Via Amanda comes this op-ed claiming that the poor really aren’t so poor, because they have stuff. Stuff like TVs and VCRs. Sure, the lower fifth of earners spend more than they take in, but that means they’re better off!
The top fifth of American households earned an average of $149,963 a year in 2006. As shown in the first accompanying chart, they spent $69,863 on food, clothing, shelter, utilities, transportation, health care and other categories of consumption. The rest of their income went largely to taxes and savings.
The bottom fifth earned just $9,974, but spent nearly twice that — an average of $18,153 a year. How is that possible? A look at the far right-hand column of the consumption chart, labeled “financial flows,” shows why: those lower-income families have access to various sources of spending money that doesn’t fall under taxable income. These sources include portions of sales of property like homes and cars and securities that are not subject to capital gains taxes, insurance policies redeemed, or the drawing down of bank accounts. While some of these families are mired in poverty, many (the exact proportion is unclear) are headed by retirees and those temporarily between jobs, and thus their low income total doesn’t accurately reflect their long-term financial status.
So, bearing this in mind, if we compare the incomes of the top and bottom fifths, we see a ratio of 15 to 1. If we turn to consumption, the gap declines to around 4 to 1. A similar narrowing takes place throughout all levels of income distribution. The middle 20 percent of families had incomes more than four times the bottom fifth. Yet their edge in consumption fell to about 2 to 1.
You know, one reason that sales taxes are considered regressive is that they affect poor people disproportionately — because you need a certain amount of purchased goods to survive, it’s unfair to take a huge relative chunk out of the incomes of poorer people. That 7% bites a lot more when you consider the relative size of the tax vis-a-vis a poor person’s income. It’s also one reason, the mewling of John Aravosis aside, that if you’re going to stimulate the economy via rebates-that-aren’t-really-rebates, you put the money into the hands of people who are not only likely to spend it, but likely to have already tightened their belts and put off purchases because things were getting tight.
So, you really can’t look at the fact that poor people spend all that they have — and more — and conclude that they’re not doing all that bad after all because they’re spending all that they have — and more. In fact, most people would consider the fact that they have to beg, borrow or steal to be a problem. A bellwether, even.
Amanda points out that this piece fails to mention the word “debt,” as in the thing that funds people’s being able to spend more than they earn. Nor do the authors consider that, well, consumer goods are cheaper than buying a house:
To understand why consumption is a better guideline of economic prosperity than income, it helps to consider how our lives have changed. Nearly all American families now have refrigerators, stoves, color TVs, telephones and radios. Air-conditioners, cars, VCRs or DVD players, microwave ovens, washing machines, clothes dryers and cellphones have reached more than 80 percent of households.
As the second chart, on the spread of consumption, shows, this wasn’t always so. The conveniences we take for granted today usually began as niche products only a few wealthy families could afford. In time, ownership spread through the levels of income distribution as rising wages and falling prices made them affordable in the currency that matters most — the amount of time one had to put in at work to gain the necessary purchasing power.
At the average wage, a VCR fell from 365 hours in 1972 to a mere two hours today. A cellphone dropped from 456 hours in 1984 to four hours. A personal computer, jazzed up with thousands of times the computing power of the 1984 I.B.M., declined from 435 hours to 25 hours. Even cars are taking a smaller toll on our bank accounts: in the past decade, the work-time price of a mid-size Ford sedan declined by 6 percent.
Ah, yes. The “You have a VCR, so you can’t really be poor” argument. I see that a lot. Along with the “You’re fat, so you can’t really be poor” argument. Have they no workhouses? The Xpatriated Texan notes that the whole argument rests not only on positing that the poor aren’t really poor, but also that the rich aren’t really rich (which they manipulate by using earned income, rather than total income, as their measure — though it’s not explicitly stated *which* measurement they’re using, they mention several times what a household “earns.” Which means something different than “takes in”).
As one of the commenters at Pandagon points out, this “The poor have TVs!” argument is designed to appeal to people in their 50s and 60s, for whom purchases of consumer electronics was a big deal growing up, and for whom purchasing some big-ticket electronic item also meant that you had arrived in the middle class. Hell, I’m not even 40, and have always been middle-class, and I can remember it being a big huge honkin’ deal when we got our big-ass white-console Zenith color TV. Why did we get a new one? Because the TV repairman (remember those? They had to make housecalls because the TVs were so big) couldn’t fix our old wood-paneled one anymore. It was an even bigger deal when my parents got a portable for their bedroom, though I think that may have been black and white. But prices continued to decline, and by the time I was in high school, I was able to buy my own rabbit-eared TV with my own earnings for something like $150, and use it for a good 10 years. Then I bought a similar model for much less until it, too, bit the dust and I upgraded to a flat screen (which cost me wayyyy more back then than I would have to pay to replace it). I bought my first VCR 15 years ago for $150, but I recently paid $35 for a DVD player. I paid more for the plant that sits next to it.
Another thing that the authors don’t mention in the slightest is that, while the cost of consumer goods might be going down, the cost of housing — which is a far more reliable indicator of financial security — is skyrocketing. Indeed, a lot of what’s been floating the economy for the past several years has been borrowing against equity and subprime mortgages. Because you don’t exceed your income by 100% by buying a $10 secondhand TV; you exceed your income because you have to scrounge money by any means possible to keep a roof over your head. And maybe you got that TV for $10 because your neighbors had to sell off all their stuff to make the mortgage payment or the rent this month. And maybe your neighbors got it free from someone else in the first place. Who maybe needed to give their stuff away when they got evicted or foreclosed on.
Personally, while my electronics have been declining in price, my apartment has appreciated, to the point where I can (fingers crossed) sell it for twice what I paid for it almost 7 years ago. But when I look for a new place, I will nonetheless be priced out of many neighborhoods that I could have afforded 10 years ago, because housing has appreciated all over.
Mind you, if you spend a few minutes Googling the authors of the piece, W. Michael Cox and Richard Alm — both officials at the Federal Reserve Bank in Dallas, and thus hardly unbiased in matters of the economy and wealth distribution — you find some interesting stuff. Like, the fact that they’ve been pushing this “The income gap doesn’t really exist because electronics are getting cheaper and poor people have refrigerators!” crap for YEARS — years like 2002, 1998, 1996 and 1995. See also this Amazon search. (Okay, I’ll give them this.)
Not that these guys have completely neglected housing costs in the past, however. Take this advice Cox gave for firefighters in high-priced cities (via):
Middle-class city dwellers across the country are being squeezed….In New York, the supply of apartments considered affordable to households with incomes like those earned by starting firefighters or police officers plunged by a whopping 205,000 in just three years.
….Firefighters who want to live in high-priced cities can work two jobs, said W. Michael Cox, chief economist for the Federal Reserve Bank of Dallas. “I think it’s great,” he said. “It gives you portfolio diversification in your income.”
Remember when Bush, faced with a woman who had to work two jobs to make ends meet and wanted to know what he was going to do about it, blathered about how working two jobs is the American Dream? Yeah. It’s like that.