Saturday, February 29, 2020
Tuesday, February 25, 2020
This chart is the best explanation of middle-class finances you will ever see
So why, then, do so many of us feel like we can barely make ends meet?
A new report published by the Manhattan Institute, a conservative think tank, offers a clear explanation for the disconnect between the economy described by economists and the one experienced by regular people. It all boils down to the startling shift illustrated in the chart below.
Lead author Oren Cass distills it as follows: "In 1985, the typical male worker could cover a family of four's major expenditures (housing, health care, transportation, education) on 30 weeks of salary," he wrote on Twitter last week. "By 2018 it took 53 weeks. Which is a problem, there being 52 weeks in a year."
Cass calls this calculation the Cost-of-Thriving Index. It measures the median male annual salary against four major household expenditures:
- Housing, defined as the annual rent for a three-bedroom house in the 40th percentile of the local housing market.
- Health care, defined as the annual premium on a typical family health insurance policy.
- Transportation, defined as the average cost of owning and operating a car driven 15,000 miles per year.
- Education, defined as the average cost of tuition, fees, and room and board at a four-year public college.
In 1985, the typical male breadwinner could cover those costs and still have 22 weeks of pay left for everything else a family wants and needs, such as food, clothing, entertainment and savings. Today, the typical salary doesn't even cover the four basics.
It's worth noting that Cass constructed his index around male earnings because men historically were more likely to be sole breadwinners. Plus, polls show that Americans still view men as the primary provider within a family, even though that's increasingly no longer the case
Cass also ran the numbers for female earners, whose median wage is about 80 percent that of men. In 1985, the typical woman needed to work 45 weeks to cover the four big annual expenses; today she needs 66 weeks. That means it was easier for a female breadwinner to provide for her family in 1985 than it is for a lone male earner today.
On the cost side, the decisions are more straightforward. Cass notably bases education costs on one semester of public college. That's because putting two kids through college would require socking away nearly a semester's worth every year for each year of their childhood.
As for health care, even those with employer-sponsored insurance have been steadily contributing more toward their coverage. The share of the non-elderly with employer-sponsored insurance is actually falling, meaning many families are having to purchase health care plans on their own.
Additionally, the cost of health care is a major concern for many families when a parent switches jobs or is laid off for an extended period.
"A generation ago," Cass writes, the typical male worker "could be confident in his ability to provide for his family not only the basics of food, clothing, and shelter but also the middle-class essentials of a comfortable house, a car, health care, and education. Now he cannot."
Families, of course, have had to adapt to conform to these new realities. Families have become reliant on government for health care. People find ways to skimp on medical care. Some are taking on more debt to pay for housing.
But Cass contends that every adjustment represents an economic challenge. If both parents are working, who is supervising the kids after school? What happens if a family is maxed out on their mortgage, then one spouse loses a job? How long can you avoid the doctor before chronic health conditions catch up with you?
It's these realities, Cass writes, that are most salient for the middle-class families who tell pollsters they live paycheck to paycheck and worry that their kids' standard of living will be lower than theirs. Traditional economists might look at the plummeting price of flat-screen TVs as a sign that standards of living are increasing. But how useful is a cheap TV when you can't afford your insulin?
In recent years, long-held orthodoxies about economics have been challenged by a new generation of liberal economists who see the free-market embrace of staggering economic inequality as a threat to everyone's well-being. Similarly, Cass's work pushes back against those same orthodoxies — but this time, from the right.
His concern about what he calls "market fundamentalism" derives from the way those markets are failing American families.
"You can have a rising GDP," he told The Washington Post's James Hohmann last week, "but if it's in the context of collapsing families and people no longer getting married and declining fertility rates and so on and so forth, you haven't necessarily enhanced well-being."