Especially when combined with the key fact that all incomes except those of the top quintile have been declining in real terms for over a generation.
Although I hear this claim made often, I believe it to be untrue. People at all income quintiles have more and better stuff now than people at the same quintile at all periods in the past [1]. That would be impossible if real incomes really went down.
[1] I'm assuming comparisons over at least 10 years, to avoid "during recession" vs "peak of bubble" comparisons.
The claim is correct. The reason that people have more and better stuff is that women in extremely large numbers, have gone out and taken jobs in order to support families.
Principally, the increase in costs to raise a family comes from large rises in the cost of housing and healthcare.
Quote: "The crisis facing the middle class started more than a generation ago. Even as productivity rose, the wages of the average fully-employed male have been flat since the 1970s.
But core expenses kept going up. By the early 2000s, families were spending twice as much (adjusted for inflation) on mortgages than they did a generation ago -- for a house that was, on average, only ten percent bigger and 25 years older. They also had to pay twice as much to hang on to their health insurance."
Do you believe the average fully employed male today has fewer goods/services than in the past?
If not, then my point stands.
(Regarding Warren, see my other posts in this thread. Her data shows that a two-income couple of 2000 has more income and also consumes considerably more stuff than a single-earner in 1970. E.g., the 2000-era couple spends 55% more on 2 cars than the 1970-era couple spent on 1 car.)
It is possible for incomes to have gone down and people to have more stuff. A lot of people have bought their stuff by taking on debt. Incomes over the past 10 years have marginally increased but their debt levels have increased. It seems to me that a lot of people are living a middle class lifestyle without a middle class income.
That is still possible. A lot of the consumption increase is required by both spouses being in the workforce. The second car is not a luxury, but a necessity. Money spend on house-cleaning, eating out, etc. has also perhaps gone up, but due to a time reallocation (away from the 1950s housewife to a 3rd party).
Understanding and measuring the value of things, always fascinated me. It's far from obvious I think.
Can we measure wealth by the "amount/quality" of good/services that you have?
Do we instantly become all richer if somebody discovers a cheaper way to build a car/TV/whatever ? (suddenly more people can afford it), or does the concept of wealth make sense mostly in relation to condition of other people ?
But anyway, perhaps we also have to take in consideration one of our often undervalued stuff: time, our time
I'm not sure, didn't check the data out there, but I have the feeling that modern life for the average people means less time for themselves.
Of course, your increased possibilities (increased wealth or reduced costs) allow you to travel around the world, take tons of pictures, having fun etc in ways that were unthinkable for the previous generations (of comparable incomes).
But we didn't get it for free, we sold our time, little pieces of our own time, one second here, one minute there.
I don't mean only the time we dedicate doing things like working, commuting etc, but also the time we sold by listening to music we didn't choose to listen, by watching advertisements of things that perhaps we don't need, by enjoying shopping, searching for stuff, addicted to all that consumer-mania stimuli which transforms our time, our attention into our perceived wealth.
Yes, because without a huge marked of people wanting to get a car/TV/whatever, those goods couldn't be affordable. Everybody in a consumer society is participating in this wealth transformation, one's own second at a time.
I'd compare it to the cost of housing/food, not the cost of stuff for the purposes of this article at least. "Stuff" always gets cheaper and cooler. The fundamental things you need for independence don't necessarily.
The claim is correct for relative income and incorrect for absolute income. In absolute terms, wages have been stagnating for a long time and combined with technological progress, yes, absolute real wealth may have advanced for almost everybody. The problem is, people define their incomes in relative terms, and with the total excess at the top management levels since the Soviet downfall combined with mass media, most Americans have been suckered into debt. So I would venture Americans' net-worth has indeed declined long-term, even absolutely.
Real wages purport to measure the amount of stuff one can buy, not the income as a fraction of some richer person's income. The claim I'm disputing was made about real income.
> People at all income quintiles have more and better stuff
> now than people at the same quintile at all periods in the
> past
An alternative hypothesis could be that a lot of the putatively better stuff that people have are produced significantly more cheaply today than in the past. Clothing and furniture, for example. The savings on these items would allow people to have other things (e.g. personal electronics) in quantities that didn't exist a generation ago.
Er, that's the same hypothesis, unless I misread g'parent: better and more stuff is cheaper, so even though incomes (measured by commodities or something) didn't go up much, we're all much better off.
When someone claims wages haven't gone up in real terms, they are referring to inflation adjusted wages. So if costs went down 10%, but wages went down 20%, then real wages decreased 10% because people can purchase 10% less stuff than before.
So the claim that "real wages have gone down" contradicts your description. What you describe is an increase in real wages.
This presents a paradox - people often claim that real wages have remained flat/gone down. And yet, people have more stuff now than ever before, which should be impossible if real wages went down.
I think what you're seeing is that there is no "real economy" - there are lots of microeconomies, in each good or service you can buy. Over the last 20 years, we've seen massive deflation in the markets for consumer goods. My first computer, not quite twenty years ago, cost $2500 and was a desktop with a 20 MHz processor and 2 MB of RAM. I now have a phone worth roughly $400 with a 1 GHz processor and 4 GB SD card.
Meanwhile, there's been massive inflation in services, particularly health care and education. When my mom went to college, a $3000 National Merit Scholarship basically covered a whole year's tuition. When I went to college, tuition + room & board was roughly $40K/year, and is higher now.
People are responding to those price incentives, which is why you see people at the poverty level with blu-ray DVD players, iPhones, and netbooks, but with no health insurance or college education. Prices for consumer electronics have come down so much that it's worth more to them to spend half a month's salary on a phone that they'll keep for a couple years rather than try to get health insurance that they can't afford anyway.
Whether this is a good thing depends on whether you consider phones, computers, and entertainment to be more important than health care and education.
If your mom went to college in 1970, GDP per capita was only $5000. So one year of college cost 60% of GDP per capita, now it costs about 80%. That's an increase, but not a ridiculously large one.
In any case, I don't much care about education by itself, since most people value education only insofar as it allows them to get wealth. If people have more wealth, why would I worry about their education? (That's not to say that education is becoming more scarce - far from it. We are more education today than ever before.)
The same applies to health insurance - I don't care about the cost of health insurance, I care about health. By most measures that I'm aware of, health is increasing. For example, life expectancy went up 8 years since 1970 and infant mortality went down more than 50%:
What you say is true, but over the same period the distribution of wealth within the USA has shifted dramatically. Therefore the median family income has not kept up with per capita GDP.
The figures I have from http://www.davemanuel.com/median-household-income.php go from 1975 to the present. $3000 in 1975 was 25.4% of a year's income for the median family. $4000 in 2009 was 82.5% of a year's income for the median family. My understanding is that tax rates on the median family have increased, making that picture even worse.
Therefore education is much less affordable than it used to be for the median family.
You are correct to use median income, which was about $6500 in 1970, making $3000 = 46% of median income in that year [1]. You are also correct to say that taxes went up, by about 140% (according to Elizabeth Warren's data [3]).
In any case, this only makes the paradox I highlighted more puzzling. College is more expensive, and yet college attendance per capita is up 40% over 1970 [2]. If real income is flat, then people must be giving up other goods and services to attend college. And yet, people seem to be consuming more goods and services of all sorts in addition to college.
This doesn't make sense. I suspect that real income is being incorrectly calculated.
I know multiple trends that address your paradox, and I do not know the relative importance of them.
The first is that the savings rate has dropped significantly. People who do not save can purchase more goods with the same income. (At least in the short term.)
The second is that due to widening income disparities, the ratio in earnings between the median family and the top fifth has increased. Therefore college has not become as proportionately hard to afford for the top fifth as it has for the median.
The third is that the increasing income disparity has come with widespread recognition that a college education is a good way to improve your odds of being in the top fifth rather than the bottom half. This makes education proportionately more valuable. People are willing to spend more on things they value more.
Fourth, the structure of financial aid has changed. It is less often true that students pay the full sticker price for college today than historically. And the poorer you are, the more likely you are to get a break. (Harvard's policy being an extreme example.)
And last but not least, in a very different tangent, income disparity leads to an increased fraction of consumption being accounted for by a small fraction of the population. So changes in total consumption do not necessarily indicate changes in consumption for the median.
The particular paradox I'm describing is not limited to college - it applies to virtually all goods and services. So any college-specific explanation is incomplete.
It's also not limited to any strata of income - the poor today have more goods and services available than the middle class of 1970. This casts doubt on explanations based on inequality.
Decreased savings might explain things, though I think in the long term it would cause inflation. Would need to think about it.
Although I hear this claim made often, I believe it to be untrue. People at all income quintiles have more and better stuff now than people at the same quintile at all periods in the past [1]. That would be impossible if real incomes really went down.
[1] I'm assuming comparisons over at least 10 years, to avoid "during recession" vs "peak of bubble" comparisons.