American middle-class families are struggling to manage their finances. Yes, the economic expansion is approaching its 10th birthday, which would make it the longest in the nation’s history, and unemployment is low and still falling. But despite these good statistics, the middle class can’t seem to find its financial footing.

Take incomes. Median family income – half of families have higher incomes and other half lower incomes – has barely budged after inflation over the last 20 years. Throughout much of our history, children could expect to earn much more than their parents. Not so anymore.

The finances of middle-class Americans look even shakier in light of the fact that they are no wealthier today than they were two decades ago. Median household net worth — the difference in value of what the typical American family owns and what it owes — has gone up and down with the wild swings in stock prices and housing values. But, after accounting for inflation, it is currently about where it was in the late 1990s.

Behind this poor performance were two recessions: the downturn in the early 2000s triggered by the bursting technology bubble in the stock market, and, of course, the financial crisis that hit a decade ago as the housing bubble burst. Unemployment peaked in the double digits a decade ago, and although it has steadily declined during the current expansion, only recently has unemployment returned to something consistent with full employment.

Long-running forces, the most notable being the rapid pace of technological change, have also hurt middle-class finances. The advent of the internet and its incorporation into business activities has been especially hard on middle-paying occupations. In a metaphorical if not real sense, these jobs have been effectively coded-out. Many of those losing jobs and without requisite skills have been forced out of the middle class altogether.

The economic gains from new technologies have been huge, but so have the costs for many Americans.

Rapidly expanding global trade with the emerging world, ushered in by the North American Free Trade Agreement in the mid-1990s and the entry of China into the World Trade Organization in the early 2000s, also hurt the middle class. This is clearest in the large decline in manufacturing jobs. The downside of these trade deals has played out, but this is no solace to the workers who were nailed by them.

With constrained incomes and wealth, middle-class Americans can’t save. Since the late 1990s, the saving rate for middle-class families has been negative as often as it has been positive. These families have spent beyond their incomes largely by borrowing more. Middle-class baby boomers now in their 50s and 60 are now especially vulnerable as many are financially ill-prepared for retirement.

It is also galling that the middle-class share of the nation’s income, wealth, and spending, which is already disproportionately small, continues to shrink. Most disconcerting is that the one-fifth of families with incomes in the middle account for only about one-tenth of total consumer spending — a share that continues to decline. As the middle class gets a shrinking piece of the nation’s economic pie, those with the highest incomes are taking a bigger slice. Almost half of all spending is currently enjoyed by those in the top one-tenth of income earners.

There is some good news.

The Federal Reserve appears to be working to help address the plight of the middle class by keeping interest rates low. Although short-term interest rates have risen, they remain low by most historical standards, and given stable inflation that is near the Fed’s target, policymakers have indicated they will remain patient when considering future rate increases. The tight labor market should continue to support stronger wage growth across all income groups.

But monetary policy can go only so far in helping the middle class, and lawmakers need to act. It makes little sense to allow personal tax rates to increase for middle-income taxpayers, but they are slated to do so under current tax law. Instead, tax rates on high-income and wealthy taxpayers and large corporations should increase to pay for fiscal efforts to support the middle class.

Also particularly effective would be significant increases in infrastructure spending. That would quickly create many middle-paying jobs and open up development in stunted communities in the nation’s inner cities and rural areas. Federal dollars to defray the costs of child care, early-childhood education, and higher education would also go a long way to help parents work, save more, and build the wealth needed in retirement. Of course, this will also provide our children with the skills they will need to win future high-paying jobs.

Our nation is only as strong as our middle class, and we are struggling. The causes are many. What is clear is that lawmakers must refocus economic policy onto what matters for the typical American family. The fortunes of the middle class and of the nation depend on it.


Mark Zandi is chief economist at Moody’s Analytics. Contact him at