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The Economic Condition of Poor Americans (and the rest of us) Continues to Improve

Steven Horwitz

As many of you know, this is a set of data I've followed closely over the years (as has Don Boudreaux among others).  The Census Bureau just released the 2005 data on what households have (HT: Ariel Goldring) and it has allowed me to update my data.  In addition, I've also rendered the data more consistent.  Each column on the poor below reflects households below the poverty line.  In previous iterations I had said it was the "lowest quintile."  I've discovered that some of my data was that, but the older stuff was "below the poverty line."  I've now made it all poverty line as the cutoff.  Here's the historical data:

% Households with:	Poor 1984	Poor  1994	Poor 2003	Poor 2005	All 1971	All 2005
Washing machine	58.2	71.7	67.0	68.7	71.3	84.0
Clothes dryer	35.6	50.2	58.5	61.2	44.5	81.2
Dishwasher	13.6	19.6	33.9	36.7	18.8	64.0
Refrigerator	95.8	97.9	98.2	98.5	83.3	99.3
Freezer	29.2	28.6	25.4	25.1	32.2	36.6
Stove	95.2	97.7	97.1	97.0	87.0	98.8
Microwave	12.5	60.0	88.7	91.2	1.0	96.4
Color TV	70.3	92.5	96.8	97.4	43.3	98.9
VCR	3.4	59.7	75.4	83.6	0.0	92.2
Personal computer	2.9	7.4	36.0	42.4	0.0	67.1
Telephone	71.0	76.7	87.3	79.8	93.0	90.6
Air conditioner	42.5	49.6	77.7	78.8	31.8	85.7
Cellular Telephone			34.7	48.3	0.0	71.3
One or more cars	64.1	71.8	72.8 (2001)		79.5
source:  http://www.census.gov/population/www/socdemo/extended-05.html and prior years

I think these data largely speak for themselves.  The only categories where the poor have become "worse off" are in freezers (likely due to more being built into fridges) and now telephones, which is, of course, explained by the gains in cell phones. Stoves are down slightly, but that too could be due to swapping regular stoves for microwaves or even toaster ovens.  In any case, it's a pretty small decline.

The overall lesson is clear:  lives for Americans below the poverty line continue to get better in terms of what they are able to put in their households and have to make use of everyday. And do note that the average American household in 2005 was doing much better than its 1971 counterpart.  MUCH better - and this doesn't even count medical advances and the like.  So whatever one hears about stagnating wages and the like, the bottom line is ultimately what we can afford to buy and have in our households to improve our lives.  By those measures, life for the average American is better today than 35 years ago, life for poor Americans is much better than it was 35 years ago, and poor Americans today largely live better than the average American did 35 years ago.  Hard to square with a narrative of economic stagnation or decline.

What the current policy regime holds for the future remains, of course, to be seen.  But to use Pete's terms:  as long as the Schumpeterian horse of innovation and the Smithian horse of the gains from trade outrun the Government horse of stupidity, the winners will continue to be you, me and our children and grandchildren, even if the stupid horse is running a bit faster than it used to.

Posted by Steve Horwitz on November 27, 2009 at 02:28 PM | Permalink

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Comments

Interesting data. It would be interesting to look at the relative prices of things compared to income. Also, how does this data square with the data showing real income being flat over these years? How have consumers' balance sheets changed--more debt perhaps? Also, how many now are two income households? Technical progress? It would be a good idea to control for these factors.

Posted by: Andy | November 27, 2009 at 03:44 PM

Andy:

I think the whole point is that the real cost of most goods (in terms of how many hours of work we need to engage in to afford them) has fallen dramatically, thus enabling all of us, and especially the poor, to have more. Even if wages have been flat, those wages buy more than they used to.

The data about real income being flat is misleading, if it's median household income. Just because the median is flat doesn't mean that people aren't getting richer. If new entrants into the distribution (e.g., young people and immigrants) come in below the median, it's possible for a majority of the people in year X to be richer in year Y and for the median to fall.

Yes, more households are two income, but that's a further sign of our wealth: more women are sufficiently productive and the demand is there for their labor to enable them to be employed. Not to mention that the falling cost of most goods means that it's cheaper to buy substitutes for household production than to devote labor to it.

Technical progress is surely part of why stuff costs less, but that's just another way of saying it's making us richer.

As for debt...the best data I can find quickly tells us that poor households are likely to have more debt and are more likely to file for bankruptcy, BUT their situation compared to other income groups hasn't changed much since the early 1990s. Here's a quick overview from the Congressional Research Service: http://www.bnatax.com/webwatch/bankruptcycrs3.pdf

So *increased* relative debt of the poor doesn't seem to explain them having more stuff. I'd argue the lower real costs of goods plus the slow increases in real income do.

Posted by: Steve Horwitz | November 27, 2009 at 04:01 PM

I try to make points similar to this in classes I teach. However, here I should say that recently I saw a Thanksgiving Day menu from the Plaza Hotel from 1899. My first reaction was: I if had the money I have now at that time, look at all of the nice things I could order. I'd be rich. But the reality is I'd be poor. If I had gotten a simple bacterial infection from some of the raw shell fish or even something worse, I'd probably die.

This reminds me of Mandeville saying in the *mid 18th century* that "the poor lived better than the rich before."

Posted by: Mario Rizzo | November 27, 2009 at 04:39 PM

Actually, I think that more households are single income because there are more unmarried singles than there were several decades ago. But I don't know what the short term trends are. That's certainly been a bias in average household income measures for some time now.

Your figures are consistent with the stats showing that consumption based inequality trends are much flatter than for pretax income.

Posted by: cornish | November 27, 2009 at 04:43 PM

Here is an excellent (and ungated) article from The Economist on the declining significance of inequality.

http://www.econ.upenn.edu/~dkrueger/press/economist.pdf

Posted by: Mario Rizzo | November 27, 2009 at 05:13 PM

You do realise that your entire argument is a non-sequitur. Wages have been stagnating and a diminishing for the American middle class, which has all sorts of negative effects, and you don't disprove it. Instead, you simply show what amounts to a largely natural and unrelated development in technology and manifacture, which has dropped the prices and availability of these products. Wages don't keep up with productivity, people have to work more to stay afloat. This doesn't create a enjoyable life: it creates a life of insecurity and less personal time, which isn't enough compensated with shitloads of often useless stuff.

Posted by: Kell | November 27, 2009 at 05:22 PM

Well Kell, you're actually wrong. Americans have more leisure time than ever (see Cox and Alm on this) and when you include non-wage compensation, total compensation continues to climb.

As for the middle class, you're right, it is getting smaller, mostly because people are moving up. Check out this Washington Post piece from two years ago: http://www.washingtonpost.com/wp-dyn/content/article/2007/12/21/AR2007122101556.html and you might check out this earlier blog post of mine: http://austrianeconomists.typepad.com/weblog/2009/08/more-evidence-that-were-all-getting-richer.html Here's the key finding from that last link: "Let me repeat that: over 30% of US households in 2006 earned above $75K compared to under 20% in 1980. Over the same period, the percentage of US households earning under $35K fell from 42.8% to 36.7%. Fewer households are poor, fewer are middle class, and a hunk more are above $75K."

Finally, there is nothing "natural" about development in technology. It happens because we still have free enough markets to turn new ideas into innovations and continue to reduce costs in the process. It's that very process of cheaper production costs that enables more of us to have higher household incomes and consume more in the process. Plenty of places in the world don't reap those benefits, so it's hardly natural. And oh yeah, they're pretty poor.

I think there's a lot of poor folks who are happy to have what you call "useless stuff" that our parents or grandparents didn't or couldn't afford, like the cell phone that can save your life in a car crash. Referring to life's basics as "useless stuff" is the arrogance of the comfortable. I doubt the poor see it that way.

Posted by: Steve Horwitz | November 27, 2009 at 06:08 PM

The argument here is simplified to the degree that we are not asking what determines the distribution of income (whatever it may be). Gary Becker argues, for example, that human capital makes more of a difference than it used to. So "educated" people are more productive in relative terms over "uneducated" than they used to be.

In any event, a discussion of how much better off we all are now than we used to be is incomplete. What are the factors involved in making people better (or worse off)? Maybe some groups SHOULD be worse off but the welfare state prevents that.

But most statist liberals don't care about anything more than criticizing the market because someone or other doesn't have more of what they think people should have. I find their pop income distribution "ethics" arbitrary and ignorant.

Posted by: Mario Rizzo | November 27, 2009 at 06:29 PM

Prof. Rizzo makes a good point. These numbers also support the alternative hypothesis that "If it were not for the welfare state, the poor would be doing much worse." And the policy conclusion for today that follows is more redistribution (to offset the gains from current and future economic growth to the rich).

How would you refute this competing hypothesis?

Posted by: Will Luther | November 27, 2009 at 08:07 PM

What's to refute? Like Hayek, I favor a certain amount of redistribution. Hayek noted that the market is a "mixed game of skill and chance." I think meritocratic interpretations of the income distribution are probably inappropriate. Even to the extent that the poor are poor because of character flaws, I would still like the the state to ensure they do not drop below the level "consistent with common humanity," as Adam Smith put it. And, of course, that level has risen a lot since Smith's time and even, as Steve points out, in the last 35 years.

Posted by: Roger Koppl | November 27, 2009 at 08:46 PM

Thanks, Steve, for sharing these data. By coincidence, I happened to be reading today about Robert Frank's concept of "positional externalities," which illustrates with great clarity why I find much of behavioral economics absurd (sorry, Roger!). Frank would argue, of course, that Steve's data are incomplete, because they do not take into account the envy that the poor may feel towards other people whose standard of living may have improved even more rapidly than their own. If the (negative) positional externality is big enough, then the poor may actually be worse off due to the increases in productivity and wealth and technological improvements documented by Steve.

Posted by: Peter G. Klein | November 27, 2009 at 08:52 PM

Prof Koppl:
Presumably Steve's hypothesis is that economic growth is good for everyone--including the poorest in society--even without redistribution. My apologies if I have misconstrued his position. But if I haven't, the alternative hypothesis should be addressed.

Posted by: Will Luther | November 27, 2009 at 09:28 PM

I'm curious: What was Hayek's position on redistribution? To what extent and of what nature? And being "consistent with common humanity" sounds nice but is vague. How specifically would one achieve that aim and by whose standard, and that without arbitrariness?

Oh, and wouldn't the prevalence of two-income families in fact indicate a greater number of work hours involved in purchasing the same products?

Posted by: Barbarossa | November 27, 2009 at 10:08 PM

Will,

That is indeed my hypothesis. I also think redistribution attempts generally harm the poor over time. You can read my argument and the data as being just as I argued at the end: the progressive forces of the market are outweighing the stupidity forces of the state.

Posted by: Steve Horwitz | November 27, 2009 at 10:38 PM

Barbarossa: Incorrigible statists like me are terribly vague, it's true. We muddle through without clear standards, babbling on about "sympathy" and similar airy concepts.

Posted by: Roger Koppl | November 27, 2009 at 11:03 PM

Low income Indian rural folks also have superior gadgets and appliances compared to a King from the 15th century. This doesnt make the fact that the peasant is still a peasant go away.It is all relative wrt to your contemporaries. Comparing the past level of comfort doesnt reveal much other than the fact that human beings keep innovating.

By no means should this be construed as a vindication of the fiat money regime of the last 40 years.Correlation is not causation.
Just imagine the tremendous gains eveyone would have IF there stable money to go along with this?

OR should we argue that without all that loose money many of these efficiences wouldnt have come into place -who is to say?. its a hypothesis

Posted by: dsylexic | November 27, 2009 at 11:26 PM

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