The Not-So-Simple Politics of Inequality and the Middle Class

Soaring inequality should be leading to policy and political change. So why hasn’t it?

Thomas Piketty’s best-selling book, Capital in the Twenty-First Century, catapulted the discussion of inequality to great prominence. Even Republicans now say that thisis a pressing problem that has to be dealt with soon.

However, the discussion about inequality today is actually quite different from what happened in the past. The last book on inequality to capture widespread public attention was Michael Harrington’s The Other America: Poverty in the United States. This book inspired the “War on Poverty,” leading to the expansion of social programs that served the poor and the elderly (many of whom were also poor).

Today’s focus on inequality is more expansive and tied to the issue of middle class stagnation, i.e., the assertion that American families and workers have had very little real growth in their incomes or earnings over the past several decades (usually dated back to 1973 or 1979). This differs greatly from the experience of the 1950s and 1960s, when middle class incomes and earnings were rising steadily.

Given the huge numbers of voters in the middle class, inequality should be an explosive political issue. The “Occupy Wall Street” movement, for example, chose as its slogan, “We Are the 99 Percent,” picking up directly on Piketty’s focus on the growing share of income going to the richest one percent.

Nevertheless, concerns about inequality have yet to lead to major policy change or to significant electoral victories for Democrats, the political party most concerned by inequality and its impacts. While some progressives may offer a variety of explanations for why Americans seem to be acting directly against their own interests – such as media bias, the Democratic Party’s capture by elite interests, etc. – there’s another explanation: That the accepted findings on middle-class stagnation are wrong.

My research shows inequality has indeed risen – but not by the same amount as others say. While the middle class is getting a smaller share of total output, they’re also seeing a smaller share of a much bigger pie. This means that even as inequality is rising, the middle class is also seeing its standards of living rise. This complicates the typical household’s “experience” of inequality and makes the problem much less politically obvious.

In what’s now the conventional wisdom, Piketty and his American collaborator, Emanuel Saez, find that 91 percent of the inflation-adjusted growth in family incomes between 1979 and 2007 (the last business cycle peak before the Great Recession) went to the richest ten percent, leaving the bottom 90 percent with a paltry 5 percent rise in their standards of living over these years. Under their methodology, Piketty and Saez’s average inflation-adjusted incomes for the bottom 90 percent (which includes some of the upper middle class) in 2013 were about the same that they were in 1968 and 6 percent lower in 2013 than they were in 1979. Similarly, in terms of earnings, Larry Mishel and his colleagues at the Economic Policy Institute report that real median hourly pay increased by just 6 percent from 1979 to 2013.

Aside from the methodological limitations of the Piketty-Saez approach (which I describe in detail here), it’s hardly believable that most of the population saw virtually no benefits from all of the growth associated with the information technology/computer revolution. Nor do Americans perceive they haven’t benefited. Pew and the General Social Survey have been periodically asking the following question: “Compared with your parents at a similar age, is your standard of living better, the same, or worse?” Even during the years of the Great Recession, 60 percent of Americans said things were “better,” while 24 percent said they were the same, and 13 percent said things were worse (the answers were a bit more positive prior to 2008).

More credible is data from a widely-respected study by the Congressional Budget Office (CBO) showing that middle class incomes grew by 41 percent from 1979 to 2007 and declined slightly during the Great Recession because of lower taxes and other government policies.

My data also find – in contrast to Mishel and his colleagues – that real median annual compensation – including the value of benefits as well as wages – grew by 38 percent from 1979 to 2013.

This isn’t to say inequality isn’t a problem – my data also show that inequality rose from 1979 to 2009. During those years, my analysis finds the income of the top 10 percent of households grew by 138 percent while the earnings of the highest 10 percent of earners grew by 100 percent.

But it’s also important to recognize that people’s feelings towards the economy and their place in it are very mixed. While many more people have a negative view towards the general state of the country, they still believe their own financial condition will improve rather than decline over the next year, and they retain a basic optimism about America. But in the new ever-changing global economy, Americans know that job security is not what it once was and have many concerns about their children’s future, including the cost of college.

Americans also find the status of the rich to be problematic and are generally supportive of plans to help the working poor, such as raising the minimum wage. On the other hand, Americans also admire those who strike it rich and have historically resisted policies aimed at redistributing wealth.

The bottom line is that inequality per se is a secondary issue because Americans are modestly optimistic about their future. When middle class households were asked by Pew to compare their expected standard of living to that of their parents during their peak financial years, 71 percent said it would be higher, 7 percent said it would be the same, and just 17 percent said it would be lower.

Many progressives have relied on a series of suspect analyses to argue that the system is broken and that people are ready to support a more redistributive state. But the dual phenomenon of rising inequality coupled with rising middle class standards of living explains why the issue is more complex than it seems. Moreover, public antipathy to how modern governments operate undermines widespread support for more public spending.

Advocates of a more equitable state would do well to embrace these realities.

Stephen Rose

Stephen Rose is a Research Professor at the George Washington University Institute of Public Policy. A well-known labor economist, he is the author of Social Stratification in the United States, first published in 1979.