Are we better off now? Two conservatives duke it out. One says yes, the other no.
Forget the Cost of Living. What’s the Cost of Thriving in America?
Two conservatives debate the cost of living. The views are radically different.
The Wall Street Journal asks What’s the Cost of Thriving in America? That’s a free link courtesy of the WSJ.
In one corner, arguing for the receding American dream, is Oren Cass, executive director of American Compass, a right-of-center policy group. In 2020 he unveiled a measure that he called the Cost-of-Thriving Index. His thesis is that while it is true that wages, adjusted for inflation, are higher than in the past, the hallmarks of the middle-class American dream have soared to ridiculous heights: housing, a college education, transportation and healthcare. The index went viral on Twitter and in the media as an encapsulation of why, even before the pandemic, something felt off about the supposedly booming economy.
His basic conclusion is that in 1985, a single-income family could afford the basic trappings of middle-class life—food, housing, healthcare, transportation, their children’s college—from working just 39.7 weeks at the median wage for men aged 25 and older (then $443 a week). In 2022 that median wage hit $1,219, but it would take 62 weeks of work to afford those same things. This measure of the cost of thriving yields a 36% decline in the standard of living since 1985.
In the other corner is Scott Winship of the American Enterprise Institute, a center-right think tank. Winship this week released a paper coauthored with Jeremy Horpedahl of University of Central Arkansas “correcting and rejecting” the Cost-of-Thriving Index. Winship argues that using better measures of inflation, and accounting for lower federal taxes, shows it is in fact easier to thrive than in the past.
“Millennials are doing better than they seem to think,” said Winship. “I think there’s a nostalgia that tends to view the past through rose-colored glasses.”
It is also worth noting that in 1985, families with two spouses working full time weren’t as common. A metric based on a single-earner family will partially reflect that a single earner today faces increased competition from two-career families who contribute to driving up the prices and expectations of what middle class means.
Winship also says that the single-earner family with two kids in Cass’s example would have a much lower tax bill today than in 1985, thanks especially to the expanded child tax credit. Put it all together, and Winship says even the single-earner family is between 4% and 15% better off.
Too Optimistic or Too Pessimistic?
My answer is both. There’s no way a single person is better off today, especially a single parent with two kids based on child tax credits that will not come close to meeting daycare needs.
Is a two-person family with no kids better off? That’s likely, especially if they managed to buy a home and refinance at a cheap rate thanks to bubble-blowing Fed policies.
What about a two-person family with two kids? That may very well depend on who is putting the kids through college.
70 Percent of Americans are Financially Stressed, 58 Percent Live Paycheck to Paycheck
It’s important to note 70 Percent of Americans are Financially Stressed, 58 Percent Live Paycheck to Paycheck
“People are worried that the money they’ve saved won’t last and are worried they’re going to have to lean more on their credit cards and other sources of debt just to get by,” said Bruce McClary, a senior vice president at the National Foundation for Credit Counseling.
I do not have stats for 1985, but I hazard a guess 70 percent of the country did not feel financially stressed in 1985.
Did You Buy a House?
1985 to 2000 was an incredibly good time to buy a home. So was 2000-2013.
Chart Notes
- OER stands for Owner’s Equivalent Rent. It it the price one would pay to rent a home, unfurnished and without utilities.
- Home prices wildly disconnected from the CPI in 2000 and in 2013. The disconnect accelerated in 2020.
The Fed ignored all three occasions hoping to make up for “lack of inflation”. The Fed “succeeded” in producing inflation beyond it’s wildest dreams.
Whether or not one is better off may very well depend on whether or not they bought a house. But now?
The Starter Home Is No More, Even in Second Tier Markets
Key Points
- Starter homes do not exist in 100 of 100 cities.
- In 41 of the 100 largest secondary cities in the U.S., renters earn half or less than half of the income they would need to buy a median-priced starter home.
- There are no non-core cities in which renters could comfortably make a move toward homeownership: In 10 cities, the necessary income is about triple what they earn.
- Would-be buyers in Burbank and Glendale, CA have it worst: They lack 67% of the income they would need in order to make the move from renter to homeowner.
- Renters in 9 California cities would need to earn about $100,000 more in order to afford a starter home. Based on the latest renter income figures, starter home prices, and mortgage rates, non-core cities in the LA and San Diego metros are the toughest for first-time homebuyers.
This construct certainly did not exist in 1985.
For discussion, please see The Starter Home Is No More, Even in Second Tier Markets
On average, I side with Oren Cass, the pessimist. But averages are just that.
Anyone who stretched to buy a home at the right time, has other assets, and those who do not have kids they are putting through college, are likely better off today.
There is no universal answer because the Fed created a big set of winners and losers. Which class are you in?
The Tell
Answers likely depend on student debt, ability to buy a house, overall debt, and ability to raise a family.
Millennials and Zoomers are frequently burdened with debt, unable to buy a house, and no financial ability to start a family, much more so than the average couple in 1985.
A not insignificant factor driving the cost of living in IOUSA is the size of its population. According to the US Census Bureau, the US population at 1 Jul 1982 was 231.66 million and at 1 Jul 2022 was 333.29 million. So, we’ve added over 100 million people (not including illegals) in 40 years, many of whom want to live in already densely populated areas on the West and East Coast. I find it hard to believe that a nearly 50% increase in population hasn’t impacted demand for housing, healthcare, etc.
Another factor driving the cost of living is the huge increase in payroll (FICA, Medicare and State Disability) and real-estate/property taxes. These are seldom mentioned but in 1982 the maximum earnings subject to FICA tax was $32,400 and in 2022 the maximum was $147,000. Medicare has increased to the FICA limit in 1982 to all wage income (effective in 1990, thanks to “Read My Lips” George Bush and the Democrat Congress), and add to that the Obama surtax on investment income in 2009.
Property taxes have risen significantly in absolute and percentage terms in all states except those with statutory limits such as California’s Proposition 13 (God Bless Howard Jarvis and Paul Gann). It always amuses me that Texas is often cited as a “low tax” state because it doesn’t have an income tax, yet its property taxes are among the highest in the country, services are subject to sales tax, etc. That aside, property taxes in Illinois, New Jersey and many other states have put a significant dent in incomes for all but a very few people.
My point in mentioning the above is that the WSJ article didn’t take these significant expenses into account, and they are only likely to increase in the future, absent action to arrest their growth.
Some folks can reduce their property taxes by removing all the toilets in the home making it uninhabitable. Only works for billionaire Governors with spare homes.
People tend to have more children when they feel more positive about the future. So if we look at birth rates across the middle class we get a disturbing glimpse. People are not more positive or happier than they were in the 80s. There was a perception then that the country was “working” for people. When you have a great salary but you need two great salaries to afford a reasonable lifestyle it ceases to make any sense. The youth are despondent and we all know it. The system is way over levered and we all know that too. The cities are decaying and our political system is broken but we ignore it all hoping it will go away. The leverage has to come out of the system and people have to suffer for awhile. Recessions are good, they cleanse the economy of rot. The Chicago School was wrong. You can’t escape having recessions, you can’t get rid of debt by issuing yet more debt. This list goes on. Greenspan, Bernanke and Yellen have an awful lot to answer for.
Speaking of having a lot to answer for so do the Keynesians and MMT (More Money Today) idiots.
Link: Visualizing The Decline Of Affordable Housing In The US
The house to income ratio.
The only thing that makes now worse than the 80s is the extra 3.3 billion people we have now, competing for resources and generating pollution. By every other measure, life is amazing now compared to then.
It is always good to have a few spares.
My parents had a good house in a good neighborhood. Good food, good holidays… but no luxuries. They hardly ever went to restaurants, they wore a coat for years, saving a penny every day…
Young people are always buying, ordering food deliveries, travelling, etc.
Yes, yes. Get rid of the money before it loses even more value.
In your parents day it was worthwhile to be a saver.
For the past 15 years the Government has been punishing savers.
How about retirements? It was much easier to retire in the 80’s. Today most can’t afford a retirement.
Powell increased the Gini coefficient to the highest level in 50 years.
There are many videos on youtube about Philadelphia, Kensington avenue, full of zombies. And in other cities too.
Did this happen in the 80’s, in the same scale ?
People are jumping off the hampster wheel because they realize they aren’t getting anywhere staying on it. They’d actually rather be homeless and on drugs than be a debt slave in a world they see as hopeless. It’s a form of slow suicide. Chris Must List on youtube interviewed a homeless guy in Kensington who explained this clearly.
Is there much of a difference between min wage slave and homeless?
Cheap imported good since the 1990s disguised the true rate of inflation of the U.S. dollar.
You can’t import things that need to be produced domestically such as healthcare, housing and college educations.
The formerly middle class now shops at Family Dollar, Big Lots, Dollar Tree, etc. Stores like that didn’t exist back in 1985.
Quality of food was better back then. This was before glyphosate, growth hormones, and scientifically engineered monster chickens that mature in 40 days.
And the scary thing is that our pandemic response, most likely, has enshrined the belief by Congress & the Fed that they can engineer outcomes.
Rent & mortgage relied as sure to return once we find ourselves in the middle of the next recession. Market forces like foreclosures are a thing of the past.
Uncle Sam will not let housing go the way of GR2.0. It’s just not going to happen, so we all need to get used to unaffordable housing.
It would also be wise to get used to unaffordable food.
We are almost there.
Every trip to the grocery store these days still has a new shock.
No analysis is complete without considering retirement plans. Significantly more companies offered pensions in 1985 than in 2023.
This debate is convoluted, personal interpretation on each side overcomplicates it and decides the result.
If you really want to know if we’re better off than 1980, look at household debt to income ratio’s vs real income since 1980….specifically the lower 80%.
Real wages are up roughly 13% since 1980, debt to income is up five-fold.
The Fed runs this show.
.
I wish you had written that debt to income is up 500% compared to wages 13%.
Same difference, but this looks more honest.
Percentages over 100 are meaningless by definition. They teach this in sixth-grade math.
Paradox4U, you need a math lesson. Seriously.
It is impossible for something to decline more than 100%. But percentages over 100% happen all the time.
Paradox: What grade did you get the second time you took eighth grade math?
Analysis does not have to be that complex. Just look at the cost of some key items relative to average wages. Items like cars, homes, education and healthcare have far outstripped the growth in wages. No ambiguity there. The idea that most people want to live above their means is ludicrous, unless you consider getting and education and medical care a ‘luxury’.
What is really disappearing is the ‘middle class’ style of living.
The world is increasingly one where you either are poor or very rich.
It is a world increasingly of haves and have lesses, and decreasingly of haves and have nots
Owning a home is the American dream. As an old fart, I have benefited from home ownership. My son, who lives in San Jose CA, can’t afford a home despite having a good job with good salary. The Fed and its bubble blowing are to blame. Playing with the money supply solves nothing. It only shifts the cost from the politically connected onto the backs of the middle class.
Back in the late 1970s in SoCal; a fry cook at Bobs Big Boy could make enough to rent a little bungalow a few blocks from the beach, own a modest used car, and live reasonably well, even raise a family. His kids could go to the local State University ( tuition cost about 10 hours wait wrong job per semester ) This Fry Cook would have considered himself middle class.
Today that same Fry Cook couldn’t afford to support himself, much less a family. He’d need a second job to be able to afford a horrible apartment 2 hours commute from his job. This Fry Cook knows he is dirt poor.
That’s the harsh truth.
Today the fry cook is servant class.
This is now a temp job paying not enough to get by.
It all depends on which lens you are looking through to determine a “better quality of life” so let’s take a look at some examples:
I tried to find statistics for the median size of a house in 1985 but I couldn’t find any but I think it was under 1900 square feet. Today, new houses are averaging about 2500 square feet but size isn’t the end of it. Modern homes have modern electrical system, energy efficient windows, and roofs that are far better than what was made 30+ years ago.
link to statista.com
But let’s look through another lens. I bought a 386 computer in 1993 or 94 with 4mb of ram that cost $2000 and that computer was barely capable of doing anything. Today I have an iPhone that is 1000x more powerful than that computer and it cost $500 less. Not only that but my iPhone is my own personal infinite music library (Spotify), TV/Movie Theater (Netflix, Prime, etc), my stock broker, my bank, my camera, my video camera, my primary communication device (Facetime), my accountant, my property manager, and so much more.
Growing up, I had 3 TV stations to choose from: CBS, ABC, NBC and later FOX came into the picture. Today, I can stream TV from virtually any country in the world whenever I want at virtually little to no cost.
From a food perspective, growing up it was always the same simple dishes with minimal variety but today I can order Wagyu beef from Japan authenticated with it’s own serial number and cow’s birth certificate. I can eat cuisines from almost anywhere in the world…heck I have Korean, Chinese, Japanese, Malaysian, Central American, South American, Indian, Italian, and American restaurants within a 10 mile radius of my home or work.
If people’s finances are stressing them out it is for a simple reason, they want too much stuff. All of the services I listed above are luxuries not necessities. There was no need to worry about netflix, spotify, or amazon prime because they didn’t exist but now everyone wants these services.
I don’t think it’s possible to compare 1985 to 2023 anymore than it is feasible to compare life in 1823 to 1923 or 2023. A person from 1823 would find 2023 housing ultra luxurious even for the crappiest shack.
From a medical perspective, I remember HIV being a death sentence in the 80s and now I see adds for dozens of different HIV medicines than render the virus mute. Same with advances in cancers but other diseases are now showing up (e.g. Covid).
The Pareto Principle, developed in 1906, stated that 80% of the wealth always floated up to 20% of the population and things haven’t changed and I doubt they will change anytime soon. The corollary to this rule is that the 80% of people that don’t have money/wealth want the lifestyle of the top 20% and that too hasn’t changed in 100+ years.
And if starter homes don’t exist in 100 of 100 top cities then people can choose to live outside those cities, I thought it was standard criticism here that ‘everyone is leaving big cities’ so why complain?
By the way, the top 20% than own 80% of the wealth mostly live in cities because wealth begets wealth, they don’t live in rural areas because they have nothing to offer and nothing to spend money on.
In terms of ‘healthcare’, life expectancy is declining, so quality of life in that area is declining. In terms of housing, the starter homes in the metros with jobs are the same starter homes from 1985. They were largely built the 1950s and 1960s. No one cares that you can stream media from anywhere in the world, but owning real assets, mainly your own home, is extremely desirable.
Life expectancy is declining for those that don’t have access to the best healthcare, medicine, treatments, and other healthcare.
Starter homes change all the time, not sure where your data comes from but there are high rise condos going up everywhere that are intended to be starter homes as most people don’t plan on having families with kids in two bedroom condos.
As for streaming, the market capitalization of Netflix of #193 billion and that’s just Netflix.
You’ve proven yourself to be out of touch with reality.
>> Starter homes change all the time, not sure where your data comes from but there are high rise condos going up everywhere that are intended to be starter homes as most people don’t plan on having families with kids in two bedroom condos.
This is the definition of declining quality of life. Condos are terrible investments, they depreciate faster, appreciate slower, have HOA fees, and have HOA assessments when their reserves don’t cover repairs.
There are plenty of houses of all types but it goes back to what I said, the people that don’t have money want to live the lifestyle of those that do..
link to finance.yahoo.com
We have loved living as a family with our son in a 2-bedroom condo. It has been ideal for us. Modest, walkable, and reasonably priced. We need more condos.
“No one cares that you can stream media from anywhere in the world,”
Maybe one doesn’t value entertainment — maybe one is a Puritan or Maoist — but the OP and the comments cite the cost of education. Streaming is a factor in comparing education then and now. It expands access to education and promises to deflate its cost. YouTube how-tos, foreign language courses, entire Ivy League courses , and up to to degrees or credentials— one can consume education inexpensively and efficiently through streaming and teleconferencing technology. Does such completely make up for the radical inflation in the cost of brick and mortar traditional education? No. Traditional in-person education remains preferable, at least as the core of higher education. Inflation in cost of education can only be reduced by reduction of subsidies. I’m the meantime, streaming technology offers alternatives.
You can live in Vietnam and use these streaming resources. This whole spiel is a ‘hedonistic adjustment’ claim, but these same quality improvements are available worldwide. This doesn’t justify the massive increase in asset valuations.
“And if starter homes don’t exist in 100 of 100 top cities then people can choose to live outside those cities”
More likely, under the nearest overpass. Believing that the situation is better outside cities is disingenuous.
I live in Costa Mesa where home prices and median wages are the highest, and even I am not elitist enough to believe in “magic pricing” outside of cities.
In the early eighties, I had to worry about long a phone conversation I could have with my parents when I lived just 400 miles away. Greyhound bus was a good way to cover the distance because airfare deregulation had not yet taken hold. Vinyl and analog cassettes and FM were not nostalgic or aesthetic means of consuming music at home. They were the only way. Phone calls and music are now all you can eat.. and cheaply. Air travel is not just for the middle class or wealthy. Cars perform better, are safer, require less maintenance and last longer. It is not just how much one earns. Point is, comparisons across time often fail to capture or account for changes in quality of the goods or services. Aspects of the quality and access of education and healthcare cannot be compared well over time. As observed, in the early 1980s, the wealthiest person could not obtain the treatment for an HIV infection that almost anyone in the world can now obtain, even in undeveloped countries. With teleworking, options to live in less expensive areas open. And office space can be converted to dwellings. Autonomous cars will obviate garage spaces, increasing dwelling space.
I’m with the AEI view. Better economy and general standard of living now than in the 1980s. Innovation and free enterprise have surmounted inane public policy.
Everything you mention is correct, except if you cannot buy housing then the argument is mute.
Conclusion is, if you are a boomer things are great. If you are starting a family and want to purchase a house things are not as rosy.
dead on buddy. not to mention crime rates in 80s. and pollution in water, air………..
today’s middlebrows travel the world. in 80s only super wealthy did. middlebrows went to visit family………
big difference i see is in 80s most of world still poor. now thank heavens billions of humans have been lifted out of wrenching poverty. now amerikan cities filled with shoppers from 4 corners of globe…………a net good for humanity.
the hooey about amerikan cities dying is right wing clap trap. personally i love the country and the city. and the beach, best.
the hood i live in now in brooklyn i used to run through for fear. amerika is way better off. not to mention people get along now. the younger generation way better at accepting folks from different colors or backgrounds etc…….
humans have always progressed to a better place over centuries. not even close.
Well said!!
We have Google, Facebook, Amazon, and Netflix, plus $400,000 double-wide trailers, so basically a break even. The tie breaker is Reagan vs. Biden..
Morning in America Regan, or Mumbling in His Oatmeal Regan?
Case-Shiller does not include townhouses and condo’s. Those are the starter “homes” today and need to be accounted for in affordability calculations. Today’s multi-family are more luxurious than…
…my starter which was an 1100 sq ft, 2bd/1ba with one outlet per room, 120V, 30 amp service; 6 fuses; floor heater; footings cast from a coffee-can full of concrete.
That said, the dream of a SFR (w/o HOA) is dashed for most; give the USG another 20-30 years and the idea of owning a car will be only for the elites too (the proletariat will have pre-programmed self-driving cars IF your “papers” allow travel).
5 decades of rampant inflation has destroyed all hope for most.
In the 80’s American people were skinny, today obese. We are hooked to
RE and junk food.
Most weren’t as fat as today, but not skinny for sure.
Yeah but the 80’s “were a mess.”
As Batra Ravi explains: “What matters is the size of the wage-gap”.
Batra, pg. 142, “Greenspan’s Fraud”:
“If demand and supply are to be balanced over time, then either wages rise in sync with productivity, or productivity growth must be matched by the growth of wages plus debt…so debt growth was the only way to maintain demand-supply equilibrium from the 1970s till today.”
American demand was met by Asian supply. The result was a wealth transfer.
We imported pollution and inflation to China since the 90s. That gave us false sense of value for the dollar. With deglobalization stupidity and food fights with China, the US and it’s currency are just near trash now and the world is stuck with it as the senior currency until…
Spot on.
Don’t look back. The 80’s were a mess.
Winship is out to lunch. Cass is closer.
Most families greater tax burden is payroll and sales. Figure that in.
And how can they leave out childcare. Childcare wipes out a lot of taxed salary.
Healthcare is a luxury for many families today until they have a serious need then it sinks them.
I just do not know how Biden wins this again with that terrible cabinet of dingdongs. Unless they start printing ballots at Kinkos again. If Trump would step aside, the Republicans would crush the Biden crime family. But then again the abortion idiocy ruined the midterms. One can only hope Kennedy wins the primaries. Kennedy/DeSantos race would at least have some vigor. Newsome is a twit