Opinion: The Middle Class Still Has It Pretty Good

(Feb. 3) -- In the run-up to the release of his new budget, President Barack Obama painted a dire picture of the middle class. It has, he said, "been under assault for a long time ... barely able to stay afloat despite working harder and harder for less, [with health care] premiums that were doubling, tuition fees that were rising almost as fast, savings being used up, retirements put off, dreams put on hold. That was all before the middle class got pounded by the full fury of the worst economic crisis since the Great Depression."

And many of the president's budget plans are aimed at easing these burdens.

It's certainly true that the past two years have been tough for many middle-class Americans. Many of them have lost jobs and homes, seen their investments decline and, more broadly, faced new uncertainties about incomes.

Families are suffering in every community – but the entire middle class under assault? Don't believe it. No hard evidence points to a general decline in living standards for the average American family.

Perhaps, having it so good for so long has created expectations, some of them a bit unreasonable. Consider:

• America's middle class lives in bigger and better-equipped homes than ever before, with appliances of all kinds, air conditioning, big-screen televisions, computers, DVD players, digital cameras and so much more (see chart, "The Spread of Products into U.S. Households").
• Nine in 10 households own a car – better equipped, more durable and more fuel efficient than any in history.
• Cell phones once cost $4,200, but they're now less than $100. Nearly every pocket and purse holds a cell phone, many now with Internet access.
• In real terms, the average family's net worth has tripled since 1970, even after the past two years of declines in housing prices and stocks.
• Tap water's free, but Americans still buy 8.6 billion gallons of bottled water a year.
• Obesity has replaced hunger as the most pressing dietary concern.

Even the higher health care and college costs Obama pointed to aren't for naught. Some of the increase in health care outlays pays for the treatments and technologies that have reduced deaths from diseases and accidents in recent decades. And we're getting more from investing in education because the payoff of a college education in terms of added income has been rising steadily.

And now the economic recovery – it most likely began six months ago – will restore many jobs and create even more. Stocks have already recovered a big chunk of their losses. The housing market will bottom out and rebound. In a year, perhaps two, America's middle class won't be so beleaguered anymore.

Being middle class has never been carefree. Families have worked hard, saved and sacrificed, and they occasionally endured tough times. But generation by generation, the middle-class lifestyle has gotten better and better.

It did so because of the triumph of capitalism. As the great economist Joseph Schumpeter put it: "Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist of providing more silk stocking for queens but in bringing them within the reach of factory girls for steadily decreasing amounts of effort."

Innovation and trade continually drive down the real cost of goods and services and increase the productivity of each hour of work. As this capitalist engine churns onward, the scarcity that plagued mankind for millennia has given way to the abundance that's the foundation of today's vast middle class.

The capitalist system literally created the middle class, and the best way to maintain and improve our living standards lies in keeping it functioning at peak efficiency. Government largesse, no matter how high-minded or well-intended, isn't going to do much for the majority of middle-class families. They have to pay their own way – as always.
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W. Michael Cox is former Dallas Fed chief economist and director of the William J. O'Neil Center for Global Markets and Freedom at Southern Methodist University's Cox School of Business.