Marketplace Logo Donate

Daily business news and economic stories from Marketplace

Middle class keeps falling behind

Subscribe to our Newsletters


Kai Ryssdal: Last night, the Senate approved a bill that could save millions of middle-class Americans from the Alternative Minimum Tax. What we don’t know yet is how the Treasury’s going to make up the lost revenue. As things stand now, it won’t because the Senate didn’t offer a matching tax increase and the House isn’t likely to either.

Those middle-class families that’re going to get hit by the AMT have seen their incomes grow some over the past couple of decades, but commentator Robert Frank says they’re still having a hard time keeping up.

Robert Frank: Social critics complain that rising income inequality has made life tougher for the middle class. These complaints have prompted others to respond that if working people can’t afford Prada handbags and Gucci loafers, they just shouldn’t buy them.

It’s good advice, but the middle-class crunch has little to do with luxury purchases they can’t afford. Rather, it’s that higher incomes of top earners have made it more difficult for the middle class to achieve many basic goals.

Take the housing market. In subtle ways, the new mansions springing up all over the place have shifted the frame of reference that defines adequate housing for the near wealthy. Perhaps because it’s now the custom for wealthy families to hold dinner parties for 36 guests, not just 24, the near wealthy feel they, too, must build bigger. And when they do so, others just beneath them follow suit.

This cascade has continued all the way down the income ladder. The median new house is now over 40 percent larger than in 1980 and its price has risen even more. So today’s average family, with little more income than before, can’t buy today’s average house without spending well beyond its means.

Of course, they could just buy a smaller, cheaper house. But because house prices and neighborhood school quality go hand in hand, that would mean having to send their children to inferior schools. And rather than do that, most parents seem willing to stretch their budgets to the breaking point.

Everywhere you look, higher incomes at the top have launched similar spending cascades. These days, we’re expected to spend more on gifts for special occasions, more on interview suits, more even on our children’s birthday parties.

H. L. Mencken defined a wealthy man as one who earns $100 a year more than his wife’s sister’s husband. Even though middle-class families have a little more money than before in absolute terms, they are much poorer in relative terms. And so it’s harder to make ends meet, no matter how much the in-laws are pulling in.

Ryssdal: Robert Frank is a professor at Cornell University’s Johnson School of Management. His most recent book is called “Falling Behind.”

What's Next

Latest Episodes From Our Shows

7:33 AM PDT
2:38 AM PDT
7:37 AM PDT
5:45 PM PDT
Mar 27, 2023
Mar 22, 2023
Dec 8, 2022
Exit mobile version