Why the Shrinking Middle Class is a Good Thing

A brief tidbit from the Curmudgeon - I'm hoping to use an upcoming week-long road trip to delve into some topics that have been more front and center lately, but for now, hopefully this will tide you over.

A friend was recently decrying the shrinking middle class, and how bad that is. Such laments are usually accompanied by grumbling along the lines of, "the rich get richer, and the poor get poorer." The popular notion, at least on the left, is that the rich moguls keep grabbing more and more, and they steal the very crumbs out of the mouths of the peasants they enslave.

Well, not so fast. Yes, it's true; the middle class is shrinking. A Pew Research Center study found that the middle class shrank from 61% of households in 1970 to just 51% in 2013. (And before anyone tries to put a partisan spin on that, let's note that that time period spans numerous presidential administrations and Congresses, on the right and on the left - as well as numerous economic cycles, both boom and bust.)

However, if the middle shrinks, it's only bad if it's because those who used to be in the middle have now seen their fortunes fall to a greater extent than those that have seen their fortunes rise. In other words:

Did the middle class shrink because the lower class grew, or because the upper class did?

Indeed, the same Pew study found that, over that same span of time, the share of upper-income households rose from 14% to 20%, while that of lower-income households shrank from 29% to 25%.

Friends, isn't that the whole point of the American Dream? Those at the lower end of the income scale move up into the middle class, and those folks in turn move into the upper class? That's a good thing, right?

"Ah," the left says, "but that proves our point - the rich get richer, and the poor get poorer!"

No, they don't. The numbers above don't indicate anything of the kind. What they do indicate is that there are more of the rich than there were in 1970 - but, at the same time, fewer of the poor! Again, isn't that a good thing?

I anticipate a final lament from those on the left: "Yeah, but that was through 2013. Trump has made it worse!"

Again, not so fast. Average hourly earnings of production workers have grown at a faster year-over-year pace since Trump was sworn in than they did during Obama's tenure - and Obama had the luxury of starting out with wages so depressed there should have been no place to go but up, and he also had the assistance of unprecedented monetary stimulus. Yet he still couldn't get wages growing.

So it's highly doubtful that Trump has reversed the trend noted in the Pew study, since wage growth is accelerating. The tide is rising, folks, and it's lifting all ships - as it should.