Is the middle class being "squeezed?"
By Scott Sumner
A survey by Pew this year found that 57 percent of Americans felt their income was trailing the cost of living — the same proportion who felt so in October 2008 when the Great Recession was raging. Just before the recession began, the figure was 44 percent.
The sensation of being squeezed persists even though the consumer price index, the most widely followed inflation gauge, has risen less than 2 percent a year since the recession ended.
One reason for the disconnect is that the CPI is weighted more heavily toward things people frequently buy — food and gasoline, for example. While child care can be a huge expense for families with young kids, not everyone faces it. So it makes up just 0.7 percent of the consumer price index.
It’s a much bigger bite in the Prosser household, however.
“We used to go out, we used to go to the opera,” Prosser said. But now, “between mortgage, bills and the child care payment, that’s pretty much everything.”
I’m skeptical. But the article did cite a fairly long piece by the Center for American Progress, which contains lots of data showing that between 2000 and 2012 the American middle class was badly squeezed, with a much smaller share of income now available for discretionary purchases like opera. (Go to link to view the graph in an easier to read size):
I thought that if the middle class really was being squeezed, this ought to show up in the GDP accounts. Americans would be spending more on necessities and less on luxuries. There is no category for “opera,” but I did find figures for “recreation” as well as “food service and accommodation” (basically hotel and restaurant.) Then I decided to contrast that with food purchased for eating outside the establishment (which is mostly groceries eaten at home.) Here’s the most recent figures, as a share of GDP, as well as the figures for the second quarter of the 2000 tech boom–which people now see as a sort of golden age:
Groceries: 2000 — 5.24% of GDP
Groceries: 2014 — 5.11% of GDP
Recreation: 2000 — 2.46% of GDP
Recreation: 2014 — 2.56% of GDP
Hotel and Restaurant: 2000 — 3.97% of GDP
Hotel and Restaurant: 2014 — 4.31% of GDP
Now a few comments. Yes, these figures don’t “prove” anything. I can imagine all sorts of objections:
1. The rich are eating out more. (But how big are the stomachs of the top 1%? And weren’t the rich already eating out as much as they wanted in 2000?)
2. People are switching to fast foods. (But isn’t McDonald’s in steep decline?)
3. The cost disease in services. (But haven’t you guys been telling me that wages for low paid workers like waitresses are stagnating? The cost disease is based on wages rising fast.)
And I’m sure there are lots of other objections. But the facts are clear. Americans are spending a larger and larger share of their incomes on luxuries, and a smaller and smaller share of their income on necessities like food. I’ll leave it to others to decide whether this sort of consumer behavior is what you’d expect from a country where living standards were supposedly being squeezed.
PS. “Breastaurants” are also booming — and somehow I don’t think that’s just the top 1%.