How much of my wages goes to health care?

Is the 'middle-class squeeze' for real?
QUESTION: There is no middle class squeeze. It is an absolute fact that the middle class has it better than ever in our history. Just 35 years ago when I was a child, being middle class meant no multiple cars, color TVs, DVDs/VCRs, cell phones, etc. and few central air conditioners, microwaves and college-bound children. Now the middle class, which has its highest levels of home-ownership as well as all these modern conveniences and most of its children attending college, is being brainwashed into believing that things are bad. Why???
-- Jerry Orzechowicz, Merrillville, In.

ANSWERS:

Robert B. Reich, Clinton administration labor secretary:

Perian Flaherty

You're right — up to a point. As I show in my book "Supercapitalism," American consumers have never had it so good. To take just one example, a color TV that cost $2,227 when color TVs were first introduced in the late 1950s (using the value of the dollar in the year 2000) cost half that by 1967. By 2000, its cost had dropped to just $175, making it affordable to virtually all American families — including over 90 percent of families with incomes under the poverty line. But one's standard of living isn't just about what one can afford. It's also about how hard one has to work, and how secure one feels.

There's the rub. Middle-class families are working much harder these days than they did, say, 30 years ago. The average work week hovers close to 50 hours. Then, it was closer to 40. Moreover, in most families, it now takes two adult workers to earn what's considered a middle class wage; 30 years ago, it usually took one.

Jobs are far less secure than they were 30 years ago. Then, it was fairly common to stay with the same employer for 40 years. Now, most people change jobs every six or seven years, and most of them leave because their job has been terminated.

Finally, median wages, adjusted for inflation, haven't increased all that much. Although the American economy is far larger than it was 30 years ago, most of the gains from growth have gone to the top 1 percent — and even inside the top 1 percent, most of the gains have gone to the very top. Since the 1970s, the nation's richest 1 percent — comprising roughly 1.5 million families in 2004 — have more than doubled their share of total national wealth.

Arthur B. Laffer, 'Father of supply-side economics’:
I can’t hazard a guess as to why there is such a malaise in this country about current living conditions, but you are absolutely right that we have never had it better.  I’ve never seen an economy that comes even close to the current U.S. economy. I’ve never even read about an economy, modern or ancient, near or far, large or small that can hold a candle to today’s America. While we aren’t perfect, we are the closest thing this old planet has ever created.

Before I dig further into the economy, think about some other great changes over the last half century. Pollution is way down. People are living longer. There is greater racial harmony. The technological advances are not only staggering, but members of the middle class — and even lower class — are able to afford the new technological marvels of the day. In addition, America is about as safe as it has ever been. Even little things, like smoking and driving under the influence, have been on a long downhill slide. Crime and teenage pregnancies are receding.  Yes, it’s true, things could be a lot better, but they never have been.

Turning back to the economy, it really has never been any better. Today, the U.S. economy is the only developed economy that is also a growth economy. I believe this is true because of the incredible policies put in place over the last 25 years. Over that time, fiscal policy has been improved dramatically — lower marginal tax rates have encouraged work and investment.  Monetary policy has been improved greatly so we now have stable, low inflation translating into much lower interest rates for borrowers. Trade has gotten freer, creating more wealth for America and our trading partners. Finally, economic restrictions and union membership are lower, allowing markets to function more freely. 

If you really want to see the affect of these changes, just look at the stock market. From January of 1966 through July of 1982, the average annual compound real rate of return of the S&P 500 was negative 6.1 percent. Really think about that. Due to poor economic policies, the stock market barely appreciated in nominal terms, and returns were actually negative due to the huge increase in the price level. Since pro-growth policies were instituted under President Ronald Reagan, though, the S&P 500 has delivered average annual compound real rate of return of 8.1 percent from July of 1982 through today.

In short, the reason we’re as prosperous as we are is simply due to pro-growth economic policies, including restrained government spending, low rate flat(ish) taxes, sound money, limited regulations, free trade and open borders. Reverse these policies and you will quickly experience the dark side of the supply side. Then people will really have something to complain about.

Bob McTeer, former Federal Reserve bank president:

Www.bobmcteer.com

I basically agree.  While many no doubt have reasons to feel squeezed, our middle class, on average, have the labor and time-saving conveniences, toys, gadgets and access to medical care that yesterday’s rich could only envy. Prosperity is a moving target. I tend to define it as making more money than my brothers in law. More seriously, most probably define it as living better than their parents at a comparable stage of life, a test that we continue to meet. 

In terms of living standards in general, all income strata have been improving, and these are indeed the good old days, which was the title of a Dallas Fed annual report essay several years ago. We sometimes let money illusion and statistics confuse us, but the questioner is right on in making the comparison in terms of real “stuff.” The productivity and purchasing power of hours worked in this country buy us a standard of living second to no major economy. Some may say we work to hard and long for what we have and don’t have as much leisure as some countries, but that’s our choice and the way we decide to enjoy the fruits of our labor.

Pandering political rhetoric may convince some middle-class people that they are worse off because the incomes of those in higher brackets have risen faster. That’s inevitable given the power of compounding on a larger base and other factors.  But given our free enterprise economy we all have a shot at the fast track and the lifestyles that go with it.

Middle-class envy should be tempered by the knowledge that entrepreneurs and business executives drive our economy and employ the rest of us. Let’s not bite the hands that employ and feed us.  High income people even help us by their conspicuous consumption.  They make a market in the new inventions while they are still too expensive for most of us. Sustaining demand and output until economies of scale and mass production kick in enable us to afford former luxuries that become essential necessities before we know it. The basic point is that we can’t pull ourselves up by pulling others down.

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