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For middle class, much ground lost in 30 years

Posted: July 30, 2014

Nostalgia is just about the only thing the middle class can still afford. That's because median wealth is about 20 percent lower today, in inflation-adjusted dollars, than it was in 1984, according to a study.

Yes, that's three lost decades.

The middle class has been hit particularly hard by the Great Recession and the not-so-great recovery. It's all about stocks and houses. The middle class doesn't have much of the former, but it does have a lot of the latter. And that's bad news, because even though the crash decimated both, real estate has not come back nearly as much as equities have. So the top 1 percent, who hold more of their wealth in stocks, have made up more of the ground they lost. But, as the Russell Sage Foundation found, the slow housing recovery means that in 2013, median households were 36 percent poorer than they were a decade earlier.

In fact, the housing bust was big enough to erase all the gains the middle class had made in the past 30 years — and then some. Data show that median households did not add much wealth between 1984 and 2007. That's what happens when real wages do not increase, and the cost of a middle-class lifestyle — housing, health care and higher education — does. So, as economist Dean Baker points out, when the crisis did come, it devoured these meager gains and left the middle class with 20 percent less wealth than it had when it was "Morning in America."

But there's a big caveat. Households don't necessarily stay in the same percentile from one year to the next, let alone for 30 straight. There's a life cycle to it. People start off with little, or negative, wealth when they take out loans to go to school or buy a house. Then they gradually build it as they get bigger paychecks and pay back what they owe.

In other words, just because median households are poorer now than they were in 1984 doesn't mean that middle-class families from back then have lost money since. It means that people at the middle now have lower net worths than people at the middle did then. But it's still a lot better than households in the bottom 25 percent, whose wealth never grew during the good times and then plunged 60 percent during the bad ones. That's because for the middle and working classes real wages have been stagnant for the past 30 years and housing equity has taken a nose-dive.

At this rate, it won't be long until the American Dream isn't even a memory for the middle class.

By Matt O'Brien

(c) 2014, The Washington Post.