Friday, October 28, 2011

The Disastrous Decline In The American Standard Of Living

Wouldn't it be good to be in your shoes, even if it was for just one day?
Wouldn't it be good if we could wish ourselves away?
Wouldn't it be good to be on your side?
Grass is always greener over there.
Wouldn't it be good if we could live without a care?
—Nik Kershaw, Wouldn’t It Be Good?

Apparently, life for the average person in the U.S. really, really sucks.

At least, that’s the impression one is left with from any number of media reports over the last few weeks discussing census data revealing that the median U.S. income—presumably that income level at which 50% of the population is above it, and 50% is below it—has been relatively flat over the last decade.  USA Today ran a two-full-page piece last Thursday highlighting this data as a key underpinning of the “occupy” fad. 

To make this point—and to cast the “occupiers” as normal folks who just want their honest chunk of the American Dream—the article sifts through the inane “Tax the Rich” and “Arrest Tea Baggers” signs to focus on young Kate Wolfe, a very girl-next-door type who has $50,000 in student loans, and a $30,000 medical bill for which she has no insurance.  Ms. Wolfe says, “I’m not anti-capitalist . . . I just want some kind of hope for young people starting out, who think the deck is stacked against them.”  One suspects that Ms. Wolfe might find the deck a little more playable if she weren’t—as the USA Today article leads off informing us—spending her time trying to land parts as an actor in New York.  I don’t begrudge anyone chasing their dream, but don’t ignore the statistical and talent realities that say your chances of becoming Johnny Depp or Angelina Jolie are exceedingly slim and then claim the system is unfair.

Let’s note first that this income comparison is based on incomes indexed for inflation.  Unless you indulge in the fantasy that real incomes should normally be expected to show constant and substantial increases forever, it should come as no surprise that the buying power of the median household—particularly in the throes of the current ongoing recession—hasn’t changed that much over the last ten years.  Indeed, this is the basic hedge theory behind investing in gold.  In 1920, an ounce of gold as worth $20, an amount that would buy a fine men’s suit; that same ounce today is worth $1,600 (+/-), an amount that would buy . . . a fine men’s suit.

Interestingly, the USA Today piece goes on to cite Columbia economist Jeffrey Sachs, who traces the stagnant median income growth to 1973, and in researching the data on line I found that 1973 is a common cutoff point for analyzing relatively flat median income growth.  But even that 38 years is a relatively limited time sample in the grand scheme of things, and one suspects that over a broader time period median income would show better growth.  Indeed, a University of Arizona article shows that looking back at 1950 to present, median income (adjusted to 2008 dollars) has more than doubled.  Other online data shows average income—not quite the same thing as “median,” but it should be predictive of at least the direction of change in median income, if not the specifics—increasing fourfold (adjusted to 2004 dollars) from 1929 to 2004.  So to say that median income is flat would appear to be taking too limited a time frame to be meaningful.

As an interesting side note, the 1973 starting point for the flattening of the median income growth curve coincides almost exactly with the elimination of the gold standard in 1971 (thus allowing the Treasury to print money), and with the beginning of federal peacetime (yes, I know Vietnam dragged on into early 1975) spending routinely and significantly exceeding revenues as the true costs of Medicare and Medicaid kicked in. 

I’m not saying, I’m just saying.

The bigger question here is, even assuming that the median U.S. household income has been relatively flat on an inflation-adjusted basis, why anyone thinks this is necessarily a bad thing.  Consider the plight of that median household in the 21st Century.  According to statistics compiled in an article published by The Heritage Foundationalthough its real income hasn’t changed much, the median U.S. household as of 2005 had, among other amenities a PC, Internet access, a home printer, two color TVs, cable or satellite service, and a cell phone, none of which even existed in 1973.  UPDATE 11/1/11:  Yes, I know we had color TV.  Try to keep up with my point here.

Yep, life’s going downhill in a hurry.

Even the vast, vast majority of the “poor” in the U.S. have many of these same amenities, and the fact is that in our modern state of entitlement we don’t define poverty in terms of lacking the essentials for survival, but by the extent to which one has access to conveniences that are unknown to people in many parts of the world.  Over 99% of all U.S. households have a refrigerator and TV.  75% have air conditioning.  65% have cable or satellite service.  Over half have a cell phone.  Virtually none complain about not having enough to eat. 

Try finding those things in Zacatecas, Mexico.  Or Bangladesh.  Or Darfur.

To return to the median U.S. household, the USA Today piece wraps its thesis around the proposition that what it calls “two of the most common expectations of middle-class life, health insurance and college” are less affordable (query whether this affordability issue would be at least mitigated if the median household wasn’t choosing to spend its flat real income on the new amenities discussed above that it wasn’t spending on in 1973).  But leaving that aside, the roughly tripling of the cost of college since 1980 and doubling of health insurance premiums since 1999 cited in the article aren’t problems with the median income, but problems with the rising cost of those two products; it’s not that the median household doesn’t make enough income, it’s that the cost of these two specific items has grossly outpaced inflation.  Isn’t it interesting that for all the “Occupation” calls for free education as a basic human right, no one as far as I can tell is attacking the universities for raising tuition and fees?  And although it’s a subject for more detail another time, the increase in health insurance has as much to do with Americans generally being too fat, over-scanned, and over-medicated as it does anything else.

One wonders, if the standard of living at or below the median in the U.S. is so bad and plummeting off the cliff, why so many thousands a year risk life and limb and spend everything they have to try to get here.  By any sane measure, life in the median U.S. household, and even for the “poor” in the U.S., is better than it is for those in other parts of the world, better than it was in the U.S. in 1950, and exponentially better than it was in the U.S. in 1900.

For those of you on the Left who still believe things are so terrible, I’m happy for you to move to Europe where you can drown yourself silly in “free” government benefits, at least until the creditors come to collect.  Maybe Ms. Wolfe can land a part there.

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