Americans Are Richer Than Ever Before

One of the ongoing narratives driven by populists on both left and right is that the middle class and poor are lagging behind while the wealthy elite—the “top one percent”—are getting richer. CNBC, for instance, recently suggested that the stock market boom is helping mostly the wealthy while doing little for everyone else. “The surging stock market is enormously beneficial to the finances of the well-to-do,” CNBC reported Mark Zandi, chief economist at Moody’s, saying, “but means little for most Americans.”

The problem is that Zandi and CNBC, like most media these days, are so fixated on the relative gains going to the top that they ignore the absolute gains made by all income groups. Indeed, focusing on the “top one percent” or the “top 10 percent” of income earners and comparing them to the “bottom 50 percent” may dramatize matters for “news” reports, but it gives little insight into the economic well-being of the typical American. This is because such analyses reflect statistical categories, not human beings.

The late economist Joseph Schumpeter compared income groups to hotel rooms. Just as the former ranges from high to low, so the latter ranges from high-end to low-end. But the different categories fail to reflect who occupies them and whether occupants move to higher categories over time.

Indeed, major studies from the University of Michigan, the U.S. Treasury, and the Federal Reserve have tracked individuals over decades and shown that young people early in their working careers tend to occupy the lower income categories, and that most of them move to higher income groups as they gain experience over many years. In other words, despite popular portrayals to the contrary, economic mobility in America remains strong. Yet fixation on statistical categories like the “top one percent” or the “top ten percent” masks this reality.

It is therefore no surprise that many today believe that the middle class has been hollowed out and that incomes no longer keep up. Although this attitude is fostered by incessant headlines and talking heads insisting that the middle class is struggling to make ends meet, evidence indicates otherwise. While it is true that the middle class is shrinking, it is shrinking not because Americans are losing ground but because Americans are increasingly becoming rich. As economists Stephen Rose and Scott Winship explain:

In 1979, 24 percent of American families were in the lower-middle class, but that fell to 16 percent by 2024. And the share of families who were poor or near poor fell from 30 percent in 1979 to 19 percent in 2024. There was no net movement of families downward out of the core middle class. Instead, the entire shrinking of the core middle class came from net movement upward. The upper-middle class was home to 10 percent of families in 1979, 22 percent of families in 2001, and 31 percent of families in 2024.

Simply put, more gains are indeed accruing at the top, but this reflects the fact that categories like the “top ten percent” and the “top one percent” are growing in number while categories at the bottom are shrinking in number—a fact we ought to celebrate!

Yet a question here emerges. If the average American is indeed improving economically, why do many believe otherwise? No doubt many factors are involved, but here are a few considerations.

First, despite real gains that Americans have made in recent decades, it must be acknowledged that the last several years of inflation have indeed eroded purchasing power and put a strain on working families. Whatever the merits of government policy during COVID-19, heavy spending and loose monetary policy have led to higher rates of inflation, which has put a squeeze on middle-class households. Policymakers would therefore do well to rein in spending and cut inflation to return us to growing prosperity.

Furthermore, although many goods and services have become less expensive over time, crucial big-ticket items like medical care services and college tuition have become more expensive. Moreover, even though housing is more affordable than it was 25 years ago, much of that gain has been wiped out by a recent surge in pricing. Since 2020, housing prices have exploded by more than 50 percent. All of this has put added pressure on middle-class families. And because these increased costs are due in large part to bad government policy—whether distortionary subsidy and regulatory programs (in the cases of healthcare and higher education) or restrictive land-use regulations and zoning laws (in the case of housing)—bringing costs down requires moving toward rather than away from free-market solutions.

Second, our perceptions of economic well-being are shaped by how the issue itself is framed. Consider, for example, that news media almost always frame it in the language of “income inequality.” But this expression subtly biases our thinking. It suggests that differences in income are harmful and therefore morally objectionable before any analysis is done showing that they are.

As the late economist P.T. Bauer pointed out, we do not describe people with different heights as suffering from “height inequality,” since the latter expression immediately invites the judgment that an injustice exists requiring correction. Likewise, we should speak of “income differences” rather than “income inequality” until injustice has actually been demonstrated rather than merely implied. The point is not that height and income are morally equivalent, but that terminology plays a role in shaping our perceptions, whether or not those perceptions accord with reality.

Third, as material abundance increases, so does the preoccupation with material goods. And the more preoccupied one is with material goods, the more one measures oneself against those who have more and the less grateful one is for what one has. Such is the frailty of human nature. “Wealth is like sea-water,” observed Arthur Schopenhauer, “the more we drink, the thirstier we become.” If this is right, then our discontent with our own perceived economic well-being may in fact reveal just how wealthy and privileged we actually are.

Of course, none of this means that there is no work to be done or that we have no real problems to address. On the contrary, policymakers should remove genuine barriers to opportunity wherever they exist and help the least among us as best they can. But we must not forget that, despite the real economic burdens facing many families over the last several years, we are living in the richest period in all of human history, with opportunities and possibilities like never before.

It is, for that reason, an extraordinary time—indeed a consummate blessing—to be an average American.

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