33 Pages Posted: 4 Feb 2015

Date Written: January 2, 2014

Abstract

The conventional narrative that the last generation has seen the rich get richer and the poor get poorer while the middle class gets hollowed out has serious flaws. First, the claims of growing inequality overlook data on income mobility. It is not the same households who are rich and poor each year, and many poor households become richer over time. Second, the claim of middle class stagnation is largely a statistical deception based on an incomplete interpretation of median household income. The middle class has shrunk but so has the percentage of poor households as the percentage of rich households has grown significantly in the last few decades. Third, looking at consumption rather than income enables us to see both the absolute gains of poor US households and the narrowing of the gap with the wealthy. Poor US households are more likely to have basic appliances than the average household of the 1970s, and those appliances are of much higher quality. Together these three points offer a much more optimistic view of the degree of inequality and the ability of the poor to become rich. The picture is not all rosy and a final section discusses the relevance of housing, health care, and education costs to this argument.