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Hullabaloo


Saturday, July 26, 2014

 
What middle class decline?

by digby

I'm not surprised by the fact that the middle class net worth has declined, but I confess that the scope of that decline is startling:


Economic inequality in the United States has been receiving a lot of attention. But it’s not merely an issue of the rich getting richer. The typical American household has been getting poorer, too.

The inflation-adjusted net worth for the typical household was $87,992 in 2003. Ten years later, it was only $56,335, or a 36 percent decline, according to a study financed by the Russell Sage Foundation. Those are the figures for a household at the median point in the wealth distribution — the level at which there are an equal number of households whose worth is higher and lower. But during the same period, the net worth of wealthy households increased substantially.

The Russell Sage study also examined net worth at the 95th percentile. (For households at that level, 94 percent of the population had less wealth and 4 percent had more.) It found that for this well-do-do slice of the population, household net worth increased 14 percent over the same 10 years. Other research, by economists like Edward Wolff at New York University, has shown even greater gains in wealth for the richest 1 percent of households.

For households at the median level of net worth, much of the damage has occurred since the start of the last recession in 2007. Until then, net worth had been rising for the typical household, although at a slower pace than for households in higher wealth brackets. But much of the gain for many typical households came from the rising value of their homes. Exclude that housing wealth and the picture is worse: Median net worth began to decline even earlier.

“The housing bubble basically hid a trend of declining financial wealth at the median that began in 2001,” said Fabian T. Pfeffer, the University of Michigan professor who is lead author of the Russell Sage Foundation study.

It's not housing. It's not the fallout from the financial crisis. So what is it?

Hmmmm.

Meanwhile, if there's one thing the keepers of the staus quo have going for them it's this:

Researchers at the University of Hannover in Germany propose a simpler reason: Voters don’t demand more redistribution because they don’t grasp how deep inequality is.

Using data from the International Social Survey Programme, in which respondents were asked to locate their relative income status on a scale of 1 to 10, Carina Engelhardt and Andreas Wagener built a measure of perceived inequality, defined as the gap between the median income, smack in the middle of the distribution, and the average income of the population.

Evidently, nobody has a clue: In every one of the 26 nations, most of them in the developed world, for which they collected data, people believe that the income gap is smaller than it really is. And using perceived rather than actual inequality, the median voter theory works much better: Where people believe inequality is worse, governments tend to redistribute more.

“If citizen-voters see an issue, politics has to respond – even if there is no issue,” they concluded. “Conversely, if a real problem is not salient with voters, it will probably not be pursued forcefully.”

This could go some distance toward explaining the American experience. People in the United States not only tolerate one of the widest income gaps in the developed world, but its government also ranks among the stingiest in terms of efforts at redressing the imbalance.

Unsurprisingly, Americans suffer from a pretty big perception gap. They think an American in the middle of the income distribution makes only 4 percent less than the national average, according to Ms. Engelhardt and Mr. Wagener’s research. In truth, the American in the middle makes 16 percent less.

Shhhhh. Don't tell anyone.

The good news is that there's almost no chance anyone in politics will seek to inform them of the truth so that they can vote their own self-interest. That would undoubtedly upset the "markets" and then all hell would break loose...


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