Given all of the policy wonkery that arose last week, especially at the presidential debate, this will be the first in a four‐part series detailing each major issue that—hahahahaha.
Anyway, back to reality. A frequent response to articles like last week’s criticism of Trump’s tariffs is “Okay, so tariffs don’t work, but what would you do about the stagnation of middle class incomes?” (Often a “smart guy” is thrown in there somewhere.) It’s a difficult question because tariffs’ harms and inefficacy are a sufficient reason to avoid them, and, more importantly, because middle class incomes aren’t actually stagnating.
No, really. They’re not.
This might come as a surprise to many readers who for years have listened to politicians and pundits decry income or wage “stagnation” as one of the biggest problems of our time (and a big reason why capitalism or “libertarian economics” or whatever needs to be jettisoned). It’s a conventional wisdom that arose, in my opinion, because: (1) popular, but inaccurate or incomplete, measures of “middle class incomes” once showed stagnation; (2) few people updated their priors when new, more accurate data emerged; and (3) by that time the “stagnant incomes” talking point had become embedded in the national political psyche.
But it’s (mostly) wrong. In general, inflation‐adjusted incomes for all groups—rich, poor, and in‐between —have been increasing for decades, and the middle class is “disappearing” into higher income brackets.
Today we’ll try to break through the mania and examine several ways that incomes might have appeared “stagnant” in the past, and why it’s so important to get this right today.
One of the simplest and most common “income stagnation” errors is the assessment of trends over cherry‐picked periods of time—especially ones that start at the peak of a business cycle and end in the trough. This was particularly a problem during and immediately following the Great Recession, which did a real number on incomes (and pretty much everything else) to a much greater extent, we now know, than we realized at the time. Numerous analyses simply ignored that fact and presented income and other economic data as if recession‐induced nadir were the new normal. It rarely (if ever) is.
It’s thus critical to examine all economic trends—including incomes—between similar points in the business cycle or over as long a period as possible (to let readers see the trends for themselves). For example, if you looked at a common measure of income—real (inflation‐adjusted) median household income from the Census Bureau—between 2006 and 2014, it looks really bad. However, if you extend the exact same series to the maximum period provided in the St. Louis Fed’s FRED database (1984–2019), the picture changes: