Going into a little more detail on this, the SF Chronicle’s Sunday story on the middle class squeeze almost got it right. Here’s what they missed. They ran this graph:



which clearly shows the top 5% pulling away like crazy from everyone else. But the real story is that that curve repeats itself the higher and higher you go into the data. The best description of this I’ve found is from David Cay Johnston’s Perfectly Legal; the chapter that describes all this happens to be available for download (.pdf). Income growth for the bottom 99% of Americans from 1970 to 2000 averaged +$2710, which comes out to a raise of a whopping $1.35 an hour (assuming 40 hour weeks with two weeks off, which are just a dream for most folks now).
Meanwhile, the top 0.1% of taxpayers – in 2000, this was about 13,400 people – had income growth of +$20M and change, or more than ten thousand dollars an hour. It seems unbelievable, but this is what the numbers say. Here’s another take on this data, it’s an illustration of the chart found on page 37 of that pdf…



The ramifications of all this are a little tough to see. Just as the poor are invisible (modulo the occasional hurricane), so are the rich. However, one place they’re showing up is in elections, including this special election in California. We’ll have more on this later in the week, but in the meantime, here’s yet another illustration of this effect.
A couple weekends ago, Jen and I went for a hike to a place called Five Lakes, which is sort of half way between the Alpine Meadows and Squaw ski areas near Lake Tahoe. While hiking, we came across what looked like a new ski lift, maybe one connecting the Alpine base lodge to the ridge that separates it from Squaw…



but we were wrong. As it turns out, that land is privately owned, and the owner of it has apparently decided to build his own private ski lift. Next time you hear a Republican whining about how oppressive taxes on the rich are, think about the guy who is building his own private ski lift.
The principle of taxing people according to their ability to pay that underlies progressive taxation goes back to before the founding of this country, and there are a small number of people in who clearly have the ability to pay a lot more than they are now. The rest of us are really tired of getting trickled down on.
Here’s another particularly tough problem:

The plight of middle-income Americans is sometimes overlooked because the official poverty level, which the federal government has based since 1965 on three times an “economy” food budget, does not account for hikes in housing, energy or health care.

The reason this is tough isn’t because it’s so difficult to fix – it wouldn’t be. It’s just tough politically, because whoever’s watch this gets fixed on is going to see what looks like a gargantuan jump in inflation! But we have to do this, because the amount of money that Californians (and many Americans) are spending on these neccessities have all gone completely bananas. Econometrics problems are a big deal; they’re one of these almost hidden things that have a huge effect on people’s perceptions and the policies put into place by the people they vote for.