lokiman72

Debunking the "Decline of the Middle Class" Myth

I think the problem with the Census statistics and with our author's conclusions is pretty simple. The Census Bureau and thus Mark are taking the face value of the Income as a measure of our well-being..Presumably the data is taken from payroll data and deflated by CPI or the GNP deflator (it makes a huge difference here). However, if you do a simple balance sheet exercise and assume that many of those households were borrowing at the same time as their income was rising the estimated 1-2% real. So let's say they were consuming at a 4-5% increasing rate. At some point the interest expense starts to affect them (it grows much faster than income) and they reach a point where their outstanding debt and interest payments start to lower their ability to consume. You can see by my feeble attempt to introduce the borrowing function into the income equation that two households, one that doesn't borrow and one that does might be treated equally by the Census Bureau, yet the outcome 10 years later is quite different for the individual or family that added borrowing to his/her consumption.