Society and Culture

The Rich Are Getting Richer and the Poor Are Getting Richer

The U.S. Census Bureau recently released a study on the “Living Conditions in the United States, 2005” with detailed information on the “Percent of Households Reporting Consumer Durables,” and those percentages are displayed in the table below for: a) all U.S. households in 2005, b) households with income below the official poverty line in 2005, and c) all households in 1971.

Not surprisingly, the percentage of U.S. households owning basic home appliances increased between 1971 and 2005 for all appliances except traditional telephones, which have gradually been replaced by cell phones. Certain appliances such as air conditioning, clothes dryers, color TVs, and dishwashers that used to be luxury items owned by a minority of American households in 1971 became so affordable that by 2005 a large majority of households owned all of those appliances. And some household items such as microwave ovens, VCRs, computers, and cell phones that were virtually nonexistent in 1971 became so affordable by 2005 that more than two of every three American households owned those items.

But what is even more impressive is the comparison of the living standards of households living below the poverty line in 2005 to all U.S. households in 1971. By almost every measure of appliance ownership, poor American households in 2005 had much better living conditions than the average American household in 1971, since poor households in 2005 had much higher ownership rates for basic appliances like clothes dryers, dishwashers, color TVs, and air conditioners than all households did in 1971.

As economist Steve Horwitz commented recently about these improvements on the Austrian Economists blog, “Life for the average American is better today than 35 years ago, life for poor Americans is much better than it was 35 years ago, and poor Americans today largely live better than the average American did 35 years ago. Hard to square with a narrative of economic stagnation or decline.”

household1

The reasons for the significant improvements in living standards over time for Americans at all income levels? Entrepreneurial innovation, technology improvements, supply-chain efficiencies, increases in productivity, and other market-based efficiencies that have continually driven prices lower and lower over time, measured in what is most important: our time and the amount of labor it takes to earn the money to purchase goods and services.

The chart below shows retail prices for 11 different household appliances in both 1973 (data here) and 2009 (data here), and the cost of purchasing those appliances measured by the number of “hours of work” at the average hourly wage in each year (BLS data here: $4.12 per hour in 1973 vs. $18.72 per hour in 2009). The chart shows the significant reductions in the real cost of basic household appliances between 1973 and today of from -50.7 percent for a basic kitchen stove (70.4 hours of work at the average wage in 1973 vs. 34.7 hours in 2009) to -83.5 percent for color TVs (97.1 hours in 1973 vs. 16 hours in 2009).

household2

In total, to purchase all of those 11 basic household appliances in 1973, it would have taken 551.1 hours of work (13.8 weeks or 3.4 months) at the average hourly wage. To purchase those same 11 appliances in 2009, it would have only taken 171 hours of work (4.3 weeks or 1.1 month), a whopping 69 percent reduction in the number of hours worked. Or the typical worker in 1973 would have had to work from January 1 until the second week of April to earn enough income to purchase those 11 appliances (ignoring taxes), whereas a worker today would only have to work from January 1 until the first few days of February to earn enough income for those same appliances.

Bottom Line: As much as we hear reports about the decline in median income, economic stagnation, the disappearance of the middle class, and falling real wages, the data tell a much different story that can be summarized as follows: The rich in America are getting richer and the poor are getting richer.

Comments are closed.