This is amusing, but doesn't seem like a real problem to worry about. Human society has coped with such situations many many times. Similar worries would have accompanied the adoption of fire, animal herding, agriculture, nation states, writing, money, equine based transportation systems, plumbing, electricity, telephones, automobiles, typewriters, microwaves, CDs, DVDs, and even computers. People do fine without the Internet if they don't have the time or inclination to learn what is needed to use it beneficially. Some people don't have cell phones, some don't drive. There exist alternative ways to shop, communicate with friends, and to sign up for government programs. None of these require the Internet.

From Bob Smith: "I'm not sure I understand your point. Comparing real, material consumption (colour TVs, air conditioners, cars, etc.) is a measure of "real" consumption (and, to the extent that consumption translates into wellbeing - admittedly a contestable notion, although that caveat applies equally to income - welfare). It's not at all akin to comparing nominal wages." I'm sure the analogy was confusing. It was a very rough intuitive comparison. Yes it's true that material progress is real, as you state. But what matters to people is their status relative to others. So the rough analogy was something like saying that a nominal increase in income doesn't have the value that numbers might imply because the real worth of money is determined by the value relative to the whole economy, i.e. inflation adjusted purchasing power matters and number of dollars does not. From this I abstracted a core concept that comparing one's own progress between now and the past has less importance than comparing one's position now relative to others now. In this step it goes wrong from an economic standpoint because increased consumption is real and increased numbers of diluted dollars is not real. But there is still relevence to people's sense of well being, which hopefully remains an important value to economists, though it is not easily quantifiable, if at all. How important is it to a middle income earner of the 21st century that his consumption of energy and technological convenience would be the envy of many medieval kings? How important is it to the poor of North America that their comfort level seems like unreachable opulence to the residents of a small rural Central African village? The answer, from a subjective psychological standpoint is, not a lot. Which is why the argument that the middle class is doing fine because they have smart phones, larger capacity energy efficient refrigerators stocked with food, and widescreen flat panel HD televisions, strikes me as somewhat bogus and missing the point. The point, as rsj mentioned, is declining share of total output. It strikes me as profoundly unjust that people who own patents (but do none of the creative work), people with control over corporate purse strings, people close to the gushing channels of investment and finance, people who can employ the law to their advantage, and people who own stuff, are experiencing skyrocketing wealth and income (while paying a relatively small share in taxes compared to wage earners), while those with the actual skill and knowledge to discover, design, create, build, produce, transport, store, package, and sell stuff are earning a declining share of output. It seems there is a whole lot of rent seeking going on. While the term "hollowing out of the middle class" may not be very sensical in a literal analysis, what it seems to mean in practice is that there is a growing anger among a majority of society who perceive, rightly or wrongly, that they are being short changed and gradually squeezed out of a fair share by those who don't always appear to deserve or earn their advantage by real effort or merit. There seems to be a moral component to this discontent, which I realize is outside the domain of economics, but remains important. The collapse of the housing bubble, subsequent financial crisis and bailout, and apparent lack of serious consequences for the highly rewarded people who made the errors or committed the intentional frauds most directly responsible for causing all the economic misery of recent history, seems to have brought the gradually growing spread of inequality over the last three or four decades into very sharp focus for a very large number of people.

The comment by David Lloyd-Jones has made me very curious about the impact of counterfeiting. This paragraph stood out in particular: "A million in hundreds fits in a middle-sized suitcase, and there's often seven or eight hundred thousand left even after they separate out the ones printed in Iran and North Korea." I'm left wondering if counterfeit bills printed in North Korea or Iran are somehow more harmful or scary than bills printed in other countries, say Germany, Japan, Sweden, or Australia? Are Iran and North Korea particularly skilled or proficient at counterfeiting US currency compared with other countries? Would it be better if counterfeit bills were printed in South Korea instead of North Korea? It does seem like a very tricky accounting problem to factor national origin into the total cost burden of counterfeit dollars, especially when you consider time differences between an Iranian print shop and a Korean print shop.

@Bob Smith, You make a good point about technological advances improving quality of life. Mass produced consumer electronic goods have improved vastly and prices for new features continue to decrease. But two points on that: 1. In a way if you compare an individual's change in lifestyle due to increasing power and decreasing price of flat widescreen HD TV, smart phones, and computing technology, it's in a way akin to comparing nominal wages changing over time. If we compare the degree of expanding luxuries of the top earners over that same time period the comparison gets closer to comparing "real" inflation adjusted values, where in this case tech innovation serves as the analog to inflation. Heritage foundation had some papers a few years back making an argument like this, that American poor aren't really poor because they have refrigerators and TVs. But see the next point. 2. The crucial areas where this argument about tech progress fails are in housing, education, and health care. Not so much in Canada perhaps, but very much so in the US. The prices have way outpaced inflation, and televisions and smart phones aren't going to provide opportunities to get out of poverty the way good health and education can. The goal of a good college education for your children is seeming more and more distant to middle class parents even if they manage to keep incomes at the same percentile or manage moderate gains. The crushing amounts of debt required in student loans were unheard of thirty years ago. Employers who pay for health insurance have steadily shifted more and more of the cost burden onto employees. The middle class is bogged down and sliding backwards when it comes to trying to keep up with the costs in these three essential areas of housing, education, and health care.

I think the term "hollowing out" means that the middle class are not sharing equally in income and productivity growth. In the US wages are lagging expenses, particularly with respect to the very important categories of housing costs, education, and health care. I don't know what the numbers show, but my experience is that people feel like they have less disposable income, less to save, and prior to the recession felt more pressure to borrow in order to maintain their lifestyle. I think these are the factors ordinary people feel are "hollowing out" the middle class, which could be interpreted as meaning that the people remain middle class in name only by median position, but their purchasing power has faltered, and they are being left behind by the staggering growth in wealth and income of a small percentage of people at the top, which explains why median by income would not reveal the phenomenon people are complaining about. It's not about proportions of numbers of people, it's about proportions of purchasing power, lifestyle, upward mobility, and economic security.

I'd much rather read Matt Steinglass than WW.

My personal favorites list would include Brad De Long (of course), Noahpinion, Simon Wren-Lewis' Mainly Macro, and Dean Baker (whose sarcastic tongue lashings of a clueless media are not only informative, but good for a laugh).

There is a further irony in Barone's "trustfunder left" category. It seems he is inventing this out of whole cloth because he is reaching to coin a catchy voter group like "soccer moms" or "NASCAR dads", except that it is a negative one with which to slander the left. The irony is that the obvious policy implication to counteract this pesky plague of "trustfunder lefties" is to boost the inheritance tax. We could call this the Barone argument in favor of a robust inheritance tax.

Being biased doesn't necessarily imply being incorrect! ;)

As one whose education and professional life has been of a mathematical and scientific nature, I would think that the most frustrating thing about being an economist is that you have no laboratory in which to set up experiments to test your hypotheses. I suppose this is convenient for some with a tendency to be wrong, but anyone interested in economic truth should find it extremely painful. So it just amazes me that any economists should have to be reminded of the importance of history. History is basically the only thing economists have resembling a laboratory. It should be precious to the profession, and gathering, recording, organizing, and analyzing the most thorough body of data possible today, which is also empirical history, ought to be an obsession for the profession.

"what would “even worse” look like?" - Targeting political enemies in the US. - going after fugitive criminals in the US. - extorting favors by threatening drone strikes against families. It could get much worse. And the drone war is way better than the invasions of Iraq or Afghanistan, to put things into perspective.

I'm no economist. I program computers. Ultimately these arguments must be understandable to ordinary voters. My simple minded way of thinking about this is in terms of fuel in a vehicle: arguing against leaving debt for the next generation is similar to saying we shouldn't drive the car today because we'll just have to fill up the tank again tomorrow. If your parents run up credit card debts on overseas adventures and living the high life of parties and Las Vegas celebration, of course that is stupid debt squandered that burdens the children. If they buy and renovate property and build businesses with debt, they bequeath value. Of course it matters how you utilize the debt, and what the interest rates are; the Republicans have squandered the debt on misguided wars and throwing a party for the wealthy. That truly is laying a legacy of having to pay to replace wasted capital. Investment in education, infrastructure, technology, and building exports to reduce the trade deficit are examples of building value with national debt. Let's borrow today to invest non-profit medical research labs, partnered with academia, whose discoveries can't be patented but must be produced generically. Our children and grandchildren would sure thank us for that debt. Is there something more complicated I'm missing?