Scenes from a declining middle class
This is Scott Beaulier:
Louis Brandeis once said, “I abhor averages.” After reading Average Is Over (Dutton Press) by Tyler Cowen of George Mason University, I’d concur with Brandeis: if the average American’s future is anywhere close to Cowen’s depiction, I’m abhorred!
Drawing in part from some of his previous work about the “great stagnation,” Cowen thinks the average American’s future will be stagnant and no better–technology and gadgets aside–than today in terms of income. Wages for American families have been stagnant since the 1970s, in fact, and Cowen sees no obvious source of wage growth on the horizon for the average American.
In fairness, Beaulier later takes a different and more upbeat perspective, and Tyler is a “utility optimist.” But many interpret this scenario quite negatively. Here’s what I don’t get. This “technology and gadgets” stuff is pretty important. The American middle class has some of the highest living standards the world has ever seen, and the pessimistic view is they’ll get still higher as new biotech inventions cure diseases and immersive computer games provide kids with thrills far beyond the plastic toy soldiers I played with on the carpet in the 1960s? What’s the optimistic view?
Then there’s the jobs issue:
What ought to worry local residents is Georgia’s inability to produce workers who can build the sets, run the wires or manage the sound for such films. This skills shortage may endanger the $4 billion or so that Jim Jacoby, whose firm plans to redevelop the complex, reckons the film industry could bring to the state this year.
Georgia’s skills shortage goes beyond the film industry. For every four tradesmen that retire just one takes their place, even though the state’s unemployment rate hovers around 7.4%, over a point higher than the national rate. But a similar problem, albeit in less acute form, is in evidence across America. More than half of the country’s tradesmen are aged over 45. According to the Department of Labour, America will need 41,700 more cement masons, 114,700 more electricians and 218,200 more carpenters by 2022. The government already spends around $17 billion a year trying to close what the president, Barack Obama, calls the “skills gap”. On July 22nd Mr Obama signed laws that he said would make job-training programmes that receive federal money “more effective, more responsive to employers and more accountable for results”.
One such programme is Go Build Georgia, which teaches teenagers a trade. But efforts to train young people as plumbers or pipe-fitters run up against concern from parents. Instead of being proud to raise a future welder, “everyone wants to believe that their child will go to Harvard”, says Matthew Gambill, the director of the Georgia Association for Career and Technical Education. Despite the lower cost of a skills-based education and the solid job prospects, enrollment at technical colleges has dropped 23% since recession-stricken students clamoured for entry in 2010.
So there are lots of good middle class jobs out there like plumbers and electricians, but Americans are turning up their noses. They don’t want to be seen as blue collar. They are Harvard material.
So off they go to college to study the STEM fields. Here’s Kevin Erdmann:
This reminds me of one of the facts about American life that undermines the widely held belief in the death of the American middle class. That picture of India is the picture of a place where people aren’t middle class but aspire to be. People who are struggling, work.
Even if you could go hire 1,000 engineers in American universities, you’d still end up with 700 Asian engineers.
College is widely attended in America. If the middle class is dying, it’s not for lack of education. And, once you’re there, you can choose among hundreds of areas of study. They all basically cost the same and take the same amount of time. But, some require more work. And the harder subjects generally pay more – engineering, sciences, computer & technology. The main difference is – how hard do you want to work for the next 4 to 6 years in order to increase your lifetime earnings? Now, wouldn’t you think latest “first generation that will be worse off than their parents” would be clawing and fighting to get the spots in those subjects? Yet, how many American universities would literally be closing down those departments if they didn’t have immigrant students to fill up the classes with?
So they don’t want to be plumbers because it’s not glamorous enough. And they don’t want those STEM jobs because that would require a lot of studying. Might interfere with the partying. Wait, I forget about all those students who cannot “afford” to go to college. And yet strangely enough I see far fewer teenagers working then when I was young. Now I probably sound like an old reactionary. But if they aren’t working I say good for them! They should optimize. I presume they need the money much less than I did when I was 15 or 16 years old, back in the early 1970s.
Despite the decline of the middle class, college administrators tell professors like me that they must offer more and more luxurious student housing to keep up with the fact that kids today don’t grow up sharing a bedroom. From the NYT:
COLUMBIA, Mo. “” Brenden Heiland had breathed the vanilla lavender-scented clubhouse air. He had seen the beach volleyball court, toured the game room equipped with billiards, Ping-Pong and air hockey tables, and learned with delight of the Friday pool parties with a D.J., free food and snow cones, spiked with rum for those of age.
Now, as he and the three friends he was apartment hunting with stood peering at the pool, Mr. Heiland, 19, pondered what life might be like if he chose to live in this off-campus complex, the Grove, when his sophomore year at the University of Missouri begins this fall.
“It’s like a vacation, almost,” he said. “I’m not going to go to class “” that’s how I look at it.”
As private housing developers try harder than ever to outdo the amenities that their competitors offer in college towns, concern is growing about the academic and social consequences of upscale off-campus student housing.
The spas, tanning salons and sprawling pools offered by these complexes, which often require their tenants to be students, are a far cry from the traditional on-campus residence halls that may house classrooms and faculty and host lectures and academic discussions.
What happened to those cement block prison cell dorm rooms of the 1970s?
During hard times people buy second hand goods. I have a bunch of furniture I bought used from other people’s houses–still quite nice. Here’s the WSJ:
That Perfect Dining Room Table? No One Wants It, Even If It’s Free
. . . Whether moving to a smaller abode or simply cleaning out, many people are making an unwelcome discovery: Their prized family heirlooms have turned into junk. Upholstered sofas, formal dining tables and hutches, Victorian-style mahogany and oak furniture, entertainment units, bulky television sets, pianos””all have become almost impossible to sell or, in some cases, give away.
The furnishings industry has a name for the big, dated wood-finished and upholstered pieces that no one wants anymore”””brown furniture.” Stockpiles of “brown leather and brown Ultrasuede couches have nowhere to go,” says Jeffrey Brooks, a Long Valley, N.J., interior designer.
What happened to the market for secondhand furniture? Those consumers are shopping at Ikea, Wal-Mart and Target, says Jerry Epperson, a partner at Mann, Armistead and Epperson, a Richmond, Va., investment bank specializing in the home-furnishings sector. The cost of furniture, in constant dollars, has fallen on average about 50% over the past 30 years, he says, the result of the availability of cheaper imports.
Even the Salvation Army, known for making furniture pickups, has become pickier in recent years, says Major Greg Davis, a general secretary at the nonprofit. Delivery-truck drivers began carrying Internet-enabled tablets about two years ago. When in doubt, they take a quick photo of a piece and send it ahead to the local store to make sure it will be accepted. Many shelving units are turned away, he says, as are pianos . . .
OK, some of that baroque brown stuff is pretty hideous, but still . . .
Alan Blinder is a very bright and well-intentioned liberal:
Concentrating on, say, the growing gap between the upper 1% and the lower 99% leads Mr. Piketty to advocate such redistributive policies as higher top income-tax rates, stiffer inheritance taxes and a progressive tax on wealth.
But if you dote instead on plight of the lower 15%-20%, or even on the lack of progress of the lower 50%, you are led to think about policies like giving poor children preschool education, bolstering Medicaid, raising the minimum wage, expanding the Earned Income Tax Credit, and defending anti-poverty programs like food stamps.
These two policy agendas are not inconsistent, but they are certainly very different. The first tries to level from the top; the second tries to level from the bottom. Between the two, I’d like to think that most Americans join me in favoring the second. But I’m worried. Does Pikettymania prove me wrong?
Yes it does Mr. Blinder. I may not agree with all of Blinder’s policy recommendations, but he’s thinking like a good utilitarian. In a rational world we’d do “free policies” that help the middle class, like simplifying taxes, abolishing the FDA, removing occupational licensing laws, monetary stimulus to create jobs, etc. But when it came to policies that actually cost money, we’d focus on the poor in America, or even better on the much poorer people in developing countries. But not the middle class.
The plight of the American middle class is perhaps the phoniest issue I’ve ever seen. I don’t know the agenda of the people obsessing about this issue, but I’m pretty sure it’s not utilitarianism.
Tags:
10. August 2014 at 17:51
If rational employers see a shortage of desired workers, they raise wages to attract those workers. Where’s the evidence of systematic increases in pay in the industries for which workers are supposed to be in short supply?
10. August 2014 at 18:33
I’m with you in a lot of what you say. But abolish the FDA and leave our health in the hands of food and drug companies? That won’t help the middle class.
10. August 2014 at 18:36
I talk a lot about everyone ending up in a VR rig. 🙂 This isn’t just because all we do is VR…. just mostly.
Home builders now build with closets large enough for clothes in every room, cabinets for dishes and toys, pantries for food. Furniture for storage? nah.
Electronics get hung on walls, no more media stands, speakers are tiny. Besides, who needs a giant ass stereo?
I’ve been trying to convince wife the kitchen in new home need no cabinets and 4 dishwashers.
The plumber thing is why GICYB job offer price should be so low…. so everybody who wants can be an artist.
10. August 2014 at 19:57
I think educators have ruined vocation training. They seem to think that everybody would be better off learning what they learned and how they learned ending up at the school of education.
The middle class is struggling because the “information economy” and the “manufacturing economy” are not limited by national borders. Global income equality is getting better at the expense of national income equality. Next up on the chopping block is the “service economy”. Lawyers, doctors, educators–a robot will be taking your job next.
It is good thing folks are content with a cheap big screen TV and cat videos on facebook.
10. August 2014 at 22:34
Maybe in the future those positions will open up and draw people in, but right now lots of the skilled trades have not-so-great unemployment rates. Plumbers have a 10% unemployment rate, and the rate for Electricians and Carpenters is even higher.
More generally, I’m pretty skeptical whenever an employer starts complaining about how they can’t find workers amidst high unemployment. What’s usually happening is that they’re not yet at the point where they’ll pay the higher wages necessary to draw people in or offer on-the-job training to people with limited experience. Instead they’re just whining about how they can’t find help at the too-low-market wages they’re offering.
It is, but it’s also a small fraction of your overall household’s spending compared to stuff like housing, transportation, and health care. And of course it’s not exactly a big comfort to lose valuable job stability in exchange for better cell phones.
But I think that’s all a false trade-off anyways. Somehow most of the western European countries and Canada managed to respond well to globalization without completely tanking a bunch of programs and rules designed to help provide some valuable protection and stability for their workers. There’s no reason the US couldn’t be doing that too, except for toxic internal politics when it comes to labor and welfare policy.
@Russ Abbott
More to the point, it will open the door to every swindler out there trying to squeeze money out of desperately ill patients, or even just trying to con people into buying worthless medicine (like the entire history of the multivitamins and dietary supplements business, which got a special exemption from the FDA) . A better policy would be to just subsidize the costs of clinical trials to some annual amount.
10. August 2014 at 23:06
Here’s a great old post from Robin Hanson:
http://www.overcomingbias.com/2007/02/unequal_inequal.html
I have a post that touches on it coming up in a day or two.
The potlatch has a deep place in human status competition, and belonging to the faction that takes from the strong and gives to the weak is modern democracy’s outlet for it. Both a utilitarian critique and utilitarian success are threatening in that context. That’s probably one reason why smaller polities tend to perform better, because even though we aren’t predisposed to be concerned about the utility of our public political stances, smaller polities make it harder to ignore.
11. August 2014 at 03:09
Why is there always a lot of talk about the plight of the not-poor not-rich class? The most powerful group in a democracy is determined along three dimensions: (1) availability of financial capital; (2) the ability of a group to successfully articulate its interests, especially in terms of the good of others; and (3) the relative size of the group.
Which group maximizes across all three dimensions? It isn’t the upper class and it isn’t the working class. So if you’re a politician or a lobbyist or a trade unionist etc., which group is it most rational to appeal to?
Aaron Director got it right: the most powerful group in a democracy is the group “in the middle”.
11. August 2014 at 04:02
Scott, you have gathered together various strands that have been floating around in the ether of late into a marvelous blog post. Thank you.
11. August 2014 at 04:09
If employment in the trades had held up better during the last recession, I’m sure people would feel more comfortable pushing their kids down that road. It’s not just status: traditional university education, even when it doesn’t offer a huge salary premium, offers more flexibility. People may have a genuine fear of making too specific an investment in skills in highly cyclical industries … Especially when you consider that, in a decade, they can lose most of the value of that investment as technology changes their field.
I hear a lot of talk about people’s reluctance to switch careers to long haul trucking, for example (a trying career which should demand a wage premium at any time). It’s just not that good an answer for a young person. In ten years, he’ll have been unemployed for two of them most likely. Shale will be much less exciting, and google will be driving the trucks anyway. He’ll be 35, and shit out of luck.
11. August 2014 at 04:56
Wait, is there evidence of a shortage of skilled laborers? I’ve met a few unemployed welders. Electricians and plumbers are highly regulated union jobs with an artificial scarcity. I’m very dubious if the evidence suggested here. Are we seeing a shortage of skilled trades relative to the past?
Also, we’ve seen on Cowan’s blog a long history of STEM majors restricting supply of new grads. And we’ve also seen on this very blog that youth unemployment is high due to AD because of tight money. Or have I misread it? But now suddenly the unemployed youths are just lazy? Suddenly you’re making the freshwater arguement that all unemployment is voluntary and the Great Depression was really the great vacation?
Finally, people have been grousing about college students for over a century. That means you are officially a grumpy old man. Sorry.
On a serious note I’ve seen anecdotal evidence that this amenities trend is long term with colleges. That fifty years ago a typical dorm experience was a vast improvement in living arrangements. Hot showers every day. Sharing a room with fewer people or not sharing a bed. A rising tide and all.
11. August 2014 at 06:21
Craft skill jobs are around, but the pay for them has dropped. Raise the wages on those jobs and people will show up.
On the gadgets, these are not signs of discretionary consumer bliss but necessities for modern work. No cell phone, no lap top? You wont be hired.
11. August 2014 at 07:22
foosion, I’m also skeptical of there being a “worker shortage.”
Russ, The studies I’ve seen suggests the FDA does more harm than good, at least for drugs (not sure about food.)
Morgan, I’m not sure I want to subsidize “artists” but the market should decide.
Brett, I’m a bit confused by your comment about Western Europe “responding well.” Aren’t they in a depression? Doesn’t the eurozone have nearly 12% unemployment?
Kevin, Good point.
W. Peden, Good observation.
Thanks Brian.
Nick, Good points.
Benny:
“But now suddenly the unemployed youths are just lazy?”
You misread me in two important ways. First, I didn’t say it was lazy for kids not to work, I said it was probably rational. They are richer than I was. Second, the drop in teens working predates the recession. Even in 2007 I noticed far fewer teens were cutting grass, delivering papers, raking leaves, shoveling snow, etc., etc. Many fewer worked in fast food. It’s a long term trend.
11. August 2014 at 07:25
Benny, You said:
“Finally, people have been grousing about college students for over a century. That means you are officially a grumpy old man. Sorry.”
Actually, I’m one of the few people of my generation who doesn’t complain about college students. I think it’s smart for them to have a good time in college, they sure aren’t going to when they get out.
11. August 2014 at 20:11
Okay I will take the bait.
How about FICA taxes, present levels compared to 1960s…add on higher state and local taxes…add on better but much more expensive medical care….add on much higher house prices along the coasts…add on two people working in every family instead of one…add on cost of college education…I would say the middle class on the coasts today is treading water.
Where housing is cheap—almost free in parts of Detroit—living standards might be higher…
12. August 2014 at 03:54
You are basically saying the middle class should be happy because they have a higher standard of living than their parents. You don’t believe that that is the relevant point of reference, rather than peers at the top of the income scale. Why? Is your belief self serving?
I guess you either care about equality or you don’t. I can imagine your response: “those at the top have *earned* their wealth”. I guess you believe it is fairest to distribute income in exact proportion to people’s ability to produce.
But is that fair in a winner take all society? Don’t small differences in ability, position and luck explode into massive differences in outcome?
And is it fair to do *nothing at all* to mitigate that?
12. August 2014 at 03:56
Typo, first para should be:
You are basically saying the middle class should be happy because they have a higher standard of living than their parents. You believe that that is the relevant point of reference, rather than their peers at the top of the income scale. Why? Is your belief self serving?
12. August 2014 at 04:13
It’s pretty hard to say what to do with local increases in house prices. It’s not like gentrified urban areas price increases are all just inflation. Those areas are much nicer to live in now in nearly every way–especially where lead and other environmental issues have been resolved. Plus, plenty of middle class people whose day to day earnings are being eaten up by their mortgage on the coast have a happy retirement awaiting them in more affordable areas of the country (or world) … And they can skype with their grand kids, take advantage of discount airlines, etc.
Basically, when your numbers say that gun violence lowers the real cost of housing (Detroit) you might want to get some new numbers. The point of your house is to keep you alive and well, not to be a large empty space.
12. August 2014 at 04:28
@David Harris,
“I guess you believe it is fairest to distribute income in exact proportion to people’s ability to produce.”
You are aware of this thing called a ‘tax system’ no?
12. August 2014 at 04:36
@benjamin cole,
“I would say the middle class on the coasts today is treading water.”
I think this is an interesting, and possibly revealing, comment.
It suddenly seems quite plausible, almost obvious, to me, that the inequality fixation (which I find baffling) is largely a coastal phenomenon, since this is where lots of the new concentrated wealth has accumulated.
If I may: living in Chicago, I have seen urban ghettos on prime real estate made over into fancy new construction over the course of a generation. By a similar process, I don’t think anyone living close to the water along the California coast in 2014 can even be considered middle class.
12. August 2014 at 04:55
Scott, by “most of the Western European countries”, Brett must have meant “Sweden, Baden-Wurttemberg, Denmark, and Bavaria”, and a bunch of smaller places (Luxembourg, Hessen, Berlin, Estonia).
The US could pursue the same policies, except that there are toxic politics around simple things like abolishing minimum wage.
12. August 2014 at 05:01
@Brian Donohue
I’m actually trying to understand where guys like you are coming from. You seem to believe that inequality needn’t be addressed, at least in part because “absolute” standards of living have risen.
I want to understand why the past is the legitimate point of reference for one’s standard of living, and not our peers in the present.
12. August 2014 at 05:11
@David Harris,
Nope. You read my comment, right? It wasn’t long. You think taxes should be higher and/or more progressive. I disagree. Taxes are pretty high and progressive today.
12. August 2014 at 05:16
@Brain Donohue
If you accept that inequality is a legitimate issue, and that some form of redistribution is appropriate then we don’t necessarily disagree.
12. August 2014 at 05:21
David, You said:
I can imagine your response: “those at the top have *earned* their wealth”.”
I guess you can “imagine” what I believe, or else you could read the posts where I say the rich don’t deserve their incomes.
You said;
“I guess you either care about equality or you don’t.”
I’m a utilitarian. I favor income redistribution to the extent to which it raises aggregate utility. I have no idea what “care about equality” means. I’ve never met anyone who favored equality.
You said:
“You are basically saying the middle class should be happy because they have a higher standard of living than their parents. You don’t believe that that is the relevant point of reference, rather than peers at the top of the income scale.”
I’m not saying the middle class should be happy. Where did you get that? I am saying they have a higher living standard than their parents. I am saying the world is full of very serious problems, and the plight of the middle class in America is not one of them. It’s crazy to say that the point of reference should be the living standards of the rich. Why use something unattainable as the point of reference? In any case, the gap in living standards between the poor and rich is smaller than back in the 1960s, which is supposedly the golden age of equality.
You said:
“And is it fair to do *nothing at all* to mitigate that?”
Who recommends doing nothing?
Luis, Yes, and abolishing capital gains taxes, and abolishing inheritance taxes, and going to 100% voucherized schools, and privatizing lots of public services etc.
12. August 2014 at 05:39
@scott Inequality makes people unhappy. If it has been rising, that raises the probability that doing something about it would increase aggregate utility, no?
12. August 2014 at 07:56
David H – it depends on the policy. If you simply raise taxes, then no it will not increase aggregate utility – it does not redistribute anything, in the event that it did not effect any budget policies – it just lowers someone’s income. If you raise a tax to redistribute, then you also need to add an amount to the existing budget on an “item” that can effect aggregate utility.
And I disagree that inequality makes people unhappy in the U.S. But if you have proof that it does I would love to read it.
12. August 2014 at 13:01
Professor Sumner,
I am having some difficulty understsanding your exact stance here. Your post seems to involve a lot of hand-wringing, essentally stating that the American middle class is not your concern, should not be anyone’s concern, and certainly any problems it has have been self-inflicted (laziness).
Your comments here are not entirely congruent with that, so if you could explain?
A pure utilitarian would probably concern himself first with many other issues in the world. There is a huge clean water issue still affecting something like 600 million people throughout the world, to give one example, to say nothing about the Ebola outbreak (which is really just an indicator of how bad West AFrican health provision is, generally), geopolitical unrest in the CAR and Iraq and Syria, energy shortages in some parts of the world, etc.
No real doubt from me there.
However, I think the “decline” of the American middle class IS important, because America, as a social entity, has been an immensely important factor on the world stage. This is true since the Civil War, and especially true in the Post-War era, where ample US assistance prevented a global slide into totalitarian governments. Keeping America a democratic, positive influence on the world, and not a land of Bread and Circus affairs, is definitely something important for any person concerned with global development.
I also think it’s important for other nations to avoid our malaise as they approach a high-income status. Understand problems affecting high-income societies is important since the entire world will be high-income someday. Ignoring them, and only focusing on low-income nation problems, defeats the purpose if all nations become high-income and develop the same issues.
There is also the problem that high-income nations may present unique problems that do threaten the global system, or may threaten to place high-income nations back into low-income status (therefore undoing all the hard work it took to put them there).
12. August 2014 at 14:43
You say
“The plight of the American middle class is perhaps the phoniest issue I’ve ever seen.”
That’s pretty strong language. I’ve seen a lot of research lately on the polarization of jobs in the US (more jobs at the high and low ends, fewer in the middle). See, e.g., this report from the Dallas Fed:
http://www.dallasfed.org/assets/documents/research/eclett/2014/el1405.pdf
I heard a radio show awhile ago where they talked to a young father who works for Ohio’s largest employer, Walmart, making $10 an hour, and talked also to his father who at the same age worked for what was then Ohio’s largest employer, GM, making $14 an hour (and I’m pretty sure no adjustment for the intervening inflation). That’s anecdotal, but I think it’s real. I think the trends in jobs are real. People know it and they’re worried about whether their children will be among the winners.
Are you saying that there can’t be fewer jobs in the middle, because if that were really so, people would be fighting harder to get out of the middle? Why not just look directly at the jobs? I think there the evidence is pretty strong.
And in fact, people are fighting pretty hard. They’re paying more and more for their kids to go to college, because the lifetime pay difference between a successful professional life and a service-oriented retail life is millions of dollars. And they’ll pay extra for the kid to live in that high-end off-campus housing partly because that’s where the other children of successful professionals are living, and the connections that you make in college have real economic value. Indeed, that may be the biggest tangible value to an expensive college.
Sure, one path is STEM. But if Dad or Mom isn’t a STEM person, it’s really hard for the son to become a STEM person. Our schools aren’t that good. Maybe it’s simply a better bet to drink rum slushies by the pool with the right friends.
12. August 2014 at 21:11
The plight of the American middle class is perhaps the phoniest issue I’ve ever seen. I don’t know the agenda of the people obsessing about this issue, but I’m pretty sure it’s not utilitarianism.
To see *who* the people are obsessing about it, just take a look at the best infographicJustin Wolfers ever put together that I know of. It’s a surprisingly small group for all the noise they make, located a long way from the average American voter. Once one sees ‘who’, one may surmise their agenda.
13. August 2014 at 04:32
Jim Glass, you are the man!
Allow me to amend my comment above to apply predominantly to the East Coast. Sorry Cali, you’re comparatively chill.
This is not about exploitation. It’s not about poor people or the middle class. It’s about rich people. Can we turn the page now?
13. August 2014 at 04:47
…and what’s the idea with DC rocking off da map average income. Looks like imperial Rome or bust! Or both.
14. August 2014 at 07:19
maxk, I agree that wage dispersion is increasing. But I don’t see any signs that the middle class is eroding away. The wage distribution has one hump, not two.