The middle class grows poorer

The US Census Bureau has released its report for 2008, and the data show that median household incomes fell from 2007 to 2008 by almost $2,000 per year. The median household income for last year was $50,303, so 50% of American households made less than that and 50% made more.

This means that middle class families are suffering major losses in income. As far as this statistic goes, it doesn't matter what happens to the poor or the rich. The poor are already squarely in the "below" half, whether they lose a job or not. Similarly, it makes no difference whether a banker does or does not get that fat bonus check, because they were always squarely in the "above" half. The only way this median can fall is if many middle class families are losing income. They're the ones who fall from the "above" half to the "below," so that the median must be set lower.

Middle class families, I should point out, are the ones who do the spending. They're the bulk of the consumers on whom 70% of our economy depends.

Mish has a good post on this with some charts showing income over time. Over the past 10 years (1998 to 2008) median income did not rise. This is the first time we had a "lost decade" in incomes since the Great Depression. After adjusting for inflation and putting everything into 2008 dollars, incomes have increased by about $10,000 per household over the past 40 years.

Only... government estimates of inflation are too low. They say "Oh, sure, we know that a 1968 dollar bought a little more than a 2008 dollar." But in fact, a 1968 dollar bought much more than a 2008 dollar, something the government doesn't admit. They keep pretending that the dollar only lost (say) 2% of its value in a given year, when in fact it lost 4% of its value. If we were being honest about inflation, I'd bet that American household incomes have been unchanged for the past 40 years.

That is, it now takes 2 workers to earn the same income that 1 worker earned 40 years ago, for the majority of the middle class. Why should that be, when technological advances should have increased the productivity of individual workers? Aren't workers typically creating more wealth now than they were 40 years ago?

Well, no, because the workers 40 years ago included a heck of a lot more real producers, such as small farmers and manufacturers. We have a great many jobs today that produce nothing, that involve securitizing mortgages or prescribing useless drugs or designing standardized tests. We don't produce as much real wealth, and we are poorer for it.

If you consider households that are now two-income but would have been one-income 40 years ago, you can see that for a large part of the population we are making half what we made in the late 60's. And on top of that we're in debt up to our eyeballs!

Growing income disparity -- in which the poor get poorer and the rich get richer -- is part of the problem. Incomes have not been flat for the highest income households, but have increased substantially over the past 40 years. For the very wealthiest, the top fraction of a percent, incomes have skyrocketed. Money has been sucked out of the middle class and given to the bankers. This disparity has to be corrected, and if the ultra-rich don't wake up to that fact, it will be brought to their attention when they see the pitchforks glinting in the torchlight.

That said, it's also a simple fact that only production is real wealth. For decades, we've been offshoring production and onshoring debt, and I think that grand experiment is coming to an end.

We must produce more if we hope to regain the wealth we had 40 years ago.