Monday, June 22, 2015

Why your middle-class salary is better than you might think

By Matt O'Brien of The Washington Post. Excerpts:
"But even though median households are only making 9 percent more in inflation-adjusted terms than they were in 1980, there's not a hint of any kind of civil strife, unless you count a few bongo drums in Zuccotti Park. Why not? Well, maybe because that 9 percent number understates how much better off the middle class is today than it was a generation ago. That, at least, is what a majority of economists at the ideologically-diverse IGM Panel think.

 


"Part of it is that people are marrying later, if at all, and having fewer kids, so households are smaller than they used to be. The simple math is that $50,000 goes a lot further for a single person than it does for a family of four. Still, it's not like this makes the middle class picture look that much brighter, at least not recently. Even adjusting for household size, real median incomes are lower now than they were in 2000.

But even if we have less money, you know what we do have that we didn't 15 years ago? Smartphones and social networks, Netflix and HD TVs, apps and whatever other technology you prefer to waste time on. Now, it's true, you can't eat an iPad, but it's also true that these things make our lives better in ways that are hard to measure. Economists try to, but because it's so uncertain, they're pretty conservative with their estimates. Specifically, they try to adjust for the quality of a good when they calculate how much its price has changed. If you paid $400 for an HD TV today, for example, and $400 for a regular TV 10 years ago, did you really pay the same price? Technically, yes. But the fact remains that you got something better for the same amount of money than you would have before. And that's even trickier when you're talking about things that didn't even exist back then, like smartphones, that are really every electronic device from the 1990s rolled into one pocket-sized piece. Or as economist Austan Goolsbee puts it, "so much of day is spent doing things that didn't exist [in 1980] that it's hard to believe the numbers fully account for new products."

Try this thought experiment. Adjusted for inflation, would you rather make $50,000 in today's world or $100,000 in 1980's? In other words, is an extra $50,000 enough to get you to give up the internet and TV and computer that you have now? The answer isn't obvious. And if $100,000 isn't enough, what would be? $200,000? More? This might be the best way to get a sense of how much better technology has made our lives—not to mention the fact that people are living longer—the past 35 years, but the problem is it's particular to you and your tastes. It's not easy to generalize.

This doesn't mean, though, that the middle class is doing well or even as well as it should be. Just that it's doing better than the official numbers say it is." 

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