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Mark Twain once said that there are three types of lies: “Lies, damn lies and statistics.” On Tuesday, economists Mark Perry and Donald Boudreaux offered an interesting illustration of Twain’s oft-quoted line when they refuted the argument, expressed by many top economists and analysts, that the middle class is in decline. Calling the claim a “myth,” they argued that things are brighter than ever for the average American.
Perry and Boudreaux’s analysis, which appeared on the website of the American Enterprise Institute (and which they summed up in The Wall Street Journal) focuses on the fact that the middle class is living longer and spending less on many consumer goods than it did 60 years ago. Unfortunately, while bold, this argument ignores several key economic realities. As numerous economists have noted, the income gap between the rich and the poor has been widening, even as middle class incomes have plummeted. The numbers are hard to ignore: In 2000, the median household income in America peaked at $54,841; in 2011, it hit $50,054 — the lowest it had been since 1996.
To counter this, Perry and Boudreaux point to a significant drop in the percentage of their income that most families pay for food at home, cars, housing, furnishings and utilities. Citing statistics from the Bureau of Economic Analysis, they claim that in 1950, the average family spent approximately 53 percent of its yearly income on these products; today, they say, it only spends about 32 percent.
To begin with, the Department of Labor offers a slightly different perspective. In the 2011 Consumer Expenditure Survey, they calculate that the average family spends $30,666 on housing, food at home, transportation, and apparel and services. Given an average pre-tax income of $63,685, this works out to 48 percent of the average family’s income — a far cry from the 32 percent of disposable income that Boudreaux and Perry cite.
A Rosy Picture … With a Dark Underside
Even if we accept Boudreax and Perry’s numbers at face value, there is still a fundamental problem: Their analysis ignores education and health care, the two key elements that have contributed the most to the economic struggles of the middle class. Not coincidentally, costs in those two categories have skyrocketed in the past few decades.
According to a 2008 report by the Congressional Budget Office, the amount that the average American spent on health care more than doubled between 1965 and 2005, from $1,000 (in 2005 dollars) to over $2,000. The report went on to note that the rise in health care spending was largely due to “ongoing increases in costs per beneficiary.”
And the rise has continued: According to a 2012 survey by the non-partisan Henry J. Kaiser Family Foundation, the average family cost of a family health insurance program rose by 4 percent between 2011 and 2012, and almost doubled between 2002 and 2012. Today, taking care of the average worker costs almost $9,000 per year. And medical bills are by far the No. 1 cause of personal bankruptcy filings in America.
For that matter, the Department of Labor also weighs in on the cost of medical bills: According to the Consumer Expenditure Survey, the average household now spends $3,313 a year — more than 5 percent of its pre-tax income — on health care.
A Longer Life … For Some
Even so, as Perry and Boudreaux point out, there is a bright side to America’s pricey health care system: “Happily, an American born today can expect to live approximately 79 years, a full five years longer than in 1980 and more than a decade longer than in 1950.” They go on to note that this improvement has extended across racial barriers, citing a June 7, 2012 New York Times article that stated “The gap in life expectancy between whites and blacks in America has narrowed, reaching the lowest point ever recorded.”
As that Times article noted, this gap has been steadily narrowing since 1993. However, a September Times article pointed out that things haven’t been quite so good all over. In the later article, the paper reported that, since 1990, life expectancy for white people on the lower end of the income spectrum has been steadily declining. In that period, among those without a high school diploma, white men saw their life expectancy drop by three years, and white women by five years. In fact, since 2008, life expectancy for black women without a high school diploma has been higher than that of white women at the same educational level.
The life expectancy gap between high school dropouts and college grads is staggering. For white women, a college diploma equates to 10.4 more years of life. For white men, it adds 12.9 years.
The Rising Cost of Clinging to the Middle
The idea that a college degree makes a big difference in one’s life is nothing new: A 2011 Pew survey found that college graduates could expect to make almost twice as much money over their lifetimes as high school graduates.
The trouble is, tuition is moving out of reach for the middle class.
In constant dollars, the cost of tuition at a four-year university has almost tripled during the last 40 years, going from $4,785 per year to $13,608. This rise is even more stunning when compared to the general rate of inflation: Between 1985 and 2012, overall consumer prices rose by 114.85 percent; in the same period, education prices rose by almost 500 percent.
In other words, as analysts have noted, while a college education increasingly translates into a longer, healthier life, its rising price tag is restricting it to an ever-smaller group of people.
So where does all this leave Perry and Boudreaux? On the one hand, they are absolutely correct: Improved technology and globalization have helped make many of the necessities of daily life cheaper than they have ever been. Food, clothing, housing, and other requirements, are more affordable for an ever-broader swath of the populace, and — by those measures, at least — the cost of a middle class lifestyle has dropped.
All of this assumes, however, that one is healthy, is well educated, and has a consistent or rising income level. Unfortunately, for workers without a college degree, the last 20 years have witnessed a solid, steady decline in wages, health and life expectancy. And for families hoping to send their children to college, the cost of a bright future has gone up sharply and steadily. In other words, statistical manipulation aside, the economic trends of the last 30 years have made it harder to become — and stay — middle class.