Sunday, March 15, 2015

Two contrasting views of America - which one is true?

Ross Douthat in today's New York Times writes:

....And yet, for all these disturbances and shifts, lower-income Americans have more money, experience less poverty, and receive far more safety-net support than their grandparents ever did. Over all, material conditions have improved, not worsened, across the period when their communities have come apart.

Between 1979 and 2010, for instance, the average after-tax income for the poorest quintile of American households rose from $14,800 to $19,200; for the second-poorest quintile, it rose from $29,900 to $39,100.

Meanwhile, per-person antipoverty spending at the state and federal level increased sixfold between 1968 and 2008 — and that’s excluding Medicare, unemployment benefits and Social Security. Despite some conservative skepticism, this spending did reduce the poverty rate (though probably more so after welfare reform). One plausible estimate suggests the rate fell from 26 percent in 1967 to 15 percent in 2012, and child poverty fell as well.
But the basic point is this: In a substantially poorer American past with a much thinner safety net, lower-income Americans found a way to cultivate monogamy, fidelity, sobriety and thrift to an extent that they have not in our richer, higher-spending present.
But let us look at what has happened to the basics - housing, health care and education.

The median and average new house prices in the US from the Census Bureau:
Jan 1979 Median: $60,300 Average: $67,700
Jan 2010 Median: $218,200 Average: $283,400

So the average new home price rose from 4.6 times of the lowest quintile's average income to 14.8 times over 1979 to 2012.

The next set of numbers comes from Affording Health Care and Education on the Minimum Wage by John Schmitt and Marie-Eve Augier from the Center of Economic and Policy Research (PDF).  It is expressed in terms of the minimum wage, but the point to take away is the dramatic increase in costs.

On health-care:
Health-insurance premiums have also increased enormously when expressed in terms of the minimum wage. In 1979, one year of individual health insurance coverage cost a minimum-wage worker 130 hours. By 2011, the same coverage cost 749 hours. (See Figure 2.)

The cost of family coverage increased from 329 hours in 1979 to 2,079 hours in 2011. These figures imply that after paying for family health insurance coverage, a minimum-wage worker would have just one hour’s worth of wages left over to spend on other goods and services after working 40 hours per week for 52 weeks in a year.

On higher education:
A minimum-wage worker in 1979, making $2.90 per hour, had to work 254 hours in a year to pay the $738 annual cost of tuition at a public four-year college. By 2010, minimum- wage workers at $7.25 per hour had to spend 923 hours to cover the $6,695 annual tuition at a public four-year college. (All our calculations ignore taxes and subsidies. More on that later.) (See Figure 1.)

In 1979, a four-year private college required 1,112 hours of work at the minimum wage. By 2010, the cost in minimum-wage hours had increased so much that it was no longer possible to pay for a full year of a private four- year college–3,201 hours–by working full-year, full- time (2080 hours) at the minimum wage.

Even the minimum-wage hours needed to pay tuition for one year at a two- year college almost tripled between 1979 and 2010, from 156 hours to 403 hours.

To be sure, the authors point out that government help has made the cost of higher education less onerous than the above simple arithmetic makes it out to be.  And the article was written in 2012, before Obamacare helped or arrested the worsening situation with respect to health-care for many Americans.

The narrative competing with Douthat's is that it was much harder in 2012 for a family to earn enough to cover housing, health-care and higher education than in 1979.  And even if monogamy, fidelity, thrift and sobriety were more in 1979 than today, people in 1979 were still in the mind-set of an era of increasing general prosperity.  No culture can withstand the great deterioration of economic expectations that occurred over the past 30 years.  At some point, fatigue sets in and the faith that things can be better evaporates.