Regarding the nature of this particular post, it is not a polemic so much as a question (or two). I have already posted ‘post-mortems’ on the nature and reasons for the decline of the once great American middle class, and I don’t think we disagree much about that. Mish does have an interesting take on who’s most to blame:
http://globaleconomicanalysis.blogspot.com/2012/09/who-do-you-blame-for-woes-of-middle.html
and I would have to agree that individual American families are ultimately to blame in the politicians they continually elect, their propensity to spend and not save, and their acquiescence to the TBTF banks’ political power and the regulatory authorities’ malpractice. In a democracy the people ultimately get what they deserve. I am not even sure that the decline of the American middle class was preventable or avoidable, even if its decline may have been worse than it otherwise might have been–had we elected more honest politicians and insisted on the rule of law and some minimal accountability. I believe the mass media is also to blame, and even America’s educators, who have not adequately informed the public about the consequences of bad policy…and bad policy is at the heart of our economic decline.
But the questions I wish to raise now came to mind when I was perusing Barry Ritholtz’s blog:
http://www.ritholtz.com/blog/2012/09/the-middle-class/
prompted by this year’s ‘celebration’ of our national holiday, Labor Day. This article notes that middle class (middle three quintiles of the population) nowadays take in a reduced proportion of total income–from 52% in 1970 to 46% in 2010 (the vast majority of the difference having been accrued by the top quintile, and much of that by the top 1%); that fewer American families earn within 50% of the median income (50% in 1970 to 42% in 2010); that real median family incomes have been declining (from $53K to $49K during the 2000′s); that the cost of basic middle class necessities has been climbing during those four decades; and finally that families’ debt levels have been increasing in real terms (from $25K in 1989 to $70K 20 years later).
These five charts together show that inequality has been increasing while the average has been declining, that the cost of some basic necessities has risen much faster than incomes, and that middle class families have coped by going deeper into debt. No surprise here.
My specific questions relate to the next to the last chart, which documents the rise in cost of the basic necessities (food, gas, shelter, health care, home values, and tertiary education) over the past four decades–from 1970 to 2009. The source is the Senate committee on Health, Education, Labor, and Pensions (HELP!) from 2011. My problem with this chart is that it:
1) Is incomplete as it does not show what happened to real incomes from 1970-2009. I believe that real family incomes declined. Anybody know? I do know that real median individual incomes declined, but the 1970's and 1980's also saw many American women enter the workforce for the first time.
2) Says that gas only rose 18% since 1970 in real terms. Now I recall that gas was selling for around a quarter a gallon back in 1970, and today is around $3.50, or perhaps 3.25. True, in 2009 it got as low as about $2, and maybe this chart happened to sample prices at the trough in early 2009, when incidentally Obama took office. Taking the entire year of 2009, or more fittingly, the end of 2009, the price was probably closer to $2.50. In any event, I think it’s safe to say that gas had risen ten-fold in nominal terms from 1970 to 2009, and has risen 13 or 14 fold to today. If this amounts to only a real 18% cumulative rise, I’m shocked. And what does it say that home prices have gone up 5.5 times as much as gas? That the typical American middle class family is always bitching about the high cost of gas, but also bitches even more about the low price of his/her home?
Maybe Mish is right, and the people are most to blame.
That was George Carlin’s contention back in 1992 (or 1996).
http://www.youtube.com/watch?v=JMw5676blwk
http://globaleconomicanalysis.blogspot.com/2012/09/who-do-you-blame-for-woes-of-middle.html
and I would have to agree that individual American families are ultimately to blame in the politicians they continually elect, their propensity to spend and not save, and their acquiescence to the TBTF banks’ political power and the regulatory authorities’ malpractice. In a democracy the people ultimately get what they deserve. I am not even sure that the decline of the American middle class was preventable or avoidable, even if its decline may have been worse than it otherwise might have been–had we elected more honest politicians and insisted on the rule of law and some minimal accountability. I believe the mass media is also to blame, and even America’s educators, who have not adequately informed the public about the consequences of bad policy…and bad policy is at the heart of our economic decline.
But the questions I wish to raise now came to mind when I was perusing Barry Ritholtz’s blog:
http://www.ritholtz.com/blog/2012/09/the-middle-class/
prompted by this year’s ‘celebration’ of our national holiday, Labor Day. This article notes that middle class (middle three quintiles of the population) nowadays take in a reduced proportion of total income–from 52% in 1970 to 46% in 2010 (the vast majority of the difference having been accrued by the top quintile, and much of that by the top 1%); that fewer American families earn within 50% of the median income (50% in 1970 to 42% in 2010); that real median family incomes have been declining (from $53K to $49K during the 2000′s); that the cost of basic middle class necessities has been climbing during those four decades; and finally that families’ debt levels have been increasing in real terms (from $25K in 1989 to $70K 20 years later).
These five charts together show that inequality has been increasing while the average has been declining, that the cost of some basic necessities has risen much faster than incomes, and that middle class families have coped by going deeper into debt. No surprise here.
My specific questions relate to the next to the last chart, which documents the rise in cost of the basic necessities (food, gas, shelter, health care, home values, and tertiary education) over the past four decades–from 1970 to 2009. The source is the Senate committee on Health, Education, Labor, and Pensions (HELP!) from 2011. My problem with this chart is that it:
1) Is incomplete as it does not show what happened to real incomes from 1970-2009. I believe that real family incomes declined. Anybody know? I do know that real median individual incomes declined, but the 1970's and 1980's also saw many American women enter the workforce for the first time.
2) Says that gas only rose 18% since 1970 in real terms. Now I recall that gas was selling for around a quarter a gallon back in 1970, and today is around $3.50, or perhaps 3.25. True, in 2009 it got as low as about $2, and maybe this chart happened to sample prices at the trough in early 2009, when incidentally Obama took office. Taking the entire year of 2009, or more fittingly, the end of 2009, the price was probably closer to $2.50. In any event, I think it’s safe to say that gas had risen ten-fold in nominal terms from 1970 to 2009, and has risen 13 or 14 fold to today. If this amounts to only a real 18% cumulative rise, I’m shocked. And what does it say that home prices have gone up 5.5 times as much as gas? That the typical American middle class family is always bitching about the high cost of gas, but also bitches even more about the low price of his/her home?
Maybe Mish is right, and the people are most to blame.
That was George Carlin’s contention back in 1992 (or 1996).
http://www.youtube.com/watch?v=JMw5676blwk
