Magazine

The Real Middle Class Squeeze


Who lives in "The core"? That's the twilight zone -- core inflation land -- the Federal Reserve visits every month to measure America's inflation rate. In the Core, people aren't worrying about rising energy or food prices because those necessities aren't counted in the official statistics for core inflation. And if they aren't counted, they don't exist. Taxes don't exist in the Core, either, so rising property taxes aren't bothering anyone. In the land of the Core, inflation is rising at only 1.9% annually.

Pardon us for being sardonic. Americans don't live in the Core, though most live in the Middle. And a genuine squeeze on the middle class is under way, in which higher prices for many key goods and services are outrunning rising wages and income. Rising prices have wiped out wage gains for the first half of 2004.

Take health care. While median family income is up 8% from 2000 to 2004, health-care premiums for a family of four are up 49%. During this period, tuition at a four-year public college is up 40% (and 27% for private colleges). Day-care and nursery school costs are up 19%. Total national property taxes are up 30%. And gas prices, of course, have jumped 23%.

The whole idea of excluding food and gas from the core CPI doesn't make all that much sense. Apparel, which is included in the Core, is often more volatile than food, which is not. And energy and gasoline prices affect such huge sectors of the economy that calculating the consumer price index without energy is like describing the beach without sand.

Much of the political debate that will take place until the November Presidential election will deal with the middle-class squeeze. Economists can create such abstractions as core inflation, but politicians must deal with the realities of voters' lives. Americans should ignore the partisan bickering and ideological posturing at the Democratic and Republican national conventions and analyze the specific proposals put forth by Senator John Kerry and President George W. Bush. They should ask the tough questions: Which health-care plan, for example, has the best chance of working? Do the numbers really add up? After all, real voters don't live in the Core. They live in the middle, and they are getting squeezed.


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