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More Economics Updates

| February 12, 2018


Last week I did a post about recent economics news and commentary.  Some of the pieces were rather lengthy, so I omitted a couple items.

Today, I will circle back to post them, as I think they are compelling enough to warrant your time.

The first is an excerpt from a post in Carpe Diem about the middle class – is it really disappearing and where is it going? 

   If the middle class is shrinking, where are they going? There are only two places/directions they can go: Up or Down. And in fact, the middle class really is shrinking, but it’s because so many US households are moving up to higher income groups, not down to lower-income groups, as the chart below shows (thanks to AEI’s Olivier Ballou).

   Over a time period of 1967 to 2016 and using an income measure for middle-class income of $35,000 to $100,000 in 2016 dollars from Census Bureau data, it’s true that the share of US middle-class households has been declining, from 53.2% of US households in 1967 to 42.1% in 2016 (see left side of the graphic above). But where did the shrinking middle-class US households go? As the right side of the graphic above shows, the shrinking middle-class moved up into the group of American households earning $100,000 or more (in 2016 dollars). In 1969, only 8.1% (slightly less than one out of 12) of US households earned $100,000 or more, but by 2016, 27.7% (more than one out of 4) of US households were in that high-income category. At the same time, the share of low-income US households earning $35,000 or less decreased from 38.7% in 1969 to 30.2% in 2016. Stated differently, the 19.6 percentage point increase in the share of high-income US household between 1969 and 2016 (from 8.1% to 27.7%) was a result of: a) an 11.1 percentage point shrinkage in the share of middle-class households (from 53.2% to 42.1%), and b) an 8.5 percentage point shrinkage in the share of low-income households.

   Bottom Line: There has been a shrinkage of America’s middle class over time (by either measure above), but it’s not a story of economic gloom and doom, characterized by a “widening gap between what Americans earn and the housing they can afford” but rather a positive story of economic prosperity and upward mobility that has gradually but consistently lifted millions of lower-income and middle-income US households into higher income groups over time. The fact that nearly 28% of US households annually earn $100,000 or more runs counter to the widespread narrative of an American middle-class in decline and deserves much greater attention as evidence of a dynamic and prosperous America with significant income mobility.

That certainly doesn’t fit the narrative that many politicians are trying to ply us with – does it?

The second is a video that was in Perry’s blog that ties in with the Forbes article about Venezuela no longer being an oil superpower.  (Warning:  It is 5 ½ minutes long.  And please excuse the pitch for Prager University at the end.)

How's Socialism Doing in Venezuela?

As Margaret Thatcher famously said, “The problem with socialism is that you eventually run out of other people’s money.”  Apparently, even in Venezuela, people can still vote with their feet.

Until next time, cheers!