NCPA - National Center for Policy Analysis

1980s Made All Households Better Off

December 1, 1997

During the 1980s, we often heard that Ronald Reagan's policies were destroying the middle class. Both Walter Mondale and Michael Dukakis made this theme a major part of their presidential campaigns. Said Mondale in 1984, "And today the rich are better off. But working Americans are worse off, and the middle class is standing on a trap door." In 1988, Dukakis said, "The rich have gotten richer; the poor have gotten poorer, and those in the middle -- and that means most of us -- are getting squeezed."

Voters soundly rejected this argument in both elections. They knew from their own experience that most people in the middle class, including themselves, were better off in the 1980s, not worse off. Yet the myth of the 1980s as a period when the middle class declined continues to be repeated as if it is a proven fact.

The latest academic research, however, is finally beginning to dislodge this canard. Economist Richard Burkhauser at Syracuse University is one of the most prominent revisionists, painting the 1980s as a period when the vast majority of Americans were better off. In several recent papers, he takes issue with statistical studies purporting to show the decline of the middle class in the 1980s. He points out that these studies seldom adjust for the business cycle and often compare two years that are quite dissimilar cyclically. A valid comparison should compare two years at similar points in the business cycle.

Burkhauser also looks at ways in which the data may be biased by using the wrong unit for comparison and how the mismeasurement of inflation makes people look worse off than they really are.

Burkhauser starts by comparing peak years for the business cycle. This has an important impact on the analysis.

  • For example, if one compares 1979 to 1992, the former a peak year and the latter a trough, only 44 percent of families were better off.
  • But if one compares 1979 to 1989, both peak years, the percentage of families that were better off rises to 64 percent.
  • Burkhauser further adjusts by comparing households rather than families, because they are more representative today. (Households consist of families plus unrelated individuals.) This adjustment increases the number of Americans who were better off to 74 percent.
  • Adjusting for the overstatement of inflation raises the percentage to 100 percent.

Burkhauser concludes that all of the apparent decline in the middle class in the 1980s resulted from the middle class moving up in income, rather than down.

This may not be enough to put a durable myth completely to rest, but it is a good start.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, December 1, 1997.

 

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