American Households Made Economic Gains before Covid, but This Progress Can Be Lost
Listen to the Audio Mises Wire version of this article.
Before 2020, there were growing signs of increasing economic prosperity for a wide variety of income groups in America. Whether or not this prosperity survives covid lockdowns and ever higher levels of government regulations remains to be seen. But in spite of increasingly reckless monetary and fiscal policy over the past decade, there were definite signs of ongoing progress.
For example, a landmark study published by the Pew Charitable Trust tracking income mobility since 1968 shows that 50 percent of Americans have greater wealth than their parents did at the same age. Furthermore, 72 percent of Americans whose parents were in the bottom fifth of the wealth ladder and 55 percent of those whose parents were in the middle quintile exceed their parents’ family wealth as adults.
Moreover, buried inside negative reports are the astounding gains made by poorer people relative to the wealthy. Research demonstrates that approximately half of taxpayers who began in the bottom quintile in 1996 had moved up to a higher income group by 2005. Even more interesting is the fact that the median incomes of people originally in the lower income groups accelerated more than those of people initially in the higher income groups. Contrary to popular assertions, it is poorer people who are acquiring great gains. Citing the Federal Reserve Board’s Survey of Consumer Finances, the Wall Street Journal in a recent editorial argues that poor people seem to be thriving in America:
“[F]amilies at the top of the income and wealth distributions experienced very little … growth” in net worth between 2016 and 2019 “after experiencing large gains between 2013 and 2016,” while “families near the bottom of the income and wealth distributions generally continue to experience substantial gains.”
Further, notwithstanding the lamenting of systemic racism, the report finds that though black and white families experienced similar growth in median income, the median income fell for white families and rose slightly for black families. Interestingly, the homeownership rate grew during 2016–19 to 64.9 percent, a reversal of the negative trend between 2004 and 2016. Families also saw the median net housing value (the value of a home minus home-secured debt) rise to about $120,000 from about $106,000 in 2016. Low-income families also increased their ownership of corporate equities. Apparently, the doomsday rhetoric of leftists clearly does not match reality.
Meanwhile, according to data from the US Census Bureau, in 2018, 30.4 percent of American households were earning over $100,000, up from 9.7 percent in 1967. Likewise, the share of households earning $35,000 or less was 27.9 percent in 2018, down from 36.4 percent in 1967.
Many were also finding that the cost of living was declining in real terms. For example, economist Marian Tupy in a recent piece posits that the time price of basic commodities fell by 72.3 percent between 1980 and 2018. Hence, the time taken to earn money to purchase one unit in a basket of commodities could purchase 3.62 units in 2018. With greater disposable income, the average American is better off today than he was twenty years earlier. Similarly, Emily Dohrman and Bruce Fallick in a 2020 publication conclude that middle-class Americans are doing quite well: “In comparing household incomes of the middle class in the United States in 1980 to today, we conclude that real incomes for today’s middle class are somewhat higher than they used to be, particularly for households headed by two adults…. However, we also find that price increases are offset by relative price decreases in transportation, food, and recreation, among others, making real middle-class incomes slightly higher than in the past.”
This appears to be all good news. However, onerous regulations can kill the progress that has been made. The Urban Reform Institute, in its paper on mobility, opines that ethnic minorities and people in general, do best in regions where the climate is conducive to investment. One policy specifically highlighted as a barrier to the American dream is zoning:
The assault on suburban construction and single-family housing has been a major factor in driving median house prices in the coastal California metropolitan areas of Los Angeles, San Francisco, San Diego, and San Jose…. Restrictive land use regulations have also been associated with much of the unaffordable housing in Portland, Seattle, Denver and Miami, while rural zoning on the urban fringe has made new suburban tracts too expensive to develop around New York and Boston…. It is hard to imagine public policies more disadvantageous to the aspirations of Black and Hispanic families.
The study continues: “Despite this, planning regimes have instituted policies, often implemented as environmental necessities, that have helped raise housing prices in many large cities, particularly on the coasts. Barely one-third of African Americans own homes in Los Angeles, Boston, or New York.” As such we should not be shocked that entrepreneurs and ordinary Americans are leaving regulatory states such as California and New York to settle in the South.