Poor, Ordinary Americans

by Don Boudreaux on August 6, 2006

in Myths and Fallacies, Standard of Living

Whether or not Americans are better off
these days is a loaded political question. But one thing’s for sure -
their homes keep getting bigger.

According to the annual American Housing
Survey released this month by the Census Bureau and other reports,
Americans are building bigger, fancier houses and loading them up with
more features and systems than ever.

The
average new home grew to 2,434 square feet in 2005, according to the
Census Bureau, up 3.6 percent from 2,349 square feet in 2004 and up
46.6 percent from 1,660 square feet in 1973.

Gopal
Ahluwahlia, of the National Association of Home Builders (NAHB)says
early stats for 2006 indicate an additional increase to 2,455 square
feet this year.

Really big houses,
3,000 or more square feet, have gone from relatively uncommon – 11
percent of new homes in 1988 – to practically mainstream; 23 percent of
new homes are now that big, according to the Census Bureau.

"Consumers
still like to buy bigger and bigger space," says Gopal Ahluwahlia,
research director of the NAHB, "even though families are smaller."
Ahluwahlia says family size shrunk 20 percent but new houses have
expanded in size by more than 50 percent since 1970.

So begins this report from CNNMoney.com.  (HT to Bob Higgs.)

Of course, almost anything is possible — but the set of things that are also plausible is much, much smaller.  I suppose that it’s possible that the real wages of ordinary Americans have stagnated since the mid-1970s — possible that ordinary Americans continue a thirty-year-long agonizing process of treading water as we watch helplessly as only the super rich enjoy increasing prosperity — while some mysterious force nevertheless enables us to buy and live in increasingly larger and better-equipped homes.

But this prospect is hardly plausible.  Any American alive today who remembers 1973 and who continues to believe that ordinary Americans are no (or only slightly) materially better off today than we were thirty years ago is blind or seriously deceived.

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{ 35 comments }

happyjuggler0 August 6, 2006 at 5:52 pm

Hispanic in 1973 made up 5.2% of the US population, while in 2004 they were 14.3%.

If one can make the assumption that the bulk of this increase was amongst low skill people, then without doing anything to lower other peoples income, they are dragging down each slice of the income distribution.

I don't know the exact distribution, but let's say that someone with 40K in income has 50% of the population above of him, and 50% lower than him. Also assume that someone with $50K in income is slotted with 40% of the population above hime, and 60% below.

Now pretend that we didn't have low skill immigrants, and also for easy math that everyone is making the same amount of income as they were with low immigrants in the country. The person with a $40K income now has roughly 60% of the population above him and 40% below. The person with $50K in income is now at (approximately, we actually are talking in terms of ninth's now) the 50/50 mark.

To summarize, the effect of low skill immigrants into the US is to create the illusion that we are worse off in terms of income progress than we really are.

Robert Cote August 6, 2006 at 7:33 pm

The 2006 New American Home 10,023 square feet.
The 2005 New American Home 5,950 square feet.
The 2004 New American Home 5,172 square feet.

For the graphiclly inclined: http://www.metrotimes.com/25/39/thisnewhouse.pdf

HarmoniousJosh August 6, 2006 at 7:41 pm

The thing about this that's great for a poor person like me is that I can get a better deal on a smaller house. I mean, really. I'm poor. I don't have a lot of stuff. 1000 sq feet on a bit of land would be sweet. Once I save up a bit, it's totally doable.

onesmallvoice August 6, 2006 at 7:56 pm

It always astounds me that supposedly educated "thinking people" can believe (and spout) the most astounding things without even thinking about what they are saying. Every time I hear one of these politicians or talking heads on the left say that "real" wages for the middle class have stagnated for 30 years my head wants to explode. Look at trade figures for what is sold these days in comparison to the 70's. No snowmobiles, no $20,000 motorcycles no $40,000 ski boats. These are common items in suburban garages, (which are now larger than most houses my middle class family lived in during the fifties) but didn't EXIST 30 years ago. Oh wait, I finally get it! It is that army of brain dead loan officers at the bank that continue to loan to legions of consumers that haven't seen a raise in 30 years but somehow continue to make the payments on this vast increase of comsumer goods and oversized houses. I'm sure it's only a matter of time before we have a meltdown of the bank stocks as we all realize these loans will never be paid back!
There is such a discontinuity between OBSERVABLE reality and the bilge being laid in front of a gullible public that it seems to me fertile ground for a truly unbiased study of how we manage to consume more while (supposedly) having less.

Ammonium August 6, 2006 at 8:01 pm

Ask yourself this: how many people built their own house? Almost everybody I know has below average income. Those of us lucky enough to own homes were forced by the so called "market economy" to buy a used house.

Everybody who lived in my neighborhood 30 years ago could afford a brand new house. Almost everybody who lives in my neighborhood now was forced to buy used. And the few people who built their homes did so over three decades ago — they could never afford to build a new house now.

Your statistics are just measuring the rich people who can afford to build a house. Poor people are living still living in the 1,660 sq ft used houses. I hope that somebody (a politician) can do something about the indignity that workers in our country suffer by having to live in small, used houses.

Ryan Fuller August 6, 2006 at 8:26 pm

A single person crying for a politician to "do something" is the sign of an idiot. An army of them marks a nation headed for decline. What a fool.

JohnDewey August 6, 2006 at 9:20 pm

U.S. median household income (below in 2004 $) has increased for all "races":

all households 1975 $36,515
all households 2004 $44,389 +22%

hispanic HH 1975 $27,433
hispanic HH 2004 $34,241 +25%

black HH 1975 $22,294
black HH 2004 $30,134 +31%

white/Asian HH 1975 $38,574
white/Asian HH 2004 $48,062 +25%

Source: U.S. Census Bureau

One cause for these incresaes: increased participation of women n the workforce (from 46% to 59%), offset slightly by a decrease in participation of men (from 78% to 73%).

Given the across the board increase in household incomes, an increase in housing size is not surprising to me.

JohnDewey August 6, 2006 at 9:31 pm

In support of happyjuggler's argument, here's the change in percentage of households by race, 1975 to 2004:

hispanic 4% to 11%
black 10% to 12%
white/Asian 86% to 77%

I think the household percentages are slightly different from the population percentages because hispanic households have more persons per household.

One interesting discovery: one person households increased from 23% to 26%. Had this group stayed at 23%, the overall household increase since 1975 would have been even larger.

happyjuggler0 August 7, 2006 at 12:07 am

John Dewey,

Thanks for the numbers. One thing that is important to note is the the overall median household increase is lower than all three components!

The reason for this apparent mistaken numbers is that the poorest racial sectors of our population are increasing as a percentage of the population.

The good news anyway is that the lowest median subgroup seems to have had the biggest gains, something I suspect you'll never hear in the NY Times. Those facts don't fit their bias.

happyjuggler0 August 7, 2006 at 12:15 am

By the way, I used 1973 for my starting point because I calculated it a few weeks ago from US poverty stats, and 1973 was when overall US poverty bottomed out after a significant and relatively rapid fall from the series start. It hasn't gone lower since 1973.

I was trying to see what effect low skill immigration might have had via skewing the poverty rate. Our overall poverty rate for individuals was 11.1% in 1973 and 12.7% in 2004. But if you pretended took a look at non-Hispanic poverty in the US, the rate went from 11.0% in 1973 to 11.2% in 2004.

A sideways move is hardly something to be happy about, but it is less depressing than a rise in the poverty rate instead of 1.6 percentage points.

http://www.census.gov/hhes/www/poverty/histpov/hstpov2.html

happyjuggler0 August 7, 2006 at 12:29 am

Ammonium,

You can't be serious. Tell me you are simply trolling in order to get a rise out of people with your Onion-like post.

Think about the math for people needing to live in new houses. You'd either need to abandon old houses or blow them up in order to have avoid the heretofore unconceived of "problem" of people living in "old" or "used" houses.

Furthermore, genuinely poor people aren't living in their own houses anyway. They are renting.

There are plenty of new houses being built for the middle class, indeed that is who almost all of them are being built for. They may be in a ring around the old-house suburbs, but so what? The "good" jobs are tending to follow them anyway into cheaper environs too.

Finally, there are plenty of genuinely rich people living in "old" houses in places like Beverly Hills or the Hamptons. Pretty much all of them in fact.

matt August 7, 2006 at 6:58 am

Life must be tough for the "poor" people who have a house that is "only" 1,660 square feet. You insulted about 6 billion people. Yay.

Bruce Hall August 7, 2006 at 8:43 am

Again, only speculating, but my experience has show that the comparison of "household" income to 4 decades ago may be a little akin to comparing "Work" with "exertion".

In this case, the obvious difference is the comparitor "household". If the percentage of two-income "household" incomes has increased in 40 years, then the comparison is purely ornamental. One would need to look at inflation-adjusted personal income to see why people might be getting the perception that they are "treading water".

After all, if it takes two people to live a lifestyle that is twice as costly as that which one person (on average) can provide, then we have only changed the definition of "household" in the sense that two incomes are now the basis for income rather than one.

Statistics that I have come across indicate that two-income homes have roughly doubled since the early 1970s. The jump from the mid-30%s to the mid-60%s could go a long way in explaining "household income" versus "individual income".

Then one has to look at the cost side of the equation… two cars to drive to work, two sets of work clothes, etc., plus childcare expense. Not really treading water… just a lot more paid work occurring.

Eh?

John Dewey August 7, 2006 at 9:46 am

Bruce,

I understand your point. However, I believe that comparing household income is valid for many purposes. Certainly it does not explain whether or not wages have increased. But it does explain how American families have been able to afford larger houses, which is why I used the comparison.

Are suggesting that American families may not be better off because more women have moved into the workplace? I would defnitely disagree with that idea. If the costs for them to enter the workplace were higher than the benefit received (financial plus emotional benefit) women would not have done so.

The increased participation of women no doubt fed the growth of national GDP. Talented women once underutilized as housewives are now employed as engineers, computer scientists, and business leaders. Tasks such as child care, housecleaning, and food preparation are more efficiently performed by specialists.

The indirect benefits of women's increased participation are huge. The multiplier effect allows women's increased incomes to create many more opportunities for workers than previously existed. I don't see how that can be anything but good for the economy as a whole as well as for individuals whose employment prospects increased.

Bruce Hall August 7, 2006 at 10:03 am

John Dewey,

I'm only suggesting that one should be careful how statements are framed. In this case, comparing "household" incomes is misleading when the number of "income-earners" has changed so dramatically.

The consequences are several. Yes, we are economically better off. Are we better off? Young people have to agonize about whether or not to have children because of the economic impact it will have on their lives. Then if they have children, they have to agonize about sending them off to daycare at the tender age of two months or not. Then they have to agonize about how they can juggle their work schedules when the children get sick. And so on and so on.

I recall when our first child was born that we were a two-income household that quickly became a one-income household. Were we better off? Yes.

One has to differentiate between the economic impact and the perception of well-being… which may be quite different to different people.

People are making their choices known with their actions and I certainly would not argue against the notion that two-incomes = more money. The question might soon be: why are our two incomes not advancing us further than the two incomes of our parents?

John Dewey August 7, 2006 at 10:04 am

Bruce Hall: "One would need to look at inflation-adjusted personal income to see why people might be getting the perception that they are "treading water"."

IMO, people believe they are "treading water" because the media and politicians tell them so. I doubt that many families take the time to compare their material well-being now vs. ten years ago or twenty years ago or thirty years ago.

As I think we've discussed before, it's likely that any inflation-adjusted comparison of incomes is flawed. The government's inflation calculations make little allowance for changes in quality of goods. Just about every item we consume today is better than what we consumed 30 years ago: "standard" automobiles have more features; many more varieties of common food items are available; household appliances are much safer; telephones have features only dereamed about in 1970; etc.

For Americans, quality of life is at an all time high.

Randy August 7, 2006 at 10:18 am

For what it's worth, my father used to complain all the time about how hard it was to get ahead, high taxes, etc., etc. And he was living through the very same good old days that the complainers of today would like to see return. I think its just human nature to imagine that things could be better. Its also a mistake to think we are being swept along by some mysterious current. If there's a current, it is one of our own choosing.

John Dewey August 7, 2006 at 10:21 am

Bruce Hall: "Young people have to agonize about whether or not to have children because of the economic impact it will have on their lives. Then if they have children, they have to agonize about sending them off to daycare at the tender age of two months or not."

How is that any different than 30 years ago?

Bruce Hall: "Why are our two incomes not advancing us further than the two incomes of our parents?"

What do you mean by "advancing"?

Don Boudreaux August 7, 2006 at 10:29 am

Preliminary, not-yet-published research by economists at the Dallas Fed finds that in order for a family of four today to purchase the same basket of goods bought by the median-income American family-of-four in 1975, today's family of four need send only 0.7 persons into today's workforce.

Again, this figure isn't yet published, so skepticism of it is justified. But it makes sense to me.

(This info was passed along to me by Dallas Fed Chief Economist Michael Cox.)

BillWoolsey August 7, 2006 at 10:47 am

These statistics fail to measure the fall in the number of jobs providing middle class incomes to high school graduates (or less) who do what they are told on the job and faithfully support their union and vote Democrat.

That this is partly or wholely offset by new jobs that require a college education or being some kind of self-starting management type, fails to understand the nature of the "problem."

Where are the assembly line jobs for the uneducated and unmotived providing middle class incomes? They are gone, or at least, fast disappearing.

There are plenty of "blue collar" jobs that pay very well, but nearly all of them require skills, and perhaps even some off-the-job training! That isn't good enough!

John Dewey August 7, 2006 at 11:02 am

BillWoolsey,

Haven't all those skilled blue collar jobs been moved offshore? relocated from Detroit, MI, to sweatshop locales such as Marysville, OH, and Smyrna, TN, and Spartanburg, SC?

Randy August 7, 2006 at 11:04 am

Bill,

I've worked an assembly line. Its not a good life. If the choices are;

a. 10 to 12 years of school then work the rest of my life in a factory.

b. 14 to 16 years of school and then work as a specialist, with the probable need to maintain my skills or adopt new skills as the specialty changes.

I'll go with option b every time. Its a different way of life, but not a worse one.

That said, how do we get this across to those with limited learning ability and/or motivational deficiency? Carrots and sticks, I guess.

John Dewey August 7, 2006 at 11:17 am

randy: "how do we get this across to those with … motivational deficiency?"

Just tell them this: "Get skills and work hard, or go hungry. If you steal in order to survive, we will throw you into prison and give you the same choice once again."

Bruce Hall August 7, 2006 at 11:18 am

John,

Advancing —-> getting ahead, being better off economically. This is a discussion about incomes and standard of living, isn't it?

One can argue that because technology advances the features of products that replace older products, we are better off. Absolutely! In that case, we will always be better off. There is nothing qualitatively better about a hand-made item than a machine made item except the care that goes into programming the robots. We tend only to value the variations of hand-made items… like the artistic sense that decides where to cut a diamond.

When you've seen 1 million Mona Lisas, you've seen them all. But a 3D digital Mona Lisa that talks… wow! Now that's better off!

This discussion has more apples and oranges than a fruit salad.

Noah Yetter August 7, 2006 at 12:05 pm

"Young people have to agonize about whether or not to have children because of the economic impact it will have on their lives. Then if they have children, they have to agonize about sending them off to daycare at the tender age of two months or not. Then they have to agonize about how they can juggle their work schedules when the children get sick. And so on and so on."

Oh my god, people have to make choices! THE SKY IS FALLING

Bruce Hall August 7, 2006 at 12:44 pm

Noah,

While you trivialize the decisions, you conveniently neglect that young couples have pretty much been brought up to EXPECT that there will be two working incomes in the household … which was not the norm in 1970 … which is what this discussion was all about.

Therefore, the economic COMMITMENTS these young people make do make decisions, that were often not even a decision to make in 1970, a very difficult decision now … because economic expectations and commitments are so much greater now.

Still, I comprehend your lack of empathy and understanding.

happyjuggler0 August 7, 2006 at 1:22 pm

Bill Woolsey,

Before WWII one's ability to be what we think of as middle class with a crappy education and with a maunfacturing job was quite limited.

WWII destroyed the productive capacity in the vast bulk of the developed world, excepting mainly the US, Canada, Switzerland and Sweden, the latter two being neutral during that period, and the former two protected by oceans.

In the aftermath of WWII, the remaining factories in effect became a goldmine, and keeping that golden goose laying golden eggs was a huge priority for companies. The managers that tweaked the most production from their factories advanced up the company ladder. To get these promotions and to keep the factories churning out more and more goods, they had to buy labor peace and finally give in to the growing and growing and growing demands of unions which employed uneducated and otherwise unskilled workers.

By the early 1970's the bombed out world had essentially rebuilt completely, and the golden goose died after about 20 or so anomalous years. However a myth was born, namely that one "ought" to be able to make a great living without much skills or education, and that unions somehow could deliver this nirvana.

Once the WWII bombing induced printing press known as 50's and 60's manufacturing dried up, the unions were on an inevitable downhill. The fought to keep their gains, indeed to expand their gains, and in the process destroyed tons of companies and wealth and jobs.

The anomalous 50's and 60's will not be coming back. The way out for those on the bottom is to get new skills, and the way out for future generations is to get a good education.

Those "good union jobs" aren't coming back and whining and stomping your foot and shouting slogans about the evil rich won't change that fact.

happyjuggler0 August 7, 2006 at 1:26 pm

By the way, when I said "The way out for those on the bottom is to get new skills", I didn't mean to imply it would be easy.

I want to get that in before I get bashed for lacking compassion or empathy.

Randy August 7, 2006 at 2:00 pm

happyjuggler,

Telling hard truths is often perceived as a lack of empathy. And it often is a lack of sympathy which leads to the telling of hard truths. I think the middle class as a whole doesn't feel much sympathy for those who can't seem to get it together. We've been there. And we know that making it is mostly a matter of just "growing up". That's why the left doesn't really get much of a foothold here. The people they would patronize keep telling them to grow up.

John Dewey August 7, 2006 at 2:04 pm

Bruce Hall,

Almost everywhere in U.S., couples with children can live on just one fulltime income. Census data will no doubt show that couples are doing so in every state in the union.

Some couples desire to live on a single income in the few high cost areas of the nation. They do face difficult choices, but only because of their geographical and consumptive preferences.

Teri Pittman August 7, 2006 at 3:26 pm

I'd take the factory work. I went with option b and lost the job in the tech crash. Now I make about the same amount of money as I did in the factory plus I get to pay back student loans. And learning new skills may work fine when you are younger. At some point, companies care more about your age than your skills. Don't count on learning new skills at work. They'd prefer to hire someone already trained.

Randy August 7, 2006 at 5:23 pm

Teri,

I guess many people feel the way you do about it. Maybe your experience wasn't as bad as the packing plant I worked in. I hated it. Completely dehumanizing. Most of the people who'd been there awhile just went numb. And the pay wasn't even that great. It wasn't the kind of life experience I'd wish on anybody. But that's neither here nor there, really. Option a is no longer even available for most. Option b is as much a reality for today's workers as life on the farm was in the 19th century or life in the factory was for those in the early 20th century. Personally, I think its a better life. And, honestly, I don't think that most of those who idealize the past have much experience with the realities of that past.

Half Sigma August 7, 2006 at 5:35 pm

The McMansions are a result of restrictive zoning which doens't allow builders to build as many houses as people would like to buy.

Indeed, restrictive zoning has done serious damage to the standard of living of those who didn't own a house before the huge increase in prices began in 1995.

JohnDewey August 7, 2006 at 6:51 pm

"restrictive zoning has done serious damage to the standard of living of those who didn't own a house before the huge increase in prices began in 1995."

But not everywhere has such zoning, right? New or fairly new single family residences, on 1/5 acre lots, can still be bought for under $150,000 in many Dallas suburbs. New homes are available near Nissan's Nashville area plant for about $170,000. Pulte is selling homes in the Kansas City suburbs for $180,000 – $230,000. I could probably find 100 such examples across the south and midwest.

There's lots of jobs available in Texas and across the South. Everyone has to make their own choices.

Randy August 8, 2006 at 9:09 am

With gas prices on the rise, I'm just fine with 1,800 square feet and an efficient furnace.

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