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Pittsburgh Tribune-Review: “Heat and light”

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In my January 28th, 2008, column for the Pittsburgh Tribune-Review I responded to a criticism by Joe Kennedy of this earlier column of mine [2]. You can read my response to Mr. Kennedy beneath the fold. (This column, and the Kennedy piece to which I respond, are not available on-line.)

Heat and light

Former U.S. Rep. Joe Kennedy took issue on these pages with my objections [2] to his “Joe for Oil” campaign (“The poor among us,” Jan. 18). Mr. Kennedy complains that I’m insensitive to the plight of poor Americans who cannot afford to heat their homes. And he defends his association with Venezuela’s socialist strongman, Hugo Chavez, as a morally appropriate means of helping him help poor Americans.

I do not doubt that many Americans are poor — some very poor — by American standards. And I applaud those who give their time and money to assist such poor people. But keep this fact in mind: Poverty in America typically is overestimated and overhyped, especially by those on the left who seek excuses for expanding the role of government.

It’s true that the prices of natural gas and heating oil have risen sharply in recent years. Such price hikes are especially burdensome for people with only modest incomes. But it is also true — contrary to constant hype by left-wing pundits and politicians — that the material standard of living of even the poorest Americans continues to improve.

Compared to 1980 (I choose this year because it’s the earliest one for which good data are found at the Bureau of Labor Statistics Web site), the inflation-adjusted price of fuel oil today is 22 percent higher and that for natural gas 29 percent higher. But the real price of electricity today is 22 percent lower.

Also lower, compared to 1980, are the real prices of all but one of the food items listed at the BLS site. The inflation-adjusted price of white bread is lower by 4 percent; that of ground chuck by 42 percent; that of fresh whole chicken by 39 percent; that of grade A eggs by 19 percent; that of fresh whole milk by 41 percent; that of red Delicious apples by 11 percent; that of navel oranges by 20 percent; that of frozen orange juice concentrate by 10 percent; that of banana by 40 percent; that of ground roast coffee by 48 percent; and that of iceberg lettuce by 26 percent.

Of all the food items listed at the government site, only tomatoes are more expensive today, in real terms, than they were in 1980 (by 29 percent). Now, combine these declining prices of basic foods with what the data tell us is happening elsewhere in the economy. As I mentioned in my previous column, the percent of U.S. households classified as “poor” that have things such as color televisions, air conditioning, automatic clothes washers and dryers, automatic dishwashers and refrigerators is today higher than was the percent of all U.S. households to have such things in the early 1970s.

Also, Americans’ rate of home-ownership today is at an all-time high, as is our life-expectancy at birth. Finally, the percent of American households that earn less than $56,000 annually (in 2007 dollars) is today some 12 percentage points lower than in 1967.

Joe Kennedy is mistaken to suggest that the absolute poor “are always with us.”

But returning to heat: I have before me a Fall 1975 Sears catalog. Although Sears boasted back then of having “everything,” it did not sell electric space heaters. It did, though, sell three models of space heaters fueled by natural gas. The lowest-priced of these sold for $53.95 — which, in 2007 dollars, is $206.88. Today, at Sears.com you can choose from a wide assortment of electric space heaters, starting at $19.99. (I found a new electric space heater for sale on eBay for $9.99.) The most expensive indoor space heater for sale at Sears.com is priced at $99.99. (Remember: The real price of electricity today is 22 percent lower than it was in 1980.)

Now, how many Americans today — especially given the great growth in real incomes in recent decades — cannot afford a few electric space heaters for their homes? Surely the answer is “very, very few.”

Please note: I am not saying that inability to pay for oil for your furnace is completely made up for by the low prices today of space heaters; I am not saying that space heaters are as luxurious or as comfortable and as convenient as is central heating. I am saying that space heaters are what economists call a “substitute good” for other means of home heating. Therefore, the affordability of space heaters — along with the lower real prices of so many other necessities of life — means that Mr. Kennedy’s tale of many Americans helplessly shivering in their tenements under blankets strains credulity.

*Donald J. Boudreaux is chairman of the department of economics at George Mason University in Fairfax, Va. His column appears twice monthly.