Posts Tagged ‘Middle Class Living Standard’

“I’m working harder and falling behind”

February 6, 2013

02economix-growth-chart3-blog480

For the past decade, the incomes of average Americans have been flat while the productivity of the American economy continued to increase, and the United States continued to produce more goods and services per person.

Millions of Americans, including anybody who follows this web log, know this all too well.  But according to Time magazine, the news is starting to reach inside the Washington beltway.  Republican Majority Leader Eric Cantor gave a major speech on this subject to the American Enterprise Institute.  His answers—school choice, federal help to parents in paying for school, family-friendly work policies, tax simplification and so on—touched only on the fringes of the problem.

The challenge to the Obama administration is whether they can come up with something better.

Changes in Median Real Family Income vs Price Changes

Michael Scherer of Time magazine, like so many in Washington, thinks impersonal economic trends are the problem.

Part of the shift can be attributed to increased income inequality owing to globalization and new technology — the wealthy becoming much wealthier, while the rest stayed the same. Part of it can be attributed to increased corporate profits, as new markets opened overseas and new technology lowered costs. Some of it has to do with how the figures are calculated. But the most important political takeaway of the chart is that at the turn of a new century, much of the U.S. stopped feeling the benefits of a growing national economy.

If the problem is the inexorable force of globalization and automation, which make the work of ordinary Americans objectively worth less and the worth of the elite objectively worth more, there is not much to be done.  But the question is: worth less to whom?   I acknowledge that the world’s richest 0.01 percent do not think they have any need for people like me.  Then again, I don’t see that people on my level need them.

But maybe the problem is that the corporate and governmental system is rigged to benefit people at the top at the expense of people at the bottom.   To the extent that this is the true explanation, the way forward is clear.   It is to un-rig the system.

Click on The Most Important Chart in American Politics for Scherer’s article in Time on the political implications of stagnant family incomes in the midst of rising productivity and output (GDP) per person.

Click on A Lost Decade in American Politics for background on productivity, GDP and family incomes by Jake Berliner of NDN, an economic research organization..

Click on Eric Cantor’s ‘Make Life Work’ Speech for the full text of his speech Tuesday.

Nonfarm Payrolls (Jobs) Decade Gains

(more…)

It’s getting expensive to be middle class

September 8, 2012

Double click to enlarge.

“It’s expensive to be poor” was an old saying of the Catholic Worker movement.  It is a true saying.  Poor people, because of lack of access to transportation, information and credit, often wind up paying more than than middle-class or well-to-do people would pay for the same things.  But now it’s getting to be true that “It’s expensive to be middle class.”  The chart above shows the increase, over and above the rate of inflation, in the cost of goods, such as home ownership and college education, that define Americans as middle class.

Double click to enlarge.

In order to maintain a middle class material standard of living, American families took on more and more debt during the past 20 years.  I believe the process of substituting debt for income has reached its limit.  I believe that is why the Great Recession is so much worse than an ordinary recession, and why the effect of economic stimulus was so much less than hoped.

 I think it is a good thing, not a bad thing, that middle-class Americans are paying down their debts and trying to live within their means, but there is going to be a painful readjustment as manufacturers not only in the United States, but Japan, China and other countries adapt to the changed American mass market.

There is a dilemma here.  Private industry is not going to expand unless there is a market for its products.  Americans are not going to increase their buying unless they have jobs at good wages.  One thing that can help break the deadlock is for the U.S. national, state and local governments to continue to employ people to provide needed services such as public education, road maintenance and firefighting, and for the government to invest in long-range infrastructure and other needed projects.

Click on Growth and the Middle Class for the economic case for a strong and prosperous middle class by David Madland, head of the American worker project for the Center for American Progress, a liberal research center.

Click on The American Middle Class, Income Inequality and the Strength of Our Economy for a more in-depth study by the Center for American Progress.

Click on 5 Charts on the State of the Middle Class for more charts from the Center for American Progress.

Hat tip for the charts to The Big Picture.

Click on SUBPRIME AUTO NATION for reasons why the process of substituting debt for income may not have run its course after all.  [Update]

Click on Procter & Gamble marketing strategy assumes middle class is disappearing. [Added 9/9/12]

What does it cost to just live?

November 10, 2011

A blogger named John Pennington in San Francisco wrote a good post showing what it takes for average American families just to get by.

Let’s talk about costs for a family of four, two adults, two children, because that’s the most common family makeup in the US.

The first rule of thrifty living is to sweat the big stuff.  Forget bargain tooth paste.  If you are spending too much on the big ticket items—rent, car, food, etc.—no amount of counting pennies will help.  This is great advice, but worthless if market conditions where you live don’t allow you to save on big ticket items.

Take rent.  Average rent for a two-bedroom apartment in the US is $1,029 this year (2011).  That means your annual income must be about $41,000 at bare-bones minimum if you are not to spend more than 30% of it on rent. (The numbers are $2000+ and $80,000 here in San Francisco.)

Question:  If you have been unemployed for some time, how are you going to find a job that pays above $40,000?  In 2011, if you can find any work at all, it is likely to pay you $20,000 to $30,000.  That means that there will be no place in San Francisco and most other cities you can afford to rent.  This is why people commute rather long distances to work in cities; the rent is more affordable.  It’s also why there are usually two earners in such families, and why such families rarely save enough for retirement.

Here’s a pretty good target household budget from a noteworthy site:

Housing – 24 to 30 percent

Utilities – 10 percent (lights, gas, water, trash pick-up and sewer)

Groceries – 12 to 20 percent

Car Expenses – 15 percent (includes car payment, fuel and repairs)

Medical – 5 to 6 percent

Clothing – 4 to 8 percent

Debt – 10 to 12 percent (personal loans, old debt, credit cards)

Entertainment – 5 percent

Savings – up to 10 percent (as much as possible, but a little is better than none)

Charity – 2 -10 percent  (this is a personal decision)

And here’s the dollar figures for that budget, with a $41,000 income:

Housing  $820 to $1,025 per month

Utilities  $342

Groceries  $410 to $683

Car  $512

Medical  $171 to $205

Clothing  $137 to $273

Debt  $342 to $410

Entertainment $170

Savings up to $342 (10 percent)

Charity ?

Wow!  So the first thing we realize is that we can barely afford an average two-bedroom apartment. That’s on $41,000. On $20,000 to $30,000, we can’t afford a broom closet.

Our income is $25,000.  What the hell are we going to do?  Well, here are some possibilities: Share rent with others on a large apartment, or rent a 1BR; sell your car and use public transit; use neighborhood medical clinics; get clothing from Goodwill; you must get rid of credit card debt (which is a whole ’nother topic); minimize entertainment by going to free things;  forget savings.  Charity?—you are charity.

If two of you work, and do all of these things, you will get by somehow.  But what about education for your kids?  What if one of you becomes seriously ill, or injured?  What about income when you are old?

What if you can find no work?  There are five unemployed for each new job, so there’s only a 20 percent chance you will find work at all. In October 2011 there are 14 million unemployed persons, many more counting under-employed and the discouraged unemployed.  There are 49 million people living in poverty and 20 million people living on half the poverty level income.

Click on  What Does It Cost to Just Live? for the original post on Pennington’s Class War in America web log.

Click on Why the middle class isn’t making it for an earlier post of mine on this topic.

(more…)

Why the middle class isn’t making it.

April 19, 2010

This article shows why a middle class income can no longer sustain a middle class standard of living. It originally appeared on the Zero Hedge web log, and was forwarded to me by my friend Daniel Brandt.

_________________________________


IT’S IMPOSSIBLE TO ‘GET BY’ IN THE UNITED STATES

Submitted by Graham Summers of Phoenix Capital Research

While the market cheers on the fantastic job “growth” of March
2010, the more astute of us are concerned with a growing tide of
personal bankruptcies. March 2010 saw 158,000 bankruptcy filings.
David Rosenberg of Gluskin-Sheff notes that this is an astounding
6,900 filings per day.

This latest filing is up 19% from March 2009’s number which
occurred at the absolute nadir of the economic decline, when
everyone thought the world was ending. It’s also up 35% from last
month’s (February 2010) number.

Given the significance of this, I thought today we’d spend some
time delving into numbers for the “median” American’s experience in
the US today. Regrettably, much of the data is not up to date so
we’ve got to go by 2008 numbers.

In 2008, the median US household income was $50,300. Assuming that
the person filing is the “head of household” and has two children
(dependents), this means a 1040 tax bill of $4,100, which leaves
about $45K in income after taxes (we’re not bothering with state
taxes). I realize this is a simplistic calculation, but it’s a
decent proxy for income in the US in 2008.

Now, $45K in income spread out over 26 pay periods (every two
weeks), means a bi-weekly paycheck of $1,730 and monthly income of
$3,460. This is the money “Joe America” and his family to live off
of in 2008.

Now, in 2008, the median home value was roughly $225K. Assuming our
“median” household put down 20% on their home (unlikely, but it
used to be considered the norm), this means a $180K mortgage. Using
a 5.5% fixed rate 30-year mortgage, this means Joe America’s 2008
monthly mortgage payments were roughly $1,022.

So, right off the bat, Joe’s monthly income is cut to $2,438.

According to the US Department of Agriculture, the average 2008
monthly food bill for a family of four ranged from $512-$986
depending on how “liberal” you are with your purchases. For
simplicity’s sake we’ll take the mid-point of this range ($750) as
a monthly food bill.

This brings Joe’s monthly income to $1,688.

Now, Joe needs light, energy, heat, and air conditioning to run his
home. According to the Energy Information Administration, the
average US household used about 920 kilowatt-hours per month in
2008. At a national average price of 11 cents per kilowatt-hour
this comes to a monthly electrical bill of $101.20.

Joe’s now down to $1,587.
Now Joe needs to drive to work to make a living. Similarly, he
needs to be able to drive to the grocery store, doctor, etc.
According to AAA, the average cost per mile of driving a minivan
(Joe’s a family man) in 2008 was 57 cents per mile. This cost is
based on average fuel consumption, tires, maintenance, insurance,
license and registration, and average loan finance charges.

Multiply this cost by 15,000 miles per year and you’ve got an
annual driving bill of $8,550. Divide this into months (by 12) and
you’ve got a monthly driving bill of $712.

Joe’s now down to $877 (I’m also assuming Joe’s family only has ONE
car). Indeed, if Joe’s family has two cars (one minivan and one
sedan) he’s already run out of money for the month.

Now, assuming Joe’s family is one of the lucky ones (depending on
your perspective) they’ve got medical insurance. Trying to find an
average monthly medical insurance premium for a family in the US is
extremely difficult because insurance plans have a wide range in
deductibles, premiums, and co-pays. But according to eHealth
Insurance, the average monthly premium for family policies in
February 2008 was $369.

So if Joe has medical insurance on his family, he’s now down to
$508. Throw in cell phone bills, cable TV and Internet bills, and
the like, and he’s maybe got $100-200 discretionary income left at
the end of the month.

This analysis covers all of the basic necessities of the average
American household: mortgage payments, food, energy, gas, driving
expenses, and medical insurance. It also assumes that Joe:

1) Didn’t overpay for his house

2) Made a 20% down-payment of $45K on his home purchase

3) Has no debt aside from his mortgage (so no credit card debt,
student loans, etc)

4) Only has one car in the family and drives 15,000 miles per year

5) Keeps his energy bill reasonable

6) Does not eat out at restaurants ever/ keeps food expenses
moderate

7) Has no pets

8 ) Pays for health insurance but has no monthly medical expenses
(unlikely with two kids)

9) Keeps his personal budget under control regarding cable TV, Internet,
and the like

10) Doesn’t spoil his kids with toys, gadgets, trips to the movies, etc.

11) Doesn’t take vacations.

Suffice to say, I am assuming Joe maintains EXTREMELY conservative
spending habits. Personally, I know NO ONE who meets all of the
above criteria. However, even if the above assumptions applied to
the average American, you’re still only looking at $100-200 in
“wiggle” room for spending per month!

If Joe:

1) Overpaid on his house

2) Didn’t have a full 20% down payment

3) Owns two cars

4) Eats at restaurants

5) Splurges on heating & A/C bills

6) Has any medical expenses aside from monthly premiums

— he is running into the red EVERY month.

I also wish to note that my analysis didn’t include real estate
taxes and numerous other expenses that most folks have to pay. So
even if you are extremely frugal and careful with your money, it is
impossible to “get by” in the US without using credit cards, home
equity lines of credit or burning through savings. The cost of
living is simply TOO high relative to incomes.

This is why there simply cannot be a sustainable recovery in the US
economy. Because we outsourced our jobs, incomes fell. Because
incomes fell and savers were punished (thanks to abysmal returns on
savings rates) we pulled future demand forward by splurging on
credit. Because we splurged on credit, prices in every asset under
the sun rose in value. Because prices rose while incomes fell, we
had to use more credit to cover our costs, which in turn meant
taking on more debt (a net drag on incomes).

And on and on.

Does this mean the market is about to tank? Not necessarily, stocks
have been disconnected from reality since November if not July.
Bubbles (and we ARE in a bubble) take time to pop and this time
around will be no different.

Best Regards,

Graham Summers

END

Click on this for the original version of the article on the Zero Hedge web log.

Click on this for the Zero Hedge home page.