“The middle class is shrinking” might be the assertion of the decade. Progressives and populists alike use it to justify nearly all government interventions, from tariffs to minimum-wage hikes to massive spending to income redistribution. Before we accept its validity, though, we should ask a simple question: shrinking how?

Is the number of Americans considered part of the middle class diminishing? Or the amount of wealth they can realistically build? Or the value of what they can buy?

A new study by economists Stephen Rose and Scott Winship usefully reframes the debate. Most studies define the middle class relative to the national median, which makes the dividing line between haves and have-nots rise automatically as the country gets richer. 

Messrs. Rose and Winship instead use a benchmark of fixed purchasing power, so that if real incomes (those adjusted for inflation) rise, more people are shown moving into — or beyond — the middle class in a meaningful sense.

Under this approach, the “core” of the middle class does indeed shrink modestly. Crucially, though, the middle class shrinks because people are moving up the income ladder, not because they’re falling down. 

Since 1979, the share of Americans in the upper-middle class has roughly tripled — to 31 percent from about 10 percent — while shares of those considered lower-middle class or poor fell substantially.

Much of the political rhetoric, such as President Biden’s warning of a “hollowed-out” middle class, implicitly suggests downward mobility and national immiseration — a story difficult to square with data showing an overwhelmingly upward directional movement.

In the end, the American middle class may be a smaller share of the population by some relative definitions, but it’s also significantly richer than it was a generation ago. So why does its supposed downfall resonate so powerfully? I can think of two reasons.

One is that the middle class has never been just an income bracket. It’s also a social identity and a claim to civic pride. For much of the 20th century, belonging to the middle class meant more than just achieving a certain living standard. It meant occupying the cultural and civic center of the country — being the representative American whose tastes, habits and aspirations have largely defined us.

As our prosperity has dramatically grown, our culture has diversified and fragmented. A richer and freer society offers more choice: more media, more platforms, more lifestyles, more ways of living well. We no longer all watch the same television programs or consume the same news. Fewer institutions define a single cultural mainstream.

This fragmentation is often experienced as loss. Without one cohesive middle serving as an obvious center of gravity, upward mobility no longer comes with the same affirmation of middle-class status or belonging. The mirror that once reflected a common identity has splintered.

This is only one side of the story, though. The fragmentation is also a sign of success. It reflects abundance, pluralism and the eroding ability of society’s gatekeepers to dictate what’s normal.

Still, when middle-class life feels messier or less satisfying, populism offers a tempting but misleading response: Blame elites and free markets. It recasts the disorienting effects of abundance and choice as evidence of economic decline. The real danger is not cultural fragmentation but conflating the costs of success with failure.

This leads to a second, more concrete reason for our fears: Washington hasn’t destroyed the middle class, but it is putting most Americans in a frustrating squeeze. The largest cost pressures today are concentrated in sectors where government has distorted markets the most.

Housing, health care and higher education — three of the largest household expenses — are among the most heavily regulated and subsidized parts of the American economy. Barriers on who can provide these essentials, how much can be supplied and how other regulatory complexities raise prices and reduce choice. 

Even as incomes rise, the pressures are real. Yet they are the product of government failure, not evidence that economic growth has stopped working.

Recognizing this does not justify populist economic policies that mistake the source of our discontent. Messrs. Rose and Winship rightly urge skepticism toward policies sold as “middle-class restoration.” 

The impulse to reimpose uniformity or respond to an economic challenge in ways that suppress growth turns real gains into real losses. 

Restrictions on free trade, cartel-like favoritism for government-favored industries and other heavy-handed interventions undermine the very dynamics that allowed the middle class to expand in the first place.

When more families cross into the upper-middle class, that’s a success. You might be frustrated by lost status and broken institutions. 

Just don’t allow politicians to misdiagnose the problem and sabotage the upward mobility that is still delivering real gains despite government barriers.

Creators.com