Kerby Anderson

Economist Jordan McGillis explains “Why the Middle Class Feels Poor” in his op-ed in the Wall Street Journal. He discounts the claim by Michael Green that the new poverty line is $140,000. I also dismissed that idea in my December commentary.

Jordan McGillis says the reason so many Americans in the middle class feel poor is due to the “Great Decompression.” This “is the phenomenon of incomes rising across the board but much faster for families above the median.” Those in the upper middle class have done much better than those below that percentile.

He reminds us that it hasn’t always been the case. During the middle of the 20^th century, we saw significant middle-class expansion. I talked about that in my book, Signs of Warning, Signs of Hope. The middle class and the lower middle class saw their wages grow faster than those above the median.

Then something changed in the 1970s. “Since about 1975, though, we’ve been in an era of upward escape for families with the right human and social capital, which has become ever more valuable with the rise of digital technology and globalization. As a result, the upper middle class is running away from the pack.”

He doesn’t say why that changed. Could it be the fact that the U.S. went off the gold standard in 1971? That constraint unleashed the printing of fiat currency that gave us inflation. Wages didn’t keep up with that inflation, so those who could invest in assets did better than those who did not.

He concludes that “the basic material needs of Americans are more fully met today than they were 50 years ago.” But the higher income families have more opportunity for advancement. That’s why the middle class feels poor.