The Shrinking Middle Class in America

[Jaguar]

For Jon:

You can have steak for every meal on your budget.

[Jon Miller]

It's ridiculous only because nobody in the US actually needs to do it, not because it's impossible, or even difficult. I can take a photo of the receipt, and the various groceries, on my webcam if you would like.

Obviously, my receipt contains other items I neglected to mention, like a blueberry pie, microwave pizzas, and other such awesomenesses, that aren't nearly as cost-effective. I do not advocate living on 2 dollars a day for food. I'm just saying I could do it reasonably healthily.

No, it is ridiculous. The Indians I was friends with who thought all prices int he US were expensive and sent home 400$ a month on a salary that I could barely survive on didn't spent 60$ a month on food, they spent closer to 100$.

And they didn't even buy onions usually!

JM

[Al B. Sure!]

I just want to reiterate for your benefit, Jaguar, because I'm not sure how much of this thread you've read. This is what started the whole 7K vs 30K comparison:

Kuci posted:

Simple exercise: median personal income for all working men over 15, since it's the cleanest time comparison I can find easily. In 2004 it was $30,513. In 1970 it was $6,670, which is $28,100 in 2004 dollars according to CPI - so, not that different. But which would you prefer: earning $6,670/year in 1970 or $30,513 in 2004? If the answer is "2004 **** yeah", then you've got pretty clear evidence that CPI is not accurately measuring the change in the real value of wages.

You see? So a comparison of the median wage earner in 1970 (which could be substituted for the median household since women were just starting to enter the workforce in numbers) with the median household in 2004 is the issue. (perhaps a comparison to 1960 would have been better because you'd be more certain of less women workers but Kuci didn't pull up those numbers; still, you'd assume real wages would have been more or less the same).

The dilemma is that with women working, the numbers get screwed up. The median wage earner in 1970 roughly equaled the median household income in 1970. The median wage earner in 2004 does not equal the median household income in 2004 because there are more wage earners per household.

So the median wage earner who only makes $30K WILL come up $20K short when he lives the lifestyle of the median household today (which is $50K)! That's why Americans use credit cards so much and women work.

So the net result is what? $7K per family in 1970 allowed a higher quality of life than $30K today for a family. $7K in 1970 was the median; $30K today is BELOW the median for a household.

[Jaguar]

So the net result is what? $7K per family in 1970 allowed a higher quality of life than $30K today for a family. $7K in 1970 was the median; $30K today is BELOW the median for a household.

I would rather be below average in a society that has the internet and cellphones than at the average in a society that has none of those things. I would rather drive a 2001 Honda Civic today (about 3000 dollars) than a brand-new 1970 Cadillac in its time. You know why? The Honda is a much better car. It is safer, more efficient, more reliable, and stocked with features like power windows that used to only appear on Bentleys.

Today, I can communicate with my best friend, for free, at the library, on Skype. That's pretty amazing, because he is in Osaka, Japan this summer, and I'm in Connecticut.

Do you know what a long-distance call to San Francisco would have cost me in 1970? About 25 cents per minute, with a 70 cent minimum. http://www.youtube.com/watch?v=e601moNCA7Q

The hour-long conversation I had yesterday with my best friend, even if we assume he was only across the country, not across the Pacific, would have cost me fifteen dollars. That would have been an entire day's budget for me in 1970.

So yes, my answer is "hell yes, present day!"

[Al B. Sure!]

Jaguar:

What do you think of this statement I made the other day:

The increase in standard of living since the 1970's can be best explained, not by significant quality improvements of goods and services not represented in the CPI (ie- real wages have increased), but by the fact that there are more wage earners per household, the size of households has become smaller, and there is significantly more use of credit by households; factors that have had a positive effect on the standard of living irrespective of any changes in real wages.

[Jaguar]

Improvements in quality of life come from a bunch of things.

1. The increase in purchasing power for luxury goods is nothing short of astonishing. Most families did not see the moon landing (1969) in color. Now I can work one day at minimum wage ($70) and get a brand new color TV, no problem. This is the biggest improvement in quality of life, which Kuci has been talking about, as far as I can tell from my skimming of the thread.

2. Demographic factors you mentioned.

3. Availability of more leisure time due to reduction of housework. Consider that the 1970 housewife baked her own bread, cooked every meal from scratch, washed every dish by hand, cleaned the floor with a broom, not a vacuum, and washed clothes by hand every day. Household chores have gotten much, much, easier.

[Al B. Sure!]

So you'd agree with Kuci that when statistics show that real wages have stagnated since 1970 that is primarily because the CPI, despite the use of hedonic adjustments to account for quality improvements in goods and the fact that the CPI does not account for the price of housing and fuel (which have been inflationary, obviously), is overstating inflation? Inflation is actually lower than the CPI indicates and that real wages have risen?

[Jaguar]

Inflation depends entirely on what basket of goods you use to measure it, and whether you're using Paasche/Laspeyres/chaining/something else.


So saying something "overstates" or "understates" inflation is far from provable. It depends too much on your method.

For example: the PC I'm typing this from has a video card capable of several hundred gigaflops. It cost me a couple hundred dollars.

If I took this videocard back twenty years, it would be more powerful than any supercomputer anywhere on earth. In fact, it would be more powerful than the five hundred most powerful supercomputers in 1990 combined.

Therefore, if the only good in your basket was "computing power," you would see *massive* deflation. My 200 dollars today is worth billions in 1990. However, if your basket was heavily weighted towards oil, you'd see high inflation.

CPI is subject to quality change bias, substitution bias, and most importantly, new product bias, all of which lead inflation indices to overstate inflation. People have noticed this before, and if I were to accuse CPI of overstating inflation, I'd be far from the first person to do so.

[Jon Miller]

If the goods now are so much better than the goods than, why aren't we so much happier now?

Luxuries don't matter in and of themselves, they matter in what they provide people. People in 1970 were happy to watch black&white. Yes, color/HD/etc are better, but they actually aren't equivalent to a better life.

And while it is a bit better to be able to contact your friend in Japan, it isn't entirely needed and back than people didn't go to the other side of the world so often.

I am pretty sure that I would be better off with $7k per year in 1970 than 30k per year in 2004, assuming that I don't get ill.

JM
(Health is one of the areas where we do have a better life now than in 1970.)

[RGBVideo]

Consider that the 1970 housewife baked her own bread, cooked every meal from scratch, washed every dish by hand, cleaned the floor with a broom, not a vacuum, and washed clothes by hand every day.

[Jaguar]

If the goods now are so much better than the goods than, why aren't we so much happier now?

http://en.wikipedia.org/wiki/Hedonic_treadmill is the relevant psych concept for you here. It's not unique to America, nor to modern times, nor to large populations, nor to economics. In virtually all aspects of human life, happiness tends to "readjust" once one gets used to a change in quality of life.

But it doesn't really make it fair to say that quality of life is constant if happiness is constant. It gets you dangerously close to some really weird logic.

I could say I'm perfectly justified in stealing a hundred dollars from your wallet. You'd be sad when you discovered the money was gone, but you'd quickly readjust, and your happiness would return to normal levels. So I could say I didn't damage your happiness at all in the long run, and you have little right to complain at me.

[Jon Miller]

I think it is really weird logic to divorce quality of life from the actually quality experienced and define it by material possessions instead.

Time for example has been an important part of quality of life always, and we work a lot more now. This suggests that quality of life has gone down, not up (in this particular area).

Being serviced is another universal quality of life. It was the same 2000 years ago as it is today.

JM

[Jaguar]

It doesn't have to be material possessions.

If you get an awesome girlfriend, you'll be very happy for a while. It's colloquially called the "honeymoon period." But after a few months, you'll still get mad when you're playing a board game against her and roll crappy dice several turns in a row. And you're legitimately just as upset/unhappy as you'd be if you were playing the board game against me online.

That's the hedonic treadmill.

It seems perfectly reasonable to say that having the hypothetical awesome girlfriend is much better than not. However, your actual day-to-day happiness won't necessarily bear that out so much once you get accustomed to having her. You'll still be mad when things aren't going well at work, and you'll still find things to worry about in your personal life.

The colloquial expression for this is "taking things for granted." We do it all the time. For example, we're both taking the internet for granted right now.

Leisure time for the average low-skill worker has actually increased in recent decades, although I am aware that industries like investment banking work incredibly long hours. It's hard to measure leisure time, but I would strongly dispute the idea that all people work a lot more now.

Also, I would like to note that you just passed thirteen THOUSAND posts on this forum complaining about lack of leisure time.

[Jaguar]

That would be relevant if I were talking about "happiness" (which we can't measure anyway! we can only measure reported happiness, and there's no reason at all to believe that intertemporal comparisons of that are meaningful wrt actual "happiness"). But I've been very consistent with the principle that A has more real value than B if you would pick A over B, given the choice.

Hmm, it looks like Kuci has already been very careful to avoid dealing with the Hedonic Treadmill problem straight-on, and instead is using revealed preference arguments. Good for him.

[Jon Miller]

You seem to regard me as much shallower than I am.

I actually don't get unhappy or upset about getting bad roles/etc. I take just as much pleasure in a good game that I lost as a good game that I win. In fact, some of the games I love to play I normally lose.

And I would have just as much fun without the internet as with the internet, in all honesty. In some ways it would be better, as it would get me away from porn (which is a huge waste and unhealthy, but is difficult to get away from).

I could replace all my internet time, and video game time, with spending time reading and playing board games and many other pursuits and be just as happy. I have done it before, and will do it again.

The reason why I keep going back to the internet is the internet is so easy, I don't have to go out and spend the little bit of effort looking for someone to play games with (which I haven't ever had problems finding such a person at a university, and if there were no computers there would be more game players so it would be easier).

Just because you are a hedonist, doesn't mean that I am or that the hedonic treadmill has any value or is what people are on/should be on/etc. I would in fact argue that it isn't what people should be on, that other behaviors are better.

And I am not complaining about my leisure time. I work longer hours because I want to (and because I like working more relaxed, like I am now). Lots of people don't have this opportunity though.

Where do you get your numbers that leisure time for a low-skill worker has increased? The numbers I remember seeing is that it has declined.

JM