One of the main conclusions from this article is that households are earning no more today than we did in the 80s/90s. The numbers in this article are reported in “real” terms so they have been adjusted for “inflation”. However, this inflation doesn’t necessarily reflect the real costs in different segments of the population and distributional effects tend to get buried. But like any good necromancer, we can raise the data from the dead if we cast just the right spell.
First lets start with data from the housing survey on rent inflation: https://www.newyorkfed.org/research/staff_reports/sr425.html
Here we see that although “inflation” has been under 3% since the early 1990s, it has been outpaced by housing cost/rent inflation for all quintiles below the median for the entire duration. The rent inflation has been occurring at an especially blistering pace for the poorest of society as seen from the table:
Given that incomes for these same quartiles have been flat over the period, what these numbers translate to, is that after taking inflation into account housing costs are now about 3 times relatively more expensive for the bottom quartile of society. For everyone else making less than the household median (exactly half of you Americans fit in this category) housing costs are anywhere from 25% to 90% more expensive. If we take a snapshot of todays households who earn between 30k and 60k (a representative sample of what would be considered to be the “middle class”) we can see how households distributed in terms of what percentage of their income is devoted to housing:
From this we can see that nearly 2/3rds of “middle class” households spend 20% up to 100% of their income on housing while about a full quarter of them would be classed as heavily “rent-burdened”. Now although housing costs have skyrocketed, most other major household expenditures have been roughly in line with inflation. If we conservatively assume yearly healthcare costs at $3600 a year, transportation costs at $9000 a year, food costs at $7000 per year, and taxes at 10% of income, we can then add in the housing costs and come up with a (very) conservative estimate for the most basic cost of living, perhaps we should call it the “cost of surviving”.
Now we potentially have a more meaningful measure of “inflation” which is a much better indicator of the increasing or decreasing stress levels that people feel based on the real costs of putting a roof over their heads, food in their stomachs, pay their health care, the tax man, and (hopefully) have enough left over to save for the future. We can now see hoe much a typical household would have to devote to their “cost of surviving” given different levels of housing costs, since this is not only the largest factor, but also the one with the most variability through time as well as income levels. If you want to see how much further your 30,000 to 40,000 income or your 50,000 to 60,000 “middle class” income would have gotten you if housing prices had stayed at their early 90s level:
It turns out that a household making 55,000 would now have a 20% larger pool of funds to use for saving/spending, while a household making 35,000 a year would realize a whopping 300% increase in their ability to save or use their newfound wealth for discretional spending! Its no wonder the general public is feeling as if it is getting more and more expensive “just to get by” because… well it is! This doesn’t even touch on the rapid inflation of college costs which has been running well above CPI for decades, or the transfer from defined benefit to defined contribution retirement savings plans. Things have already gotten a whole lot worse for at least the 50% of American households earning less than the median income, and are likely also worse for some who are above it. All the while productivity has increased nearly 70% and what do the American people have to show for it? More billionaires and a record number of children living in poverty or American citizens living paycheck to paycheck?