AEI’s Kevin Hassett and Aparna Mathur wrote in yesterday’s WSJ about how the “access of low-income Americans to devices that are part of the ‘good life’ has increased” over time, here are some examples from their article:
1. The percentage of low-income households with a computer rose to 47.7% in 2009 from 19.8% in 2001.
2. Appliances? The percentage of low-income homes with air-conditioning equipment rose to 83.5% from 65.8%, with dishwashers to 30.8% from 17.6%, with a washing machine to 62.4% from 57.2%, and with a clothes dryer to 56.5% from 44.9%.
3. The percentage of low-income households with microwave ovens grew to 92.4% from 74.9% between 2001 and 2009. Fully 75.5% of low-income Americans now have a cell phone, and over a quarter of those have access to the Internet through their phones.
Kevin and Aparna conclude that “We would hazard a guess that if you were to ask a typical low-income American in 2009 if he would like to trade his house for its 2001 version, he would tell you to take a hike. How then is he worse off in 2009?”
What explains the fact that “access to the good life” has increased so significantly over time for low-income Americans? One main reason is the “miracle of the marketplace,” especially the miracle in the manufacturing sector. Thanks to significant advances in technology and gains in worker productivity, the costs of most manufactured goods have consistently declined year after year, making goods produced in our factories ever more affordable relative to our income, especially for low-income households. Greater global access to consumer products like low-cost clothing from abroad has also contributed to the increased affordability of manufactured goods for Americans.
The chart above illustrates the increasing affordability of manufactured goods over time. As a share of disposable personal income, spending by families and individuals on life’s “basics”: food, motor vehicles, clothing and footwear, and household furnishing and equipment, has declined from more than 40% of disposable income in 1950 to about only 15% in recent years. Whereas almost 40 out of every 100 dollars of disposable income were spent on household “basics” from the manufacturing sector in 1950, only about $15 of every $100 of income is spent for those “basics” today. The increased affordability of “food, clothing, transportation, and household items” means that even low-income households now have greater access to the “good life” than at any time in history, an often-overlooked achievement in all of the discussions on income inequality, stagnating income, and the supposed decline of the middle class.
1. In 1983, an 18 cubic foot Sears refrigerator retailed for $500 when the average hourly wage was $8.19. Today, the same size refrigerator, almost 30 years later, is available from Sears for even less, only $490 in nominal dollars. At today’s average hourly wage of $19.81, that would mean a typical worker today would have to work for less than 25 hours to earn enough income to purchase an 18 cubic foot refrigerator, compared to the 61 hours of work at the average wage in 1983. Measured in the time working at the average wage, today’s refrigerator is about 60% less expensive than in 1983. Likewise, a standard adjustment for inflation also shows a 60% decline in the real price of the refrigerator over the last three decades.
2. A 1.4 cubic foot microwave oven from Sears was advertised on sale at $350 in 1983, which would have required more than a full week of work (43 hours) at the average hourly wage then to purchase that microwave. A comparable microwave today is available for only $170 from Sears, which would translate to only 8.6 hours of work at today’s average hourly wage. Measured in time worked, today’s microwave is 80% cheaper than the 1983 model, which helps explain why more than 92% of today’s low-income households own a microwave.
3. Purchasing a TV today is also about 80% less expensive today than in 1983. A 25-inch Sears TV in 1983 sold for $550, or 67 hours of work at the average wage. Today you can buy a 32-inch LED HDTV for $260, or only 13 hours of work at today’s wage.
Similarly, the prices of other manufactured goods like food, clothing and cars have declined consistently over time relative to income, which has made those goods increasingly more affordable, especially for low-income households. This increased affordability of household devices and basics that contribute to the “good life” is a testament to the remarkable productivity of the manufacturing sector, which has led to steadily declining prices for manufactured goods relative to household income, and has increased our standard of living.
Bottom Line: Instead of spending so much time obsessing about income inequality and criticizing capitalism for being “rigged,” we should maybe devote more time to celebrating how the “miracle of the marketplace” has brought about rising living standards for all income groups in America, including low-income households. Falling prices of manufactured goods like food, cars, clothing, household appliances, computers and electronics have probably given low-income households in the U.S. greater access to the “good life” than all of the international government programs and safety nets.
Update: The chart above shows total Personal Consumption Expenditures by families and individuals on: a) food and beverages consumed at home, b) furnishings and durable household equipment, c) clothing and footwear, and d) motor vehicles and parts, as a share of total Disposable Personal Income, on an annual basis from 1950 to 2011. The data are from the Bureau of Economic Analysis at this link, see Section 2 “Personal Income and Outlays.” Disposable personal income is available in Table 2.1 (“Personal Income and Its Disposition”) and personal consumption expenditures are available in Table 2.3.5 (“Personal Consumption Expenditures by Major Product Type”).