How the poor are doing better in the US

Steve Horwitz at The Austrian Economists is running a series of posts to show how the poor in the US have become better off over the last thirty years or so. This table shows how real wages have improved to shorten the time required to pay for some household goods. He notes that this understimates the improvement because it does not take into account the improved quality of the goods. 

Labor time 1973-2009

The situation is much the same in Australia despite the complaints that “neoliberalism” has widened the gap between rich and poor.

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17 Responses to How the poor are doing better in the US

  1. Robert Merkel says:

    Rafe, all that data shows is that certain consumer durables have become cheaper over the past few decades. That’s a very, very, minor component of whether the poor have become better off, or whether the gap has widened between rich and poor.

    But if you want to throw simplistic comparisons around, I suggest your try the same calculation for the median Fortune 500 CEO in 1973 and 2009. I suspect you’d find that the percentage reduction in time worked would be far greater than for people on low or median wages.

  2. Robert Merkel says:

    whoops… “I suggest your try” -> “I suggest you try”

  3. conrad says:

    I guess the poor in the US can thank hard Chinese workers even poorer than them.

  4. MikeM says:

    The US federal minimum wage is currently $7.25 an hour. Poor people do not get paid $18.72. In fact someone with a full-time, 40 hour/week job would earn $39,000 a year, very close to the US Social Security Administration’s estimate of the 2008 national average wage of $41,337.97.

  5. Bogdanov says:

    yeah very good Rafe. All you’ve forgotten is:

    1 – casualisation of work force, so that the US has mass underemployment, which more than wipes out the gains from lower relative prices and higher hourly rates for millions of workers

    2 – increased split between low-paid service workers, and remnant industrial and office workers. The mean average tells you nothing. You need to look at where millions fall in relation to the median and mode average.

    3 – decline in state services, and commodification of some after the wind-up of ‘Great Society’ programmes in the 70s

    4 – rise in private rental rates, decline of public housing availability

    5 – rise in food prices, created by ‘food deserts’ ie large areas unserviced by supermarkets, where conveninece stores become shop of first resort

    6 – decline of public transportation, leading to necessity of running car, thus subject to gas price fluctuations

    7 – factoring all that in reveals what you don’t see – the US working poor, about 15-20% of the population who may well own consumer durables – but also live in dumps, rely on food stamps, use the ER room as their doctor and have no savings.

    Still, apart from that you’ve really made your case. God bless america

  6. Don Arthur says:

    Rafe – I half agree with you.

    Anytime you hear someone talking about an epidemic of affluenza, you should point to the dramatic decline in the prices of many manufactured goods. It’s falling prices not increasing greed and materialism that are generating all that activity down at the mall.

    But as other commenters have pointed out, being better off isn’t just about cheap toasters and flat screen tvs.

    I’d like to see the numbers for services as well as goods. And I’d be particularly interested in the cost of healthcare and education. Another important area is housing.

    And here’s a question – If your idea of becoming well off is being able to afford a harbour side home, a butler, a nanny and a personal trainer, would you be better off if everyone’s income increased by 10x or if your income increased by 5x while everyone else’s stayed the same?

  7. James Farrell says:

    What’s wrong with the CPI as a first approximation on the real wages, incomes, or whatever, of this or that group? Why are we all of a sudden opting for a narrower measure of purchasing power?

  8. Thanks James, that is a generous comment, given some of our disagreements.

    I was going to say much the same, that is, one can take on board some of the caveats offered by Bogdanov but the fact remains that a lot of things are cheaper in real terms these days and that is a good thing for people on low incomes.

    The other point to make is to urge people to get onto the Austrians site and read the three posts with other data on the things that poor people actually own etc etc.

    In addition I have got a heap of puritanical prejudice about the way people at the top end of town make and spend their money. I have got no time for corporate welfare and you need to check whether the high rollers got there by providing things that people wanted to buy or whether it came from rent seeking.

  9. James Farrell says:

    I’ll try to keep up the high standard, Rafe!

    Controversy about US income distribution have centred on whether ‘median incomes’ have risen in the last three or four decades. Much of the debate has been about whether to focus on individual income or household income, whether to look at hourly wages or at total remuneration for full-time workers, how to account for domestic production, and so on. There is, as you note, also debate how to account for improvements in quality. What you don’t often see is someone suggesting that we should calculate real earnings in terms of electrical appliances rather than a conventional consumption basket.

    On the other hand, that the price of consumer durables has fallen steeply relative to food, accommodation and services is well known and uncontroversial. So what’s the point of the table, except perhaps to confuse someone who doesn’t understand how real household income is calculated?

  10. Peter Whiteford says:

    From http://www.bls.gov/ncs/ncswage2008.htm the figure of $18.72 an hour looks to me to be about the median hourly earnings for full-time workers so this is hardly what the poor are earning.

    From OECD data – http://stats.oecd.org/Index.aspx?DatasetCode=EAR_MEI – the ratio of the 10th percentile to the median in the USA fell from 52% in 1973 to 48% in 2008. So basically you would have to double the number of hours in the above table to get the equivalent for low-wage workers. The decline in the ratio of the 10th percentile to the median suggesst that these figures overstate the rise in purchasing power for the poor by about 10%, important but not not enough to change the fundamental trend

    However, most importantly as pointed out by Bogdanov and Don Arthur these durable items are only a small part of the total cost of living. Its harder to conveniently find what these items represent as a share of household spending but according to http://papers.ssrn.com/sol3/papers.cfm?abstract_id=708269 for the UK household durables are about 15% of total spending. The Australian HES gives figures of only about 5% of total spending on household furnishings and equipment and slightly more for rich households than for poor households, but there are other categories which may include electronic equipment.

    This implies to me that it is true that these sort of electronic goods have got cheaper which is good for lower income households, but you would need a lot more evidence on trends in the big ticket items – housing, transport and food (and health care particularly in the USA) to reach firm conclusions about the wellbeing of poor households.

  11. Edward Mariyani-Squire says:

    I don’t understand why computers and mobile phones were not added to the list. Given that their prices have fallen substantially over time, their inclusion would serve the skew the appearance of “real wages” rising even further.

    Nonetheless, this accurately reflects my life since I live in a washing machine, eat clothes driers, drink dishwashers, am entertained by refrigerators (not TVs), drive a freezer fueled by liquified stoves, and my son’s expenditure (financed by me) goes entirely to his weekly consumption of coffee pots, blenders, toasters and vacuum cleaners.

  12. Gummo Trotsky says:

    Edward, you’re spending far to much on fuel – you’d save heaps by converting the freezer to run on gasified colour tvs.

  13. melaleuca says:

    11% of American households can’t afford to eat properly according to the USDA:

    “Eighty-nine percent of American households were food secure throughout the entire year in 2007, meaning that they had access at all times to enough food for an active, healthy life for all household members. The remaining households (11.1 percent) were food insecure at least some time during the year. About one-third of food insecure households (4.1 percent of all U.S. households) had very low food securitymeaning that the food intake of one or more adults was reduced and their eating patterns were disrupted at times during the year because the household lacked money and other resources for food.”

    http://www.ers.usda.gov/Publications/ERR66/

  14. Nabakov says:

    Couple of points.

    “”median” and “average” are not necessarily the same thing and deliberate attempts to make them so when they are not has caused much statistical devilment.

    Also what about social mobility? The children of the poor are probably less likely to bootstrap themselves up in these days of underfunded public education – which has long been the exact opposite of a priority for the neolibs.

    Always amused how such neolibs constantly preach that self-motivated communities should replace much of what of the public sector delivers while at the same time constantly advocating policies that undermine the economic stability that such communities need in order to thrive.

    Oh why am I bothering? Stoushing with Rafe is like punching your pillow into shape for a good snooze. You feel fine afterwards and the pillow just pops back up.

  15. Tel_ says:

    These comparisons are fraught with difficulty. Surely you need to subtract tax, rent, basic food and electricity from the wages to figure out the maximum they could ever spend on consumer goods (presuming anyone wanted that many goods).

    On the other hand, it would be equally valid to calculate the smallest number of working hours that could sustain a financially poor but culturally rich and rewarding lifestyle (we just need to find a man that lived from the 70’s until today doing little more than surfing and smoking weed and who also maintained high accounting standards).

    Suppose you can prove that the poor are better off now than they were 30 years ago… then what? How do you know why they are better off? Technology has changed so many aspects of the world, seem reasonable to say that the Engineers improved the world and economic policy was irrelevant (or perhaps a different policy would have resulted in far more improvement).

    People will insist on living diverse lifestyles and wanting different things. Some people are only happy when they have told another person how to live their life — to make this a fair comparison we really need a median value equivalent for moral one upmanship and feeling of smug self-superiority. If I had to get by without Economists (and other strugglers) to look down on, well gosh, the world would be a poor, sad place then :-)

  16. Rafe,

    You quoted the data because it made the US look good. And we all know that the US is more capitalist (good) than the socialist surrender monkeys in Europe (bad). That’s what it was doing on the Austrian site.

    It’s a pity you waste so much of our time on such feints.

    I could go on. You have both qualifications in, and a fascination for, philosophy of science. Yet you spend almost all your time on sites – well that’s your right but more to the point you spend a lot of your time pointing us to sites – which are obviously as tendentious as hell. I actually don’t mind that if I’m looking for unusual ideas, but when you just get to read one side of some ideologically charged debate and you know if they can suppress contrary evidence they will – well what’s the point of it?

  17. Edward Mariyani-Squire says:

    Nicholas Gruen said: “You have both qualifications in, and a fascination for, philosophy of science. Yet you spend almost all your time on sites … which are obviously as tendentious as hell.”

    Alas, philosophers of science have often tied their views on science and their views on ideology together. It is often very difficult – perhaps impossible sometimes – to disentangle them either analytically or psychologically. E.g. Popper claimed that his “Logic of S.D.” was motivated by his concerns about explanations by Marxists … initially of deaths at pro-Communist protests in Vienna in 1919, which led to (by 17yo) his “life-long revulsion” of Communism at attempts to present it as being scientifically grounded. Then comes “The Poverty of Historicism” – another attack on alleged scientific Marxist claims (esp. about laws of history) – which was expanded into “The Open Society” (vol 2), which he called his “war effort” … later better seen as his “Cold War effort”. Later, we have his interpretation of quantum theory and brain-states where he attempts to carve out a place for free-will – obviously necessary for a libertarian political philosophy. Sifting through all this work to figure out which details are unduly influenced by and inextricably bound up with Popper’s ideological motives is a difficult task – and hardly worth the candle if one already believes (a) the ideology proferred and (b) that the ‘great man’ is a greater intellect than oneself.

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