On Tuesday, the Federal Reserve released its Survey of Consumer Finances. And for me, the interesting (but disappointing) news was that median incomes in the US—a proxy for how the middle class was faring—actually slipped between 2004 and 2007. Even though the economy was allegedly “recovering” from the slump earlier in the decade—and even though the stock market was soaring—middle-income folks gained absolutely no ground. In fact, they did worse than in the years covering 2001 through 2004, a period that included a recession.
Take a look at the chart below. I’m paying attention to the dark blue bars: the higher the dark blue bar, the more middle-class incomes grew. And from 2004 through 2007, the bar dipped below 0, which indicates shrinking incomes:
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The chart above tells another story, too. Even as median incomes declined a bit, mean incomes (the light blue bars) saw a significant boost from 2004 through 2007. And that can mean only one thing—the folks at the top of the income ladder hoovered up most of the economic gains of the period. Diving into the numbers, it’s clear that that’s exactly what happened: for the bottom 95% of the country, incomes stayed roughly flat. It’s only above the 95th percentile that incomes grew. And for the lucky 5 percent (or possibly less, since the Fed’s numbers don’t tell us) incomes simply skyrocketed.
The fact that middle class incomes gained absolutely no ground—and during a time that was supposed to be an economic recovery, no less—is pretty astonishing. But at the time, it was a story that was rarely told, since government statisticians do a surprisingly bad job of tracking middle class incomes. For a variety of reasons, they tend to track aggregate statistics: means, rather than medians. But averages can be deceiving: if you put a billionaire in a room with 999 paupers, on average everyone in the room is a millionaire; but that fact has no bearing on the well-being of the 999 folks who have nothing.
Likewise, when it comes to how the middle class is really faring, averages don’t tell much. It’s the median that’s the message.