What Poverty? Consumption Up 164 Percent In Last 50 Years Among Lower-Middle Class

You’ve heard the media narrative: the struggling or disappearing middle class, increased poverty, and despair are everywhere in America.

But it’s just not so. Economists and leftist politicians can complain about low- and middle-income Americans and how they may be suffering, but if you look at their consumption, or what they’re actually purchasing, they’re doing pretty well.

A recent study by the National Bureau of Economic Research shows that consumption for families in the bottom half of the income ladders has grown steadily over the last 55 years. Here’s their conclusion:

The number of cars per household with below median income has doubled since 1980 and the number of bedrooms per household has grown 10% despite decreases in household size.

The finding of zero growth in American real wages since the 1970s is driven in part by the choice of the CPI-U as the price deflator; small biases in any price deflator compound over long periods of time. Using a different deflator such as the Personal Consumption Expenditures index (PCE) yields modest growth in real wages and in median household incomes throughout the time period.

Accounting for the Hamilton (1998) and Costa (2001) estimates of CPI bias yields estimated wage growth of 1% per year during 1975-2015.

Even in a prolonged period of so-called “inequality,” meaningful consumption growth for below-median-income families has skyrocketed.

This is from the introduction to the report:

The pessimistic narrative on real wages is somewhat at odds with casual empiricism about material goods consumption. If you spend time working with high school students, you notice that even in low income areas, many of the students have cell phones and have access to cable TV and internet service at home.

Access to these powerful and modern tools suggests that low income families have seen important gains in at least some areas of consumption.

The quality and variety of home appliances and electronics (TVs) in the average home is surely vastly superior to what people owned in the 1970s. American homes have become more spacious and cars are both higher quality and there are more cars per family.

Ultimately, we are working fewer hours for better things than we did years ago. The luxuries in life – a second car, a cellphone, a larger house – are more accessible to more people, even the middle or lower-middle class.

Yes, income inequality is an issue, but it’s not as dire as the mainstream media would tell you. It rarely is.

H/T: American Enterprise Institute