I think it's telling about the state of economics discussion on this forum that the word "market" has not been mentioned once. Anyways -
I prefer "stagnated" instead of "declined" in most situations, just to avoid the obvious foil that living standards have not decreased that much.
Consumption on necessities - food, shelter, clothing, and transportation - seems to not have changed for those in the middle quantile, which is quite odd when thinking about the massive capital mobility now available to the rich. The story may not be one of "Iphones instead of TVs," but more like "Iphones or TVs, but not enough spare income to buy both". I see plenty of people my age who have substituted a TV for Netflix, but still live paycheck to paycheck.
The middle class's possession of household wealth is simply dwarfed by spending on that front by those richer. At the start of the Baby Boom, for example, one can get a newly built house, small but homely, on an average salary. But the returns to holding a larger house at the start ended up exceeding wage increases. With constant inflows of better-educated professionals into communities who can afford to buy better houses, those who lived there were squeezed out of the housing market. Now someone trying to find a house in the same community will have to take a mortgage longer and costlier than what they had before, and maybe they will need to settle for a run-down apartment instead.
The social guarantees in that postwar era - pensions after retirement, unemployment insurance - are also unravelling in the present day. Past middle class professions are simply shut out of the market for liquid capital that is such an engine for wealth growth these days, as those in industrializing countries use that capital to catch up. Faced with uncertainty on how they can make do with raising family or preparing for retirement, they also need to save more or become reliant on debt. The situation, then, looks more like our conception of "lower class": someone with little stability in their lives, subject to market forces.
EDIT:
Even the working poor today do better than the middle class of our grandparents. I'll agree that it's harder for the unskilled to make it to the middle class today than it was for the unskilled of that generation and that that is probably a bad thing, but really, other than a brief couple of decades, that's always been the case.
Red herring - the middle class, quite frankly, did not exist in your grandparents' time. And of course inequality has been rampant other than a brief couple of decades - isn't the point to change society for the better?
