Income Rising For U.S. Middle Class

Recent data from the Census Bureau says that the income of the U.S. middle class is on the rise, though it's only just getting back to the level it was before the 2000 recession. David Wessel, economics editor of The Wall Street Journal, talks with Steve Inskeep about flaws in how the Census collects this data, as well as the similarity in responses from the presidential campaigns.

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STEVE INSKEEP, Host:

Presidential candidates John McCain and Barack Obama are promising to help the middle class, which is telling pollsters it could use some help. So how do you explain this? There's new data from the Census Bureau this week showing that middle class incomes are rising. To try to explain what's going on we've brought in David Wessel, regular guest here and economics editor of The Wall Street Journal.

David, good morning once again.

DAVID WESSEL: Good morning, Steve.

INSKEEP: So what is happening with middle class incomes?

WESSEL: Well, the good news is that middle class incomes - the income of the family smack in the middle of the middle class - rose in 2007 for the third year in a row. And the wages of full-time, year-around workers adjusted for inflation was also up, after three years of decline.

INSKEEP: You said right in the middle. What kind of figure are we talking about here?

WESSEL: The household at the middle of the middle class makes about $50,000. The issue is that that increase doesn't bring the middle of the middle class back to where it was at the late '90/early 2000 period when the economy had been growing. So we've gone through this period of six years of economic growth, from 2001 to 2007. And the middle class has finally got itself back to where it was before the last recession. And that's not the way things are supposed to work.

INSKEEP: And even more immediately, I suppose, people are wondering if the raise they got is enough to deal with the escalating cost of gasoline and food and energy and everything else.

WESSEL: Well, we're talking inflation-adjusted numbers, but the problem is the Census Bureau this week gave us a snapshot of 2007. And here in 2008 we know things are definitely worse today than they were when they took this snapshot.

INSKEEP: OK. So you're giving us some nuances of something that's often talked about - the so-called stagnation of the middle class. And you're telling us over the last eight years or so during this decade people have pretty much broken even, done no better than they were. What about people at the top of the income scale?

WESSEL: Well, people at the top have done very well in general. And that's one of the distinguishing features of this period. The new census data, though, actually show a slight decline in inequality, the way they measure it. Not nearly enough to undo the widening we've seen over the past couple of decades. And there are some problems with their numbers.

When the Census does its numbers, you can't make more than $999,999. So if you got a raise from one million to two million, you didn't get a raise at all in their numbers.

INSKEEP: And if somebody got a raise from 40 million to 50 million, which some people do, it counts for nothing.

WESSEL: It doesn't count in this particular set of numbers. But other numbers tell us that the people at the very top are doing very well.

INSKEEP: And continuing to do very well even in tough economic times.

So do you notice the presidential candidates adjusting their rhetoric at all to deal with these changes?

WESSEL: I don't think they'll adjust their rhetoric. It was actually pretty funny. Both Senator Obama and Senator McCain issued statements immediately after the Census Bureau put out the numbers. Senator McCain talked about an economic plan that would restore bottom-up economic growth. And Senator Obama talked about economic growth designed from the ground up.

INSKEEP: Oh.

WESSEL: Both aimed at the middle class.

INSKEEP: Definite difference then. You can vote for the bottom guy or the ground guy.

WESSEL: But in the statements, they captured what is the essence of their different economic philosophy. Senator Obama talked about investing in energy and education and infrastructure and using the tax code to make the distribution of income more equal.

Senator McCain did not talk about using a tax code to make things more equal, and talked about creating jobs by keeping taxes low.

INSKEEP: So even though we have these two rather interesting, almost exotic candidates on either side, it sounds like the economic argument gets down to the same Democratic-Republican economic argument that's been going on for decades.

WESSEL: Very much so.

INSKEEP: David Wessel of the Wall Street Journal, thanks for coming by.

WESSEL: You're welcome.

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