Pop quiz: Which of the following is true? (a) Over the past 40 years, the middle class has shrunk; (b) Over the past 40 years, the middle class has grown poorer; (c) The middle class just suffered through a “lost decade”; (d) All of the above.

You could be forgiven for answering (d), given the angst-producing state of discourse on the economy, but the truth is that none of these claims about middle-class decline are supported by the best evidence.  A recent report by the Pew Research Center (PRC), “The Lost Decade of the Middle Class,” is the latest entry in the doom-and-gloom genre, but like other analyses before it the report badly misrepresents the economic standing of the middle class. Pew generally does very good work, and I am a fan particularly of its Economic Mobility Project, the research portfolio of which I managed for three years. But “declinist” analyses are both wrong and insidious, and since PRC’s work is especially influential, its errors deserve a careful examination.

As David Brooks points out, Mitt Romney's remarks describing 47 percent of the population as, in effect, moochers who would vote for Obama because they got government benefits were not “off the cuff,” as he described them today. There is a carefully developed theory behind his words, which has seen expression in previous Romney speeches, such as one last December in which he described Obama's vision as an “entitlement society” in which “everyone receives the same rewards,” but in which “we'll all be poor.”

While conservative politicians and pundits have been denouncing the welfare state for three-quarters of a century, conservative theorists have spent much of that time trying to devise a conservative version of the welfare state. All of the proposed models of a conservative welfare state are less efficient and less fair than the progressive alternatives. All, to date, have failed to win widespread popular support. But the fight is far from over.

Last month, the Census Bureau released its latest data on wealth, updating earlier figures from 2005 to 2010. The numbers confirm findings from a Federal Reserve Board survey showing unprecedented declines in the net worth of the typical American household. The Census figures indicate a drop of 35 percent between 2005 and 2010 in median wealth-the wealth of the household right in the middle-from $103,000 to $67,000. The estimates from the Federal Reserve show a decline of 28 percent between 2004 and 2010. From 2007 to 2010, median net worth declined by an astonishing 39 percent in three years.

This loss of wealth surely hurt many people counting on these funds to pay for retirement, children's schooling, and other needs. Others counted on being able to sell their homes to take advantage of opportunities in other parts of the country but are now underwater on their mortgage and stuck in place. Viewed in context, however, the wealth levels of middle-class Americans are in better shape than these dramatic figures would suggest, though they have not improved markedly over several decades.
 

By Breakthrough Institute Senior Fellow Roger Pielke, Jr. Originally published at his personal blog.

Writing in the FT earlier this week, economist John Kay discussed absolute and relative definitions of poverty. On the absolute:

People who struggle to find enough food to eat are poor. The World Bank's poverty line is an income of less than $1.25 a day. Financial Times readers, who spend more than that amount on their morning newspaper, are in no position to dispute that judgment. In the past two decades, economic growth in China and India has reduced global poverty by an unprecedented amount. That achievement is not diminished because some individuals in both these countries have become very rich. Fundamentally, poverty is about absolute deprivation.

Kay observes that there is also a relative definition of poverty:
 

That is clearly not the end of the story, however. On the World Bank standard no one in North America or western Europe is poor. And very few people in these continents do not have enough to eat. We might observe that obesity is a disease not of the rich but of the poor. In making such a statement, we endorse the notion that poverty is relative not absolute. That principle is enshrined in the UK definition, which rises with the general standard of living.

How should liberalism evolve to deal with the new inequality? By shifting its focus from absolute to relative poverty.

Neither contemporary conservatism nor contemporary liberalism offers a credible path to the kind of economic dynamism and shared prosperity that characterized what has been called the "American Century." In order to revitalize the American dream, members of all political persuasions must address the question of how we can prosper when the basis for our economic renewal is unclear, our willingness to make shared investments in our collective future is waning, and our place in a post-American world is uncertain.