Stagnation Nation: Census Analysis

The poor are less poor than headlines and the U.S. Census indicate, but all are embittered by declining income

America’s wealthiest citizens are far richer than their compatriots but are still feeling hard pressed these days and America’s poorest citizens are much better off than very grim statistics seem to indicate. That is the conclusion of some of the most interesting data crunching since the U.S. Census Bureau released its household income data Tuesday.

The headlines report that median household income fell to 1996 levels, that the income of all socioeconomic groups declined–with the gap between best and worst off Americans essentially the same–and that the poorest group of Americans now total 15.1% of the population, up from 12.5% in 2007.

Forbes contributor Tim Worstall explains in his blogpost that the statistics on the poorest Americans are misleading in a very significant way because they measure poverty prior to all the U.S. government programs designed to relieve poverty. These include substantial and very expensive programs such as food stamps, Medicaid, Section 8 housing vouchers and the earned income tax credit.

Says Worstall: “How on earth can the US be spending hundreds of billions of dollars a year on beating poverty without actually beating poverty? Simple, we spend the money but don’t measure how much poverty we’ve beaten by spending it.”

Meanwhile, Doug Short of Advisor Perspectives has done his usual yeoman’s work in crunching the data and has found that the richest Americans have seen the greatest income decline from their peak earnings–a 10.5% reduction from average earnings of $322,000 in 2006. That is close to double the 4.2% and 5.4% declines of the second and third quintiles, respectively, and nearly matches the 10.1% decline of the poorest Americans who earned a little more than $12,000 in their peak year of 1999.

While America’s top 5% income earners have income some 25 times that of the poorest Americans, what is likely the most relevant comparison–what people earn compared to what they once earned–goes far to explain today’s pervasive sense of economic malaise. The precipitous decline in consumer confidence over the past decade, and since the Great Recession particularly, closely tracks broader wage stagnation.

Stagnating incomes have had many baleful effects. Maverick economist Tyler Cowen, author of the new book The Great Stagnation argues that Americans are experiencing an expectations gap as the rapid pace of wealth creation has slowed in recent times. Among other things, this has embittered our politics, Cowen argues.

Reprints Discuss this story
This is where the comments go.