Middle class mania

Alan Reynolds
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Posted: Sep 30, 2004 12:00 AM

 When John Kerry rattles off his tiresome lists of complaints about the economy, it is sometimes challenging to even figure out what he imagines he's saying.

 At the Democratic convention, he was emphatic that "our great middle class is shrinking." Some misunderstood that to mean that middling incomes are shrinking. Factcheck.org said, "Kerry's description of a declining middle class is supported by new Census Bureau figures showing median household income failed to grow in 2003."

 But unchanged was not "declining," and this was not at all what Kerry meant by "shrinking." Kerry was not going through this banal exercise of feigning surprise that incomes are always weak for a while after recession (median income did not just fail to grow from 1989 to 1993, it fell 5.4 percent). By saying the middle class "is shrinking," he meant a smaller percentage of households is earning a middle-class income.

 Whenever Kerry makes any negative proclamation about the U.S. economy, the famously accommodating major media feel obligated to prove he's not making it up. The New York Times searched diligently for this shrinking middle class on July 29, when David Cay Johnston reported that "Internal Revenue Service information shows overall income among Americans ... shrank two consecutive years (2001 and 2002)."

 Despite brave efforts to convert this into a Kerry-like anxiety about "modest incomes," accompanying facts showed the 5.7 percent income decline was entirely confined to those earning more than $100,000. The reason is that the IRS, unlike the Census Bureau, includes capital gains. Realized capital gains were huge in 2000 because savvy investors liquidated quickly at the start of the market's collapse. But the market kept falling during the following two years. That, plus massive job loss among corporate managers, is the main reason why taxable income in 2001-2002 fell 22 percent among those who previously had incomes above $10 million and by 5 percent at incomes between $5 million and $10 million.

 That was serious income shrinkage, to be sure, but it wasn't exactly middle class. National Review contributor Don Luskin noted that the number of returns reporting incomes between $25,000 and $100,000 grew rapidly from 2000 to 2002, while the number earning higher or lower incomes (including capital gains) diminished. By this measure, the middle class was expanding rather than shrinking.

 In a valiant effort to narrow this widening gap between Kerry's campaign rhetoric and inconvenient facts, journalistic partisans quickly turned their attention to the Census figures, which exclude both taxes and the vanishing capital gains. The Washington Post devoted nearly three pages to a front-page feature on "The Vanishing Middle-Class Job" by Griff Wittee. This was supposed to be a really big deal -- "the first in an occasional series abut the changes roiling the middle of the American workforce."

 There were seven colorful graphs, not one of which made any point worth making. The first voiced alarm that, "The percentage of households earning close to the median income has fallen steadily over three decades."

 The second clarified the same point by saying, "In 1967 nearly a quarter (22.3 percent) of households made between $35,000 and $49,999 in inflation-adjusted terms. But that share was down to 15 percent by 2003."

 In reality, what is "close to the median" has changed, of course, because median income rose 30 percent since 1967.

 Anyone troubled by the fact that a smaller percentage of Americans now earn between $35,000 and $50,000 than in 1967 should be truly shocked to discover that the percentage earning less than $35,000 fell far more dramatically -- from 52.8 percent to 40.9 percent. Why isn't The Washington Post planning a series on the presumably horrible shrinkage of all those vanishing lower -class jobs?

 Any unchanging definition of "the middle class" can always be shown to vanish over the years, of course, simply because more people are making more money. The percentage of U.S. households with a real income higher than $50,000 rose from 24.9 in 1967 to 44.1 percent in 2003. For The Washington Post to protest that too many more people are earning higher incomes, and too few are earning lower incomes, makes no economic sense at all. But it might make political sense. People earning more than $50,000 are demonstrably inclined to vote in politically incorrect ways (i.e., Republican).

 Some of Witte's other statistics are suspiciously selective. He argues that "income inequality has grown. In 2001, the top 20 percent of households for the first time raked in more than half of all income." Why mention only the recession year of 2001? A graph on the same page shows the top 20 percent "raking in" 49.8 percent in 2003 -- exactly the same percentage as in 2000, when Bill Clinton was president.

 If Witte stumbled on good news, he promptly redefined it as bad. "In places like Richmond (Va.)," he writes, "the overall health of the economy masks layoffs." Every economy always has layoffs, of course. Nationwide, the unemployment rate caused by lost jobs accounts for half the total, or 2.7 percent. The rest of the unemployed either quit their jobs or (like new graduates and re-entrants) did not previously have jobs to lose. In Richmond, the unemployment rate was 4 percent in July, roughly half of which may be due to layoffs. That 4 percent figure is higher than Virginia's average unemployment of 3.5 percent, but it is scarcely masking anything awful.

 This amateurish Washington Post story has already been properly skewered by columnist Bruce Bartlett, Arnold Kling of Econlog, factcheck.org and Slate editor Jack Shafer. The Washington Post graciously published a short letter of mine ridiculing their math. But one tiny letter is scarcely an adequate antidote to a deliberately sensational front-page story that spanned nearly three pages. This story was an outrageous example of statistical manipulation to serve some mindless political bias.

 A week after this statistical gibberish was published, The Washington Post's veteran columnist David Broder appeared properly appalled that, "The American news media have been clobbered" this year. He was not referring to his own paper, but to forced resignations of top editors at The New York Times and USA Today for condoning outright lying, and also to similar pressures now facing Dan Rather and crew at CBS.

 But why doesn't lying with statistics merit the same condemnation as any other lies? I don't blame Griff Witte, a history major barely four years out of college, but his editors. Senior journalists at The Washington Post have been, to borrow Broder's fitting phrase, "blind to the fact that the standards in their organization were being fatally compromised."