Thursday, March 25, 2010

Shrinking Middle Class? Not Exactly.

You may have heard in the media, or from politicians talk of "the shrinking middle class". And while this can be said to be technically true, it's only through statistical sleight of hand that you can get there. The 'data' used to support the shrinking-middle-class theory is arrived at by defining a certain, static income bracket that defines the middle class (say $40k - $50k), which was perhaps the true median-income level at some point in the past, and claiming that the amount of people in that bracket is shrinking as we move forward in time (which is true), but then ignoring the reason that it is shrinking is because average incomes are moving up, not down, along the curve.

To illustrate, here is a (very rough) approximation of what I'm talking about, via a bell-curve distribution of incomes:

Some point in the past:


Clearly in the second graph the number of people in that income-range has shrunk. But the median income has shifted and become larger. The actual size of the true middle class hasn't changed at all, if you shift the definition of it with the shifting median.

In summary, beware of snakes with forked tongues. Yes, the 'middle class' (if defined as a certain static income-range) is shrinking. No, it's not because the rich are plundering the poor. Economics is not a zero-sum game.

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