Opinion

Edward Hadas

America says it has got poorer. That’s rich

By Edward Hadas
September 25, 2013

The U.S. Census Bureau says the median American household’s income was 1.3 percent lower in 2012 than in 1989 after adjusting for inflation. That suggests stagnant American consumption for the last 24 years. That assertion is not as ridiculous as North Korean propaganda about the United States – “their houses blow down very easily and they have to live in tents” – but it’s still misleading.

To start, the country is currently enjoying the fruits of major technological advances in electronics. In 1989, there were almost no mobile phones. Today, more than 90 percent of American adults have one, according to the Pew Internet and American Life Project – and more than half of those phones count as “smart”. The same project estimates that about 70 percent of U.S. adults are daily internet users, compared to zero in 1989.

Considering the increased consumption of electronic goods, a typical American household could only be poorer now than then if there were matching declines in the consumption of other goods and services. But none of the statistics I could find shows this. On the contrary.

Housing? The government calculates that the average living space per person in the U.S. increased by 15 percent between 1985 and 2005. The newer and bigger dwellings are still standing, so the subsequent housing market bust could not have eliminated the gain, and the increase is far too large to be accounted for entirely by the spread of so-called McMansions for the richest sliver of the population.

Travel? No way. Both car and airline miles travelled per person are up about 12 percent since 1989. Also, overall quality has improved, despite decaying highways. Planes are quieter; cars are both more powerful (80 percent more horsepower on average) and more fuel efficient (11 percent higher miles per gallon).

Healthcare? It’s easy to count up how much is spent on healthcare – up from 11 percent to 18 percent of U.S. GDP since 1989 – but there is no good way to measure what all that money actually buys. The basic health trends are positive, despite the vast increase in self-inflicted obesity. For example, American life expectancy at birth is up by 4 percent since 1989 and a 65-year-old can expect to live 12 percent longer.

The environment? The Environmental Protection Agency calculates that emissions of six leading pollutants are down by about 60 percent since 1989. Household income does not capture the consumption of cleaner air and water, but the environmental gains are shared by everyone.

There have also been steady increases in calories consumed and in the average years spent in school (education can be considered a consumption good). So whatever the Census Bureau says, the median household in the United States had enough income in 2012 to consume much more, both in quantity and in quality, than in 1989. The increase is not surprising; it merely continues the two-century trend of improving lifestyles in industrial economies.

Economists, like everyone else, have noticed the flow of more, new and improved products. However, the Census Bureau income report was presented as a tale of long-term stagnation in many professional blogs, including offerings from the Wall Street Journal, the Washington Post and the Huffington Post. Among the numerous comments on these articles, only a handful are sceptical.

Technically, the appearance of stagnation could be erased by changing what are known as “hedonic” or quality adjustments. For example, a new car costs 5 percent more than an old one. Some of the increase pays for higher quality and the rest is considered inflation. Economists have to decide how much belongs in each category.

Suppose they have been dividing the car’s increase as 3 percent inflation and 2 percent quality. They could decide that the split is more like 6 percent quality and -1 percent inflation – in other words the car has actually become cheaper, adjusted for quality. Apply that sort of adjustment to everything in the economy and the apparent income stagnation would disappear.

Of course, the reported inflation rate would fall by as much as the growth rate increased. That doesn’t correspond to another part of reality – the steadily rising prices of lots of goods and services whose quality has not improved at all.

Economists have some hard questions to answer about their technique. They probably should not try to capture both quality gains and general price trends in a single number. But their problem does not explain the absence of derision that met the Census Bureau’s reported stagnation.

I cannot fully explain what is going on. People sometimes seem to have an almost perverse desire to feel relatively poor. Or perhaps the United States’ genuine economic problems – such as increasing income inequality, a slow recovery from the recent recession and a harsh job market – put Americans in a funk in which any specious claim can seem plausible.

Whatever the explanation, this is an error ripe for correction.

 

Comments
16 comments so far | RSS Comments RSS

Any perceived improved economic conditions (such as before the Great Recession) for the middle class were based on a number bubbles.

All benefits of greater efficiencies and technical advancements were funneled to the top 5%.

Why the middle and lower classes don’t revolt is beyond me — guess it is all of the distractions from the Teapublicans who focus the blame on those receiving benefits from the government and governmental regulations which protect the environment and worker safety.

Posted by Leftcoastrocky | Report as abusive
 

The consumption continued secondary to credit card debt.

Posted by 2Borknot2B | Report as abusive
 

Peaceful, loving people don’t need to revolt, they need to use their collective consciousness to harness the intention of their will. Their will be done. A revolt is last resort and will only happen if the people are pushed into it, you can only push people so far, you can only turn your cheek so many times until you are red in the face.

Posted by 2Borknot2B | Report as abusive
 

The author article makes no sense. He is citing quality of life issues. Yes, we in the US have seen improvements in cabon emmisions and greater technology, but that does not lead incomes to rise. Incomes rise as a result of solid and REAL economic growth (not the fake, debt wridden boom of the Bush years, that ended up in a total bust).

In reality, we in the US have not grown economically AT ALL since 2000.

Posted by KyleDexter | Report as abusive
 

The author obviously does not associate with families making under $55,000/year let along $20,000/year. And these are not family breadwinners in unskilled jobs, but today it includes adjunct university teachers, nurses, etc.

The author fails to show the price escalation in basic needs category like rent, gasoline, high education, drugs, utilities and food. All these categories have outpaced the CPI by many degrees and certainly outpaced an -0- income growth of this income bracket. So a kid goes on credit to buy an iPhone or a Walmart worker goes to a same-day check cashing and pays 20% to realize cash, this is progress?

Since the 1980s Reagan tax “revolution”, the poor and middle class have kept up parts of their life style by piling on debt, a major source of revenue for this country’s financial institutions. In today’s economy a working mother of 3 pays 22% interest rate on her credit card purchases of food and clothes, while the hedge fund guru pays 3% to his bank to leverage up his speculative trades.

And it just gets worse, even under a Democratic President.

Posted by Acetracy | Report as abusive
 

So lets see, I have a cell phone…oh boy!

I have a bigger house a few miles further out on the interstate than my parents with some empty rooms. That might account for the increase in travel miles.

I get to subscribe to cable TV that I’d dump if not for my wife and kids.

My income is lower but my assets are much higher.

I’d agree on the environment and health care, both much better. Especially health care, if you do what your doctor tells you to do.

Quality of goods probably overall better. Autos much improved, housing not nearly as good, electronics – who cares that stuff is generally a time waster anyway.

On balance I’d say I’m about even. But I have assets, without the assets I’d be much worse off than I was in the 1980′s because I’d be old and broke instead of young and getting started on my career.

Posted by Missinginaction | Report as abusive
 

There used to be a time when talk about the economy in the aggregate, or about averages, meant something, at least to the relatively ignorant average person. Now, one must conclude that it is the author of this article who is ignorant, because even poorly-informed ordinary people know that “average” in this economy is highly misleading at best. We have a few fabulous winners and a large majority of people who are losers or are people who at best are just treading water harder and harder each year just to keep from drowning. We now all know that it is quite possible for the economy to be doing better “in the aggregate” while at the same time most of us are doing worse. This economy might be working great, but it isn’t working for most of us.

Posted by SStackhouse | Report as abusive
 

Any analysis of the US which does not consider the economic inequality is flawed. Show the trends for the top half of the economic spectrum and the bottom half and you will see two separate societies – one poorer than 50 years ago – the other MUCH richer. I encourage show the comparison and prove me wrong. (or admit that YOU ARE WRONG)>

Posted by SpudM | Report as abusive
 

Again Mr. Hadas sees with a clarity few do. He’s even confident enough to admit that even HE “cannot fully explain what is going on”.

Bottom line is this: The standard of living of the great majority of Americans is higher than at any time in history. We are richer in our informational resources, our access to those resources and the value of those resources.

Less and less of our working hours go to put good, fresh healthy food on our tables; but only for those not too lazy or stupid to cook at home and take lunches to work. Basic vehicles have NOT risen in cost proportional to their increasing longevity, reliability and efficiency; and so the wise drive them longer and would enjoy savings were our price of fuel at the pump not so inflated.

Those who forever wail at the stagnation of the minimum wage are not those who would be denied such a job if the minimum wage were raised or the job automated. Each and every one has a cell phone and a majority of their kids do too.

The simple fact is that most that are having a hard time with their life have made really bad economic choices such as single motherhood or having more and more children expecting God (and society) to “provide” for them. The “bling” wheels and silly 2″ tires mat cost a lot, but in the “good ‘ol days” we “customized” our heap with (stock) Oldsmobile “flipper” hubcaps.

Look back at what was in short supply during the rationing of WW II and you get a better sense between what is a need and what is a want. Don’t cry on my shoulder that some of your wants aren’t being met. Our malls are full, our grocery markets are full, our people are fat and our poor drive. Americans in general have no personal memory of “hard times” and widespread need.

The idea that every generation must not only “have more and better” than the preceding generation is a fantasy that rose after WW II that is utterly divorced from any historical reality. The “entitlement mentality” is, at it’s very core, pure stupidity.

Posted by OneOfTheSheep | Report as abusive
 

For whatever reason, a big chunk of our society enjoys bad news. They wallow in it like a dog who’s found a stinky pile of something, The tone of this article is not in line with the narrative those people want to hear.

Posted by jambrytay | Report as abusive
 

Question to author:
Did you factor in such necessity as healthcare?

Posted by chyron | Report as abusive
 

” the median American household’s income was 1.3 percent lower in 2012 than in 1989 after adjusting for inflation.” Yet the average income is up. The rich are getting richer, really really richer. When the median goes down and the average goes up you have more inequality.
However, most Americans feel “poor” when what they have falls short of what they perceive they ought to have. That perception is shaped by popular culture, primarily TV, which devotes an inordinate amount of time to the rich and famous. Many shows, ostensibly about everyday people, display absurdly large dwellings & offices and very little, if any, time actually working. The feeling of being less well off does not always reflect real poverty, which the examples in the article amply illustrate.
In summary, inflation is systematically overstated despite what people “feel,” but inequality really is a growing problem.

Posted by QuietThinker | Report as abusive
 

the author is right – in one respect, that the goverment’s figures are ridiculous: things are much worse than the government will ever admit.

Posted by dumlooking | Report as abusive
 

When I was at school a bus ticket cost 4c; a ticket to the movies cost 21c. My parents bought their first brick house in 1960, 2 bedrooms on 1/8 acre, for 3000 dollars. After I left college in 1980, a Honda 750cc motorbike cost me 5500 dollars. I bought my flat in 2008 for 180 000 dollars. It is substantially smaller than my parents’ house.

House price inflation is the cause of relative poverty. It exponentially outstrips all pay rises. In the UK they say it is almost impossible for young couples to get on the “property ladder”.

Then there are the student loans. Interest from student loans has become the second most important contributor to the Federal budget.

If one takes a simplistic 2% inflation figure since 1989, then the cost of goods should have risen by about 60% since then.

If you can convince me that housing, transport and higher education have gone up by no more than 100% since 1989, then I will agree that Americans are not worse off. But I think that a study will show that these basic household commodities have inflated by thousands of % since 1989.

And that’s before we even start talking about steady tax increases year after year after year, in spite of what the Republicans try to pretend.

Posted by TravisZly | Report as abusive
 

Education hardly improved during the 25 years. More likely it is worse now, particularly math and science in K-12.

Posted by yurakm | Report as abusive
 

Is this article meant to provide a teaching example of fallacious reasoning? The message: if you feel poorer today, it’s because you’re not realizing just how many plasma TV’s you can buy! Or that computer games, which used to be really expensive, are a dime a dozen! Talk about cherry picking your data.

Yes, lots of things have gotten less expensive. And some really, really important things that define a middle-class existence, like education, health care, and housing, have gotten far, far more expensive. Even the slum-dwellers of Rio have cell phones and satellite tv — I’ve been there, I’ve seen it. But they have no health care, open sewers, no access to education, and no particular hope for the future.

In sum, the author’s message is as follows: why can’t you people just be happy with your cheap consumer goods? You didn’t really need that college education, home ownership, or surgery, anyway.

Posted by ericksonpb | Report as abusive
 

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