Donald Trump is rising because the US middle class has crashed

Welcome to the future.
Welcome to the future.
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There’s no secret behind America’s groundswell of support for Donald Trump, the political outsider whose bid for the Republican presidential nomination threatens rip the party of Lincoln asunder. Trump supporters—who pushed him to victory in key Republican nominating contests in Mississippi and Michigan on Tuesday—are disproportionately older whites without college diplomas.

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Today, these folks are usually referred to as “working-class.” But at the heart of Trump’s appeal is the uncomfortable fact that they used to be something else. These people used to be America’s middle class.

Last year, the Federal Reserve Bank of St. Louis published an interesting bit of research. The paper showed that “middle class” living standards have declined much more drastically than other metrics—such as median household income—would suggest.

Analysts at the bank took survey data and sorted respondents by demographic criteria such as race, age, and education level, rather than income. They defined “middle class” families as those families “headed by someone at least 40 years old who is white or Asian with exactly a high school diploma, or black or Hispanic with a two- or four-year college degree.” These were the demographic profiles typical of people at the center of the US income distribution—the middle class—back when the same survey was first taken in the late 1980s.

Then they looked at how the income and wealth of families that met those criteria developed over time in the Fed’s Survey of Consumer Finances, which is conducted every three years and offers detailed data on the financial health of Americans.

The upshot: Real median income of these “demographically defined middle-class” households fell roughly 16% to $45,248 in 2013, from nearly $54,000 in 1989. (A separate study found that earnings of men in the US with a high school diploma, but no college degree, fell 13% between between 1990 and 2013.)

Basically, this confirms what many people know from experience: These types of households are clinging to middle class status by a thread. (For the record, median household income in Michigan—in 2014 dollars—has fallen more than 19% since 1969, according to the US Census.)

“If you are a high school graduate and your parents were high school graduates, it’s likely that you are less well off than your parents,” said William Emmons, a St. Louis Fed economist, who co-authored the study.

Those parents came of age between the 1940s and the 1970s, a period that economists Claudia Goldin and Robert Margo have dubbed “the Great Compression.” This stretch of post-war American prosperity was a golden age, when rapidly rising real wages expanded the US middle class, enabling households headed by high school-educated men to buy homes and automobiles in the rapidly expanding suburbs. Economic inequality was incredibly low by current standards.

As the chart above shows, it wasn’t to last. Income inequality began to grow again in the early 1980s, and has since returned to the relatively high levels seen in the years before the Great Depression.

Why? Well, for many reasons. But the key is wages.

Incomes at the upper echelons of the American earnings distribution have surged in recent years, while incomes for the vast majority have stagnated. Data from US economist Robert Gordon’s recent book The Rise and Fall of American Growth actually show that real incomes have slightly decreased between 1972 and 2013 for the bottom 90% of US workers.

This is a global story. Trends towards globalization and outsourcing have clobbered the incomes of American middle class households, while drastically improving standards of living for the emerging middle classes in Asia, especially in China.

This chart from economist Branko Milanovic’s new book Global Inequality shows that income growth since the late 1980s has largely sidestepped the middle class in affluent nations such as the US.

So, it should come as no surprise that this chunk of the electorate would be drawn to Trump’s anti-trade, anti-China, anti-immigration rhetoric. Of course, Trump’s appeal is as much about style as it is about policies. And that style—vindictive, crude, authoritarian—is perhaps the biggest reason to be concerned by both the rise of Trump and the decline of the middle class.

There’s plenty of literature linking a broad, healthy middle class with political stability and moderation in government. So it’s worth noting too that, on the Democratic side, liberal firebrand Sen. Bernie Sanders also won a surprise victory in the Michigan primary on Tuesday, over the more centrist Hillary Clinton. Growing numbers of Americans are veering toward extremism, and the rise of Trump is just a another sign of the fall of the US middle class. And it’s something worth worrying about.