The mid­dle class is get­ting wealth­ier

The Washington Times Weekly - - Commentary - RICH LOWRY

If you don’t yet be­lieve we live in a de facto caste sys­tem, just wait un­til the new Demo­cratic eco­nomic pop­ulists take over Congress. They will rely on the usual myths to por­tray the Amer­i­can econ­omy as an en­gine of in­equity and dis­pos­ses­sion, ben­e­fit­ing only the very rich.

In ad­vance of this on­slaught, Cato In­sti­tute scholar Alan Reynolds has writ­ten a new book, “In­come and Wealth,” that ex­plodes much of the down­beat eco­nomic con­ven­tional wis­dom. The key dif­fer­ence be­tween the rich­est and poor­est house­holds, Mr. Reynolds finds, is sim­ply work: “Most in­come in the top fifth of house­holds is from two or more peo­ple work­ing full time. Most in­come in the bot­tom fifth is from gov­ern­ment trans­fer pay­ments.” Ac­cord­ing to the Cen­sus Bureau, there are al­most 6 times as many full-time work­ers in the top house­holds as in the bot­tom, and 56.4 per­cent of the bot­tom house­holds didn’t have any­one work­ing at all in 2004.

For Mr. Reynolds, the small num­ber of work­ers in poor house­holds casts doubt on the cat­e­gory of the “work­ing poor.” A mem­ber of the work­ing poor is com­monly de­fined as some­one earn­ing an hourly wage too small to sup­port a fam­ily of four. But Mr. Reynolds points out that most of th­ese lowwage work­ers “are not sup­port­ing more than one per­son.” He notes the poverty rate among mar­ried cou­ples was just 5.4 per­cent in 2003, and a mere 2.6 per­cent among full-time, year-round work- ers more than 16 years of age.

“The van­ish­ing mid­dle class” is an­other con­cept Mr. Reynolds doesn’t buy. If the mid­dle class is per­pet­u­ally de­fined as those earn­ing be­tween $35,000 and $50,000, it will con­stantly van­ish as peo­ple get richer. In this vein, one lib­eral study com­plained that 31.3 per­cent of fam­i­lies earned more than $75,000 in 2002, whereas only 11.1 per­cent earned that much in 1969. “By this mea­sure,” it con­cluded, “Amer­ica’s broad mid­dle class has been shrink­ing.” No, mem­bers of the mid­dle class were get­ting richer.

This isn’t sup­posed to hap­pen, ac­cord­ing to the oft-cited da­tum that the wages of Amer­i­can work­ers have been stag­nant since 1973. This isn’t true. “Av­er­age real wages and ben­e­fits have risen by nearly 40 per­cent since 1973, af­ter ad­just­ing for in­fla­tion,” Mr. Reynolds writes. U.S. con­sumers spent $25,816 per per­son in 2004, al­most dou­ble the 1973 amount. Who is do­ing all the con­sum­ing if U.S. work­ers are ex­actly where they were 30 years ago?

Some­one is al­ways strain­ing to find the bad news in Amer­ica’s greater wealth. The New York Times re­ported in 2005 that the num­ber of house­holds with as­sets worth more than $10 mil­lion grew 400 per­cent since 1980. The Times called this a sign of in­creas­ing con­cen­tra­tion of wealth. Mr. Reynolds coun­ters, “Hav­ing 4 times as many wealthy house­holds in 2001 as in 1980 sug­gests wider own­er­ship of stocks, bonds and larger homes — less con­cen­tra­tion of wealth, rather than more.”

The econ­omy is not a zero-sum game, frozen in place. A Busi­ness Week ar­ti­cle in 2004 re­ported the top 50 per­cent of fam­i­lies own 95 per­cent of the coun­try’s as­sets, mean­ing “the gains from ris­ing wealth have ef­fec­tively left out half the pop­u­la­tion.” Mr. Reynolds ex­plains that the wealthy tend to be older and more es­tab­lished. They will be re­placed by younger work­ers as they age in turn: “The top 10-50 per­cent as mea­sured by net worth will typ­i­cally spend most of their wealth on re­tire­ment, then die and be re­placed by an en­tirely dif­fer­ent group of top wealth hold­ers.”

What’s most im­por­tant to wealth cre­ation in the long run is hu­man cap­i­tal, and that has be­come more widely dis­persed. Ac­cord­ing to Mr. Reynolds, “fewer than 8 per­cent of those above the age of 25 had a col­lege de­gree in 1960, but that frac­tion dou­bled to more than 16 per­cent in 1980, and nearly dou­bled again to al­most 28 per­cent in 2004.”

It is Amer­ica — not just the rich — that is get­ting richer, even if Wash­ing­ton’s newly em­pow­ered pop­ulists don’t want to hear it.

Rich Lowry is a na­tion­ally syn­di­cated colum­nist.

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