America says it has got poorer. That's rich

[garbon]

http://news.yahoo.com/america-says-got-poorer-thats-rich-151011111.html

The U.S. Census Bureau says the median American household's income was 1.3 percent lower in 2012 than in 1989 after adjusting for inflation. That suggests stagnant American consumption for the last 24 years. That assertion is not as ridiculous as North Korean propaganda about the United States - "their houses blow down very easily and they have to live in tents" - but it's still misleading.

To start, the country is currently enjoying the fruits of major technological advances in electronics. In 1989, there were almost no mobile phones. Today, more than 90 percent of American adults have one, according to the Pew Internet and American Life Project - and more than half of those phones count as "smart". The same project estimates that about 70 percent of U.S. adults are daily internet users, compared to zero in 1989.

Considering the increased consumption of electronic goods, a typical American household could only be poorer now than then if there were matching declines in the consumption of other goods and services. But none of the statistics I could find shows this. On the contrary.

Housing? The government calculates that the average living space per person in the U.S. increased by 15 percent between 1985 and 2005. The newer and bigger dwellings are still standing, so the subsequent housing market bust could not have eliminated the gain, and the increase is far too large to be accounted for entirely by the spread of so-called McMansions for the richest sliver of the population.

Travel? No way. Both car and airline miles traveled per person are up about 12 percent since 1989. Also, overall quality has improved, despite decaying highways. Planes are quieter; cars are both more powerful (80 percent more horsepower on average) and more fuel efficient (11 percent higher miles per gallon).

Healthcare? It's easy to count up how much is spent on healthcare - up from 11 percent to 18 percent of U.S. GDP since 1989 - but there is no good way to measure what all that money actually buys. The basic health trends are positive, despite the vast increase in self-inflicted obesity. For example, American life expectancy at birth is up by 4 percent since 1989 and a 65-year-old can expect to live 12 percent longer.

The environment? The Environmental Protection Agency calculates that emissions of six leading pollutants are down by about 60 percent since 1989. Household income does not capture the consumption of cleaner air and water, but the environmental gains are shared by everyone.

There have also been steady increases in calories consumed and in the average years spent in school (education can be considered a consumption good). So whatever the Census Bureau says, the median household in the United States had enough income in 2012 to consume much more, both in quantity and in quality, than in 1989. The increase is not surprising; it merely continues the two-century trend of improving lifestyles in industrial economies.

Economists, like everyone else, have noticed the flow of more, new and improved products. However, the Census Bureau income report was presented as a tale of long-term stagnation in many professional blogs, including offerings from the Wall Street Journal, the Washington Post and the Huffington Post. Among the numerous comments on these articles, only a handful are skeptical.

Technically, the appearance of stagnation could be erased by changing what are known as "hedonic" or quality adjustments. For example, a new car costs 5 percent more than an old one. Some of the increase pays for higher quality and the rest is considered inflation. Economists have to decide how much belongs in each category.

Suppose they have been dividing the car's increase as 3 percent inflation and 2 percent quality. They could decide that the split is more like 6 percent quality and -1 percent inflation - in other words the car has actually become cheaper, adjusted for quality. Apply that sort of adjustment to everything in the economy and the apparent income stagnation would disappear.

Of course, the reported inflation rate would fall by as much as the growth rate increased. That doesn't correspond to another part of reality - the steadily rising prices of lots of goods and services whose quality has not improved at all.

Economists have some hard questions to answer about their technique. They probably should not try to capture both quality gains and general price trends in a single number. But their problem does not explain the absence of derision that met the Census Bureau's reported stagnation.

I cannot fully explain what is going on. People sometimes seem to have an almost perverse desire to feel relatively poor. Or perhaps the United States' genuine economic problems - such as increasing income inequality, a slow recovery from the recent recession and a harsh job market - put Americans in a funk in which any specious claim can seem plausible.

Whatever the explanation, this is an error ripe for correction.

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

[Jacob]

Housing? The government calculates that the average living space per person in the U.S. increased by 15 percent between 1985 and 2005. The newer and bigger dwellings are still standing, so the subsequent housing market bust could not have eliminated the gain, and the increase is far too large to be accounted for entirely by the spread of so-called McMansions for the richest sliver of the population.

Travel? No way. Both car and airline miles traveled per person are up about 12 percent since 1989. Also, overall quality has improved, despite decaying highways. Planes are quieter; cars are both more powerful (80 percent more horsepower on average) and more fuel efficient (11 percent higher miles per gallon).

Healthcare? It's easy to count up how much is spent on healthcare - up from 11 percent to 18 percent of U.S. GDP since 1989 - but there is no good way to measure what all that money actually buys.

Increasing averages are great and all, but if there's an increase in disparities of wealth and income it doesn't really counter claims of increasing poverty.  If the richest have experienced a manifold increase in income and spending (and travel and housing space) that can very well bring up the averages while the poorer experience a decline in those self-same measurements.

There have also been steady increases in calories consumed and in the average years spent in school (education can be considered a consumption good). So whatever the Census Bureau says, the median household in the United States had enough income in 2012 to consume much more, both in quantity and in quality, than in 1989. The increase is not surprising; it merely continues the two-century trend of improving lifestyles in industrial economies.

Given the well documented links between spreading obesity and poverty, it is disingenuous to use an increase in caloric intake to support an argument that poverty is diminishing.

[Admiral Yi]

The World Bank uses that disingenuous measure of poverty.

[Jacob]

The World Bank uses that disingenuous measure of poverty.

I think it's less disingenuous in places where calories are at a premium. When you're looking at North Korea or Bangladesh it makes sense.

I think it's less applicable in a place where government subsidies make high fructose corn syrup incredibly cheap and prevalent in the food supply, and where richer people consume fewer calories than the poor.

[crazy canuck]

The World Bank uses that disingenuous measure of poverty.

Not exactly known for being the seat of wisdom 

[Admiral Yi]

I think it's less disingenuous in places where calories are at a premium. When you're looking at North Korea or Bangladesh it makes sense.

I think it's less applicable in a place where government subsidies make high fructose corn syrup incredibly cheap and prevalent in the food supply, and where richer people consume fewer calories than the poor.

Defining poverty by what poor people do more of than rich people is circular reasoning.

Food, after air and water, is the most basic of human needs.  An objective measure of poverty should look at the extent to which basic needs are being met.

[crazy canuck]

I think it's less disingenuous in places where calories are at a premium. When you're looking at North Korea or Bangladesh it makes sense.

I think it's less applicable in a place where government subsidies make high fructose corn syrup incredibly cheap and prevalent in the food supply, and where richer people consume fewer calories than the poor.

Defining poverty by what poor people do more of than rich people is circular reasoning.

Food, after air and water, is the most basic of human needs.  An objective measure of poverty should look at the extent to which basic needs are being met.

Agreed.  But in the case of the US high caloric intake of unhealthy foods does indicate that basic needs are not being met.

[garbon]

Housing? The government calculates that the average living space per person in the U.S. increased by 15 percent between 1985 and 2005. The newer and bigger dwellings are still standing, so the subsequent housing market bust could not have eliminated the gain, and the increase is far too large to be accounted for entirely by the spread of so-called McMansions for the richest sliver of the population.

Travel? No way. Both car and airline miles traveled per person are up about 12 percent since 1989. Also, overall quality has improved, despite decaying highways. Planes are quieter; cars are both more powerful (80 percent more horsepower on average) and more fuel efficient (11 percent higher miles per gallon).

Healthcare? It's easy to count up how much is spent on healthcare - up from 11 percent to 18 percent of U.S. GDP since 1989 - but there is no good way to measure what all that money actually buys.

Increasing averages are great and all, but if there's an increase in disparities of wealth and income it doesn't really counter claims of increasing poverty.  If the richest have experienced a manifold increase in income and spending (and travel and housing space) that can very well bring up the averages while the poorer experience a decline in those self-same measurements.

Well he did seem to suggest that the increase in housing space isn't driven primarily by the rich.  Also seems unlikely on the car mileage front that it is the rich that are driving those increases. Not saying, of course that increase in miles driven by car is a positive (though I'd say cars getting better probably is).

[garbon]

I think it's less disingenuous in places where calories are at a premium. When you're looking at North Korea or Bangladesh it makes sense.

I think it's less applicable in a place where government subsidies make high fructose corn syrup incredibly cheap and prevalent in the food supply, and where richer people consume fewer calories than the poor.

Defining poverty by what poor people do more of than rich people is circular reasoning.

Food, after air and water, is the most basic of human needs.  An objective measure of poverty should look at the extent to which basic needs are being met.

Agreed.  But in the case of the US high caloric intake of unhealthy foods does indicate that basic needs are not being met.

Well apparently they aren't dying sooner so...

[crazy canuck]

I think it's less disingenuous in places where calories are at a premium. When you're looking at North Korea or Bangladesh it makes sense.

I think it's less applicable in a place where government subsidies make high fructose corn syrup incredibly cheap and prevalent in the food supply, and where richer people consume fewer calories than the poor.

Defining poverty by what poor people do more of than rich people is circular reasoning.

Food, after air and water, is the most basic of human needs.  An objective measure of poverty should look at the extent to which basic needs are being met.

Agreed.  But in the case of the US high caloric intake of unhealthy foods does indicate that basic needs are not being met.

Well apparently they aren't dying sooner so...

So the cost simply gets passed into higher medical care costs.  Not sure how one can ignore the source of the calories when making a judgment as to whether there has been improvement.

[Malthus]

Increasing averages are great and all, but if there's an increase in disparities of wealth and income it doesn't really counter claims of increasing poverty.  If the richest have experienced a manifold increase in income and spending (and travel and housing space) that can very well bring up the averages while the poorer experience a decline in those self-same measurements.

I agree, though I'd point out that the issue isn't "poverty" but rather "stagnation" - that the median income has fallen by some small amount, rather than increasing.

This guy's argument is that the impression of stagnation is perverse, because averages of various measures are increasing. Without more info, seems to me his argument isn't convincing, for the reason you state - averages going up while the median income stagnates makes perfect sense with two trends in mind: the increasing (and truly impressive) wealth disparity between classes; and a wealth disparity between generations. Young people (or even middle-age people) being unable to get jobs leads to a feeling of stagnation, with good reason, even if the average size of houses and miles of travel are increasing.

[garbon]

I think it's less disingenuous in places where calories are at a premium. When you're looking at North Korea or Bangladesh it makes sense.

I think it's less applicable in a place where government subsidies make high fructose corn syrup incredibly cheap and prevalent in the food supply, and where richer people consume fewer calories than the poor.

Defining poverty by what poor people do more of than rich people is circular reasoning.

Food, after air and water, is the most basic of human needs.  An objective measure of poverty should look at the extent to which basic needs are being met.

Agreed.  But in the case of the US high caloric intake of unhealthy foods does indicate that basic needs are not being met.

Well apparently they aren't dying sooner so...

So the cost simply gets passed into higher medical care costs.  Not sure how one can ignore the source of the calories when making a judgment as to whether there has been improvement.

Are high medical costs now a determinate that basic needs aren't met?

Not say that your quoted post isn't correct, but that's nothing with regards to basic needs being unmet.

[Eddie Teach]

Food, after air and water, is the most basic of human needs.  An objective measure of poverty should look at the extent to which basic needs are being met.

Sure, but the author was comparing two situations where both had basic needs being met. Unlike other consumer goods, overconsumption of food has a tangibly negative effect on somebody's standard of living.

[crazy canuck]

Are high medical costs now a determinate that basic needs aren't met?

Not say that your quoted post isn't correct, but that's nothing with regards to basic needs being unmet.

Well if people are more prone to being inflicted by illness and disease because of their diet then I think the answer is a resounding yes.

[garbon]

Are high medical costs now a determinate that basic needs aren't met?

Not say that your quoted post isn't correct, but that's nothing with regards to basic needs being unmet.

Well if people are more prone to being inflicted by illness and disease because of their diet then I think the answer is a resounding yes.

Then we disagree on what the term "basic needs" means.