however, is not that the ratio doubled but why. Corrected for inflation, the median wealth of upper-income families has doubled since 1983, from $318,000 to $639,000. By contrast, the median wealth of middle-class families has stagnated during that period–$94,000 in 1983, $96,000 today. To be sure, middle-class wealth increased to $158,000 between 1983 and 2007 but the Great Recession reversed that gain, and the middle class has not participated significantly in the stock market surge that began in mid-2009.
While we should welcome the increased pace of job creation and early signs of wage gains, the middle class is unlikely to regain a sense of security until the nest eggs of average families reclaim the ground they have lost since the onset of the Great Recession.
The emphasis is mine. While the explanation you encounter most frequently for the growing income and wealth gap is automation, I don’t buy it. I attribute the change to four, mutually reinforcing causes:
- Massive subsidization of financial assets which boosts the incomes and wealth of those with the wherewithal to join in the game.
- Chinese currency manipulation that produced an erosion of U. S. light manufacturing.
- Massive importation of mostly unskilled workers that tended to push wages down at the low end of the income spectrum and made relying on a continuous stream of minimum (and sub-minimum) wage workers a viable business model.
- Protecting some sectors of the economy (healthcare, education) while not subsidizing others (manufacturing).
Those can be summed up in two words: bad policy.
While trying to get a read on recent events in Vermont, I came across several claims that economic growth had slowed because higher-paying jobs had given way to lower-paying and temp jobs. I don’t know enough about Vermont to evaluate this claim, but it appeared to be made by left-leaning individuals wanting a more vigorous government response, not embittered racist dead-enders trying to denigrate the Obama recovery. In any event, we probably need to look closer at these aggregate numbers.