Reason Interviews

Economist Russ Roberts Isn't Worried About the Middle Class

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"A lot of people think the middle class is dead, dying, hollowed out," says Russ Roberts, an economist at Stanford University's Hoover Institution and host of the podcast EconTalk. "And that's a view that's held now increasingly by not just the left…but by conservatives, Republicans, and economists across the spectrum." Roberts' trademark optimism has been tested by the authoritarian shift of American politics in recent years, but he still sees quantitative reasons to celebrate the U.S. economy. He says leading proponents of the claim that the country's middle class is dying have offered "a misreading of the data, or at least an incomplete reading of the data, [ignoring] a much fuller story of opportunity and progress."

In August, Reason's John Osterhoudt spoke with Roberts about how to measure economic progress in a way that tells a more nuanced story about the middle class.

Q: What are the most common errors researchers make when measuring economic progress?

A: There are a lot of different choices you have to make when you're doing a study on how the middle class has done over the last quarter-century. For instance, how do you correct for inflation? One study found that middle-class incomes went down 7 percent over a 40-year period, which would be terrible, because the economy grew substantially over that period.

It turns out if you use a different measure of inflation, you get middle-class income growth of about 14 percent. Now, 14 percent is not very good at a time when the economy as a whole doubled, but even that number is flawed because your money actually buys a lot more today than it did 40 years ago. You can say a TV today is roughly the same price as a TV 40 years ago, but the TV today is a lot bigger. Do you want to correct your comparison for the size of the TV? How about the fact that modern TVs basically never break?

Q: Is there a more accurate way to measure wealth in 1975 vs. today?

A: A recent study found the bottom half of the income distribution today makes the same on average as the bottom half 35 or 40 years ago. That's extraordinarily depressing, if true. It implies the top is just doing way too well. But a handful of studies have instead taken people in 1975 and followed them through time to see if the rich truly did get all the gains. When you do that, you find out that the people at the bottom have the largest percentage gains and often the largest absolute gains over time.

Q: Your colleague, the economist Donald Boudreaux, argues that we also need to look at benefits when comparing wealth across decades.

A: There are 10 different things to look at! Yes, you want to look at full compensation. Benefits and fringe benefits are a much larger proportion of compensation than they were 40 years ago. If you only look at money earnings, you're going to get a distorted picture.

Q: Talk about the snapshot issue with the top 1 percent.

A: Let's think about professional basketball. In the 1980s, the two best basketball players were Larry Bird and Magic Johnson. They made a lot of money and a lot more money than the people in the stands watching them. Now let's come to the present, when LeBron James and Kevin Durant make a lot more money than the people in the stands. The gap between the best basketball players' salaries and the average fan salary is bigger than it used to be, because basketball is more popular today than it was 30–40 years ago. But note that Larry Bird and Magic Johnson didn't get those gains. Basketball players have gotten richer over time relative to their fans, but also relative to past basketball players. The bottom half is not static over time, and the 1 percent is not static over time. So when we use the snapshot model and say, "The top 1 percent has gotten all the gains"—they're not the same people!

That's kind of good, right? Sergey Brin and Larry Page founded Google. Sergey wasn't born in the United States. He came here with his parents as an immigrant child. He wasn't rich when he left graduate school. His parents weren't rich. Yet he became one of the richest people in America. The 1 percent changes, and sometimes the poor don't just get richer, they become truly rich.

Q: We shouldn't throw the baby out with the bathwater.

A: The United States has a lot of cronyism we should get rid of. There are a lot of barriers for the poor. We give them a horrible education through the public school system. But the average person can make a lot of progress, and has. Economic progress doesn't necessarily make us gloriously happier. But we also don't want to conclude that the entire system is rigged simply because the measurements we have of economic progress are flawed.   

This conversation has been condensed and edited for style and clarity. For a video version, visit reason.com.

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  1. Breaking news!!

    From last August.

  2. It is politicians who claim the middle class is dying. And maybe they are right, in a way. What they don’t mention is they are the ones doing the killing. Their two chief weapons are propaganda and high taxes…and terrible policies. Their three chief weapons are propaganda, high taxes, terrible policies and a ruthless devotion to their parties. All right, their four chief weapons are…

    1. Minorly incorrect we have more than two main weapons:
      Amongst our weaponry are such diverse elements as: fear, surprise, ruthless efficiency, an almost fanatical devotion to the Pope, and nice red uniforms – Oh damn!

  3. As a Koch / Reason libertarian, I’m not worried about the middle class either. My primary economic objective is to increase the wealth of people who already have tens of billions of dollars. That’s why I support policies like unlimited, unrestricted immigration and abolishing the minimum wage.

    #BillionairesKnowBest

  4. Something not mentioned.. many of the studies promoting the .myth if a dying middle class completely ignore government spending even though those programs alter behaviors. In certain areas the full value of various benefits exceeds the national median income.

  5. the authoritarian shift of American politics in recent years

    Heil Orange Man !

    1. Spot on!

      Hitlers had the Jews for scapegoats… Orange Man has got the illegal sub-humans for scapegoats!

    2. Uh. I think belligerently conformist PC is a left-wing thing.
      And it is generally the “liberals” who think the State needs to have greater authority over the People.

  6. One of the worst misleading measures is household income without adjusting for household size. (Right next to the cost of housing without adjusting for housing size.) Time was, households were larger because single people could not afford a place of their own and had to live with their parents if they were young, find roommates if they were older, stay in bad marriages, move in with their children if they were widows or widowers. Now, the largest division seems to be between households where both Mom and Dad work and households where Mom lives on welfare and there is no Dad. If the former household is one where Mom and Dad both have college degrees and good-paying white collar jobs, they’re no longer middle class, the single mother with two kids is never going to get to middle class. Middle class takes either one high-income worker or two blue collar workers and there are fewer of those sorts of households.

    1. Those are all good points. I would add that one of the biggest reasons for smaller households is medicare and social security. Those programs have allowed people to be independent and not have to move in with their children when they are old. It is a myth that those programs remain popular just because evil greedy old people want them. No, those programs remain popular because middle class families do not want to assume the burden of taking care of their elderly relatives again.

    2. Are those the only choices our economy tolerates?

  7. The whole “you can buy a huge TV now for next to nothing” is one of the dumbest canards economists put out and further proof that economists understand numbers but not much else.

    First, there is more to life than goods. Things like security and satisfaction matter too. Being “middle class” is a state of mind and a moral condition as much as a monetary one. The poorest person in the US today is by many objective measures wealthier than the richest person a hundred years ago. John D. Rockefeller didn’t have access to the variety and quality of food. medical care, and quality of life improving devices that the average poor person does today. That, however, doesn’t mean poor people today are better off overall than Rockefeller. Things like broken homes, drug addition, financial insecurity, suicide and such are much more prevalent in the middle class today than they were even 40 years ago. And no amount of big screen TVs and free porn makes up for that.

    1. It truly is a Brave New World. I honestly think much of the consternation over AI and the push for UBI is directly tied to the amount of guns and ammo in this country. We could have a real issue in a couple of years of many many many displaced people with large amounts of free time and arsenals of weapons that are well fed but bored with a huge amounts of Wealth Disparity. You know what the libs and technocrats actually want without the guns. But anyway lots of guns, disaffected youths, perceived inequality and free time is a recipe for revolution.

      1. The UBI component is just about getting everyone on the dole.

      2. Yes. A true end to scarcity would be a nightmare. I don’t care how materially well off people are, a society where few people have to work would break down into tyranny or chaos very quickly.

        1. Thankfully, we will have things like CRISPR-tailored superbugs when our betters decide that, though they might need resources to achieve their Elysium, they don’t need all these people. I see it happening when AI and robotics are good enough that robots can: replicate themselves without human interference or supervision, and they have the ability of a ~65 IQ human being. Plus the whole not needing food, water, air, or entertainment thing. If the tech isn’t quite ready yet to make a flu that, e.g., infects everyone w/o X genetic marker indicative of Han Chinese, and is ~90 percent lethal after two weeks, it’s not very far away.

          Perhaps escape into virtuality will occupy people instead?

        2. Eh…

          An end to resource scarcity can be fine so long as everyone still has socially acceptable access to those resources.

          The problem becomes when there is no scarcity, but because of social reasons you have large groups of people that don’t have access to those resources.

          Or in other words, if everyone is fat and happy regardless of job status, there’s no problem.

          If some people are fat and happy (with or without jobs), and the rest have no jobs, no job prospects (because their no/low-skilled labor just isn’t needed), but can’t access those resources without jobs? That’s the problem scenario.

    2. I have listened to every episode of Econ Talk. I can confidently say that Roberts understands your points and shares your criticism of mainstream economists’ narrow focus on material well being (which is important!) without considering things that are more abstract and harder to measure. I think he was addressing one very narrow point with that comment.

      I’ve heard him address lower/middle class wealth several times. I think he has identified some real issues with the simplistic analyses that are very doom and gloom. My impression is, though, that even when you take those things into account, income and wealth growth among the lower and middle class hasn’t been as strong as most people would probably like.

      Having said that, it still seems like things are going pretty well for most people. We should also keep that in mind when trying to address the very real problems that do exist.

      1. Yeah his shows pretty great. I agree with pretty much everything you’re saying here.

      2. I was only judging him by this article. If he agrees elsewhere, then my criticism doesn’t apply to him.

        1. Fair enough — this interview is pretty limited in scope.

          I highly recommend Econ Talk. Roberts is a good interviewer, the guests are interesting and offer different perspectives, and the topics are wide ranging. Most episodes involve academic economists, but there are also business people, sociologists, doctors, technologists, entrepreneurs, philosophers, journalists, historians, authors, political scientists, and more. Heck, one of the most interesting episodes was with a Broadway producer. And Roberts approaches economics from a more qualitative perspective — he’s quite critical of econometrics and an obsession with numerical modeling, and focuses much more on “economic thinking” about trade offs and unintended consequences.

    3. That’s a pretty damned stupid complaint.

      Money is used to buy things. That’s why so many things measure income and spending. What would you measure instead? And I do mean “measure”; if you can’t measure it, you can’t compare it.

      And then, having complained about measuring prices and what money can buy, you go on to compare what John D Rockefeller could buy with what can be bought today.

      And finally you swing back to unmeasurable things, like broken homes, financial insecurity, etc, and assert without citation they are worse now than 40 years ago.

      1. It is not a stupid comment. You are a stupid person who didn’t understand the comment. The point is not that we shoudn’t measure income. The point is that buying power doesn’t measure well being any better than income. What this guy is saying is that buying power is the real measure of wealth not income. And I am saying no buying power is just as deceptive of a measure as income.

        It is okay that you don’t understand the conversation. Everyone misunderstands things sometimes. But for you, who is generally pretty misinformed and dim anyway, to not only misunderstand the point but then call it stupid is frankly beyond the pale. Fuck off and go talk to someone who makes points simple enough for you to fully understand.

        1. Yes, stupid, and so is this comment. You complain about measuring money, then measure money. Then you switch to unmeasurable things.

          Stupid.

    4. Did you bother to read the article?

      “If you only look at money earnings, you’re going to get a distorted picture.”

      Or did you miss that part?

      1. No I didn’t. And like the person above, you don’t understand what I am saying. Think harder and get back to me.

    5. Of course, there is more to life than goods; that’s not in dispute. What the author is trying to do is point out the difficulty in comparing the situation for people at various points on the income / wealth spectrum with someone at a similar point at an earlier time.

      Isn’t it important to the note that while the median home price paid today is significantly higher than in the past, even relative to inflation adjusted income, the home that this median buyer is getting is also significantly larger and filled with many more amenities? Of course it is!

      1. Healthcare is another example of that and really the best. People are forever screaming about how much more expensive healthcare is today than in the past. Really until about the 1960s, there wasn’t much healthcare available. If you got something like cancer or your kidneys went bad, you didn’t spend much on healthcare, you just died. Today we have treatments for so many more things. And that costs money. Yet, people think it should cost the same as it did when all they could do was set a broken bone or maybe give you some antibiotics.

        1. Litigation is much greater now than then, med-mal damage caps aside. Medical products liability wasn’t even a glint in F. Lee Bailey’s eye, back in the early 60s. There wasn’t the pull to single-use everything back then. Course, our knowledge of blood-borne diseases was less too. There was a lot less costly bureaucracy surrounding new drug development then.

          All of this costs money, above and beyond the existence of new treatment modalities resulting in greater medical expenditures.

        2. Last year I read an interesting article about the state of Utah’s government employee health insurance program. Specifically, some bean-counter figured out that for certain drugs, it was cheaper to fly folks to San Diego and bus them into Mexico to fill their prescriptions (with an overnight stay in San Diego) then it was to fill the prescription locally.

          Yes, part of our Healthcare cost increase is due to better quality care then 70 years ago. A huge part of it is not adequately explained by that change.

          1. Agreed. There’s very little price transparency in healthcare.

      2. I don’t know about that. Just starting out, you don’t need a big house, but you do want a safe neighborhood. Small homes in safe neighborhoods are still way more expensive on scale to 40 years ago… even 30 years ago.

    6. re: “Things like broken homes, drug addi[c]tion, financial insecurity, suicide and such are much more prevalent in the middle class today than they were even 40 years ago.”

      Citation, please. Because I lived through that period and my experience (coupled with all the data I can find) contradicts your assertion. Suicide rates, for example, fluctuate over time but on a 40 year view, they are essentially flat at about 13 per 100,000. Broken homes are a tragedy that has always been with us. Drug addiction has shifted in the drug of choice over 40 years but the overall addiction rate is basically flat. Financial insecurity, on the other hand, is down sharply since the stagflation years at the start of your window of analysis.

      So while you are correct that there is more to life than goods, your attempts so far to show that things are worse now than they were 40 years ago fail.

  8. Economist Russ Roberts Isn’t Worried About the Middle Class

    Exorbitantly wealthy academic isn’t worried about the people who he wouldn’t cross the street to piss on if they were on fire. Gee, there’s news.

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