In a post yesterday, Kevin Drum signed on to a conjecture from Raghuram Rajan that stagnating middle-class incomes are partly to blame for the recession and the financial sector blowout. The insuperable problem with this conjecture is that middle-class incomes have not been stagnating. Over at Progressive Fix, Scott Winship lays down the data and reminds the left of the general importance of a reality-based stance. I think it’s pretty clear that progressives find the middle-class stagnation talking point rhetorically useful (there seems to be a great deal of resistance to giving it up, despite the evidence), so I think one point Scott makes deserves special emphasis:
Trying to persuade the middle class that it is worse off than it is potentially has harmful side effects. For one, as economist Benjamin Friedman and sociologist William Julius Wilson have argued, people are more generous when they feel they are doing well. When they feel economically threatened, they are more inclined to protect what they have than to help others. What’s more, widespread economic malaise can be a self-fulfilling prophecy, preventing people from making the individual choices that ensure, for instance, a strong recovery from recession. In terms of policy, the belief that the middle class is doing poorly can lead to scarce public resources being diverted to those doing relatively well rather than being used to help those truly in need. And politically, it can lead to a tone-deaf and unpersuasive populism that does little to help Democrats win in swing districts and close elections.
Again, the point here is that progressives should care about the facts.
One can find a sophisticated overview of many of the relevant facts in this recent NBER paper by Robert Gordon.