Does the Obama White House really believe the American middle class has stagnated for 40 years?

The Obama White House has fully embraced the idea that the economic fortunes of the American middle have suffered 30 or 40 years of stagnation. In other words, our problems didn’t begin with Obamanomics.

Recall the president’s late 2011 speech in Osawatomie, Kansas, where he described the last few decades as little more than ones of rising inequality  and declining income mobility. More recently, Jason Furman, the head of Obama’s Council of Economic Advisers, explained that the recent strengthening of the US economy “presents an opportunity to address a long-standing challenge for the US economy – the 40-year stagnation in incomes for the middle class and those working to get into the middle class.” And in the Wall Street Journal yesterday, Furman again argued that the economic upturn is “not enough to make up for decades of subpar gains for middle-class families.” So the Reagan and Clinton booms weren’t really that great?

First a quick data point. Furman mentions CBO data that show median US incomes up 17% since 1973. Now I am pretty sure that number refers to before-tax “market income” (excluding government transfers) using data also found in this 2014 CBO study. But that report also shows that “cumulative growth in the inflation adjusted after-tax income [including transfers] of households in the 21st to 80th percentiles” was an estimated 40% from 1979 though 2011. So more than twice as much.

Anyway, Furman’s recent writings and views, I think it is fair to say, are also a bit more dour that they were pre-recession, particularly concerning how the US economy has fared since the 1970s. Here is Furman in 2006 remarking on an economic debate between pessimist Larry Mishel and optimist Stephen Rose (via Brad Delong):

But the facts are not entirely irrelevant…. I would much rather we all… spend our time figuring out what to do about rising inequality. But… Rose is right, people are substantially better off than they were 30 years ago…. [T]oday’s workers are earning more than their counterparts did 30 years ago.

Ignore the statistics for a second and use your common sense. Remember when even upper-middle class families worried about staying on a long distance call for too long? When flying was an expensive luxury? When only a minority of the population had central air conditioning, dishwashers, and color televisions? When no one had DVD players, iPods, or digital cameras? And when most Americans owned a car that broke down frequently, guzzled fuel, spewed foul smelling pollution, and didn’t have any of the now virtually standard items like air conditioning or tape/CD players?…

A long life — it’s four years longer today than it was in 1975. A college education — 38 percent of young adults are enrolled today, compared to 26 percent back in 1975. A home — also more common today than in 1975 .. .

Some of the wage statistics that Mishel tosses around suffer from a number of limitations, virtually all of which bias the picture in the same way. The biggest one is that wages … are reported after the cost of increasingly generous and technologically advanced health insurance is factored out … . Health isn’t the only problem with the wage data; other benefits have grown as well — in addition to the fact that the wage comparisons rest on a measure of inflation that is almost universally believed to be biased and ignore the influx of immigrants who weren’t in the data back in the 1970s.

So living standards are a lot higher now than then. And I think Furman’s criticisms of the stagnationist stance hold up, even with the subsequent Great Recession and Not-So-Great-Recovery. Americans today are still far better off than they were in the 1970s, political rhetoric aside. Team Obama should not be afraid to concede that.

For instance, a recent New York Times story noted that while the middle class – defined as households earning between $35,000 and $100,000 — has been shrinking since the 1960s, “the shift was primarily caused by more Americans climbing the economic ladder into upper-income brackets. At least through 2000.

And then there is this new Brookings piece by Rob Shapiro, which finds that through the 1980s and 1990s, “households of virtually every type experienced large, steady income gains, whether they were headed by men or women, by blacks, whites or Hispanics, or by people with high school diplomas or college degrees.” Unfortunately, as Shapiro adds, these  “data also show that this broad income progress stopped around the turn of this century: From 2002 to 2013, the incomes of most households stagnated or declined even as they aged through nine years of expansion and two years of recession.”

I get that some progressives want to argue that the more market-friendly tax, regulatory, and trade polices that started in the early 1980s — and were continued by Bill Clinton — brought nothing more than higher inequality and middle class stagnation. The modern Democratic Party is nostalgic for the high tax, union-dominated 1950s. But you can make the case that America needs a substantial policy shift today to create a high-growth economy where gains are broadly shared — particularly with demographic headwinds — without drawing economically errant, though politically convenient lessons from the past.