The Great Debate

A shrinking middle class means a shrinking economy

The following is an excerpt from a speech Alan Krueger, chairman of President Obama’s Council of Economic Advisers, gave at the Center for American Progress on Thursday. The full text is available here.

Although I have done much research on inequality, I used to have an aversion to using the term. Indeed, the Wall Street Journal ran an article in the mid-1990s that noted that I prefer to use the term “dispersion.” But the rise in income dispersion – along so many dimensions – has gotten to be so high, that I now think that inequality is a more appropriate term.

President Obama summarized the rise of inequality very succinctly in his Osawatomie, Kansas speech, when he said, “over the last few decades, the rungs on the ladder of opportunity have grown farther and farther apart, and the middle class has shrunk.”

These trends are well documented but worth reviewing. My first figure shows the annualized growth rate of real income for families in each fifth of the income distribution over two periods. The figure shows that all quintiles (fifths) of the income distribution grew together from the end of World War II to the late 1970s, but since the 1970s, income has grown more for families at the top of the income distribution than in the middle, and it has shrunk for those at the bottom.

I should point out that the pattern in the post-1970s period is not monolithic. As this next chart shows, the period from 1992 to 2000 was an exception, when strong economic growth and the policies of the Clinton administration led all quintiles to grow together again. Indeed, all income groups experienced their fastest income growth in years.

from David Rohde:

In Milwaukee, an evaporating middle class

MILWAUKEE -- As Washington and Madison fiddle, this city’s middle class is in slow free fall.

First, the numbers. From 1970 to 2007, the percentage of families in the Milwaukee metropolitan area that were middle class declined from 37 to 24 percent, according to a new analysis by the Southeastern Wisconsin Regional Planning Commission.

(Click on the photo above for a slideshow) During the same period, the proportion of affluent families grew from 22 to 27 percent--while the percentage of poor households swelled from 23 to 31 percent. In short, Milwaukee's middle class families went from a plurality to its smallest minority. 

The politics of America’s wealth chasm

By David Callahan
The opinions expressed are his own.

Economic inequality – the meta concern of the Wall Street protesters – is not an issue that typically gets much traction in American politics. Anger at the Haves tends to surge when times are tough, only to melt away when former Have Nots are again flush enough to go back to the mall.

A year ago, with the economy improving, it seemed the U.S. was well along in this cycle. The wrath against Wall Street had died down, replaced by a more familiar conservative politics blaming “big government” for America’s ills.

Suddenly, though, the rich are once more under attack, with protesters even marching this week on the swanky Upper East Side digs of JP Morgan Chase chief Jamie Dimon. What happened?