It’s kind of like having real money….
I grew so desperate for any hint of reality in this article in the NY Times denying that the gap between rich and poor is a problem in this country that I ended up doing a Ctrl F search for the word “debt”. All it gave me was the word “debate”. It’s like looking for the word “woman” or “women” or even “girl” in an article defending abortion bans. After a point, the lie of omission becomes the thesis.
The article is the usual denial that growing poverty is a problem—essentially, if the poor have no bread to eat, let them watch TV. The possession of a VCR is considered the only legitimate measure of wealth, which is like arguing that cats are people because we all have eyes. Basic financial security, the hallmark of the American dream, is dismissed as irrelevant. Skeptical? Don’t be.
The top fifth of American households earned an average of $149,963 a year in 2006. As shown in the first accompanying chart, they spent $69,863 on food, clothing, shelter, utilities, transportation, health care and other categories of consumption. The rest of their income went largely to taxes and savings.
The bottom fifth earned just $9,974, but spent nearly twice that — an average of $18,153 a year. How is that possible? A look at the far right-hand column of the consumption chart, labeled “financial flows,” shows why: those lower-income families have access to various sources of spending money that doesn’t fall under taxable income. These sources include portions of sales of property like homes and cars and securities that are not subject to capital gains taxes, insurance policies redeemed, or the drawing down of bank accounts. While some of these families are mired in poverty, many (the exact proportion is unclear) are headed by retirees and those temporarily between jobs, and thus their low income total doesn’t accurately reflect their long-term financial status.
You read it here first—that the poor and working class have to live way beyond their means just to survive is evidence that they’re doing just great! That people are having to let go of what little financial stability they’ve scratched out in order just to survive (what will they do next year?) should be serious cause for alarm, not hand clapping. That the top 5th of the country is saving and the bottom fifth is selling the shirts off their backs to survive is evidence that the gap between the haves and the have nots is serious indeed. And again, there’s absolutely no mention of how many have nots are borrowing to survive—and mind you, survival is what’s at stake. The chart indicates that your average bottom 5th person lives on about $10,000 a year, whereas your top 5th person lives on $22,000 a year (and gets to save on top of that). In case you’re still believing that America has much of a middle class to speak of anymore, it’s worth noting that the middle 5th is much closer to the poverty level 5th—$13,000 a year to live on per person.
At this point, it’s mandatory to bring up the poor-may-not-have-bread-to-eat-but-they-have-VCRs argument.
To understand why consumption is a better guideline of economic prosperity than income, it helps to consider how our lives have changed. Nearly all American families now have refrigerators, stoves, color TVs, telephones and radios. Air-conditioners, cars, VCRs or DVD players, microwave ovens, washing machines, clothes dryers and cellphones have reached more than 80 percent of households.
As the second chart, on the spread of consumption, shows, this wasn’t always so. The conveniences we take for granted today usually began as niche products only a few wealthy families could afford.
It’s true that there’s been changes to the number of things people can buy cheaply in the U.S., which means that your average poverty-stricken family living paycheck to paycheck probably still has a TV set. But that’s exactly why the TV set measure of poverty is bullshit—that TVs are cheap indicates that the money spent on the TV probably wasn’t even enough to open a savings account, much less actually be saved towards any long term goal of financial stability.
The widespread consumption of cheap, disposable goods is not only not an indicator of economic well-being, from what I understand, it can be an indicator of the opposite. People can’t scratch enough money together to invest in their future, so they spend what little disposable income they have on cheap goods. From what I understand, the Great Depression was good for the movie and cosmetics industries precisely because the low price on a lipstick or a movie ticket made these things mini-luxuries that could be had in lieu of buying things like, oh, a house or real clothes. Nowadays, you have the same issue with consolation purchases like TVs and VCRs, but it’s more ominous, because you can buy these things with usurious credit cards, and if you don’t pay them back immediately, that 30% interest rate means that these items aren’t so cheap anymore.
Another form of dishonesty is just the use of the fifths measurement in an economy where the gap between the rich and the rest of us has grown to the point where there’s not enough of a middle class to measure by this method. If you’re in the middle 5th on this chart, you’re far from middle class. You’re falling far short of the income needed to buy a house, which is the basic measure of middle class prosperity. I’d say you’re at about 50% of the annual income it would take. Clearly, with the middle 5th is falling far short of middle class, the fifths method of determining the classes isn’t working anymore.
Honestly, the only way this article could have been more dishonest was if they’d tried to claim that the explosion in the number of debt management books and talk shows under the Bush administration was some sign of working class prosperity.
87 Responses to “Your massive credit card debt means you’re doing great!”
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I think the math here is slightly off — unless I’m misreading something, it’s worse than that. In a top-fifth house there are ca. 3.1 people (according to the article), with 1.7 people in a bottom-fifth house, so with household earnings at ca. $150,000 and $10,000/yr. respectively, that’s about $50,000 per top-fifth person and less than $6,000 per bottom-fifth person. No?
I read that article quite dumbfoundedly, not quite believing that they didn’t mention the “d” word at all, so I’m glad to see you blog about it, Amanda.
They say this like it’s a normal distribution and that the average actually means something there…
I mean, I get the point that poor people are living beyond their means due to the availability of, as you put it, usurious credit cards, but beyond that, what exactly am I supposed to take away here?
Thank you for commenting on this! I saw the article too and it took a few days off my life. The first time I heard the “we all have color tvs therefore no one is poor” argument was in my high school econ class watching a video by the John Stossel. (erlack). I saw through it then and I still don’t buy it. They only people that buy this stuff are either blind, or are wealthy and want to sleep at night without guilt.
I read this the other day and spluttered epithets at the screen for a few moments. I spluttered at SlightlyHip for another bit about - they’re omitting something (a few things) here to create a lie. Thanks for cohering the epithets into a reasoned argument.
great article. I’m in Canada so I’m sure this isn’t perfectly accurate for Canadians… but damn it’s hard to get ahead. I’m always dreaming about owning my own house but unless you make over 60 thousand a year here it’s not a realistic dream and I fall short about 30-40 thousand a year.
There’s this whole attitude I’m tired of hearing about as well, use to hear it around the office all the time, till i got sacked in the wonderful process of downsizing… all the older folks with the suits use to say how much they despised the poor because they said that people who really don’t wanna live that way dont have to… i completely disagree and it’s a very ignorant thing to say. The average house in the Ottawa suburbs is at least 250 thousand. You don’t even wanna know what they go for downtown. In my hometown in Nova Scotia, houses are WAAY cheaper.. You can buy a little bungalo for about 70 thousand…the catch is that its nearly impossible to get a good paying job there, or a job at all. The un-employment rate is ridiculously high. I had to move to a place where it costs twice as much to rent and live just to get a job that will “get me by”. I want a house one day and I’m a hard worker, but I raelly doubt I’ll ever be able to afford a house…thats pretty depressing.
Recession? Poppycock!!! When viewed through my special right-wing decoder ring, the economy is booming!
The thing that pissed me off the most is that they mention cars in the list of consumer goods that are evidence that poor people are living the good life. Maybe in major cities* a car is a luxury but there are large numbers of people that are dependent on a car to get them anywhere that isnt the corner store.
*And this assumes your city has decent transportation.
By “earned” — as in “the top fifth of American households earned…” — the Times apparently means to exclude un-earned income and not bothering to so much as mention wealth (as distinct from income).
Probably the Professional Journalists™ and Times Editors™ are not aware of these incredibly abstruse and obscure ideas. Wealth. Income that’s not taxed.
Because what I make from municipal bonds and my investment portfolio of stocks and the rents on the properties I own, and what “the top fifth of American households earned” from their bonds and stocks and rents are basically the same. Small difference ; let’s ignore it.
Professional Journalism&trade — gotta love it!
WIth kind regards,
Dog, etc.
searching for my coupon-cutting scissors
What really bugs me is the hypnotic-power the Big Money wing of the Rethug party has to convince many of the 30%-ers (most of whom are outside the top 1/5) to vote directly against their own best interests.
Many of those people should be a natural constituency for a “New” New Deal that would address the incredible gap between the haves and the have-nots.
But they are so intoxicated on wingnut Koolaid they can’t see it…
Pretty much every convenience we take for granted today started as a luxury for the rich. Fresh fruit and vegetables in the winter? Air travel? Home computers? You’d be pretty hard-pressed to find anyone who would claim that those things were commonplace thirty or fifty years ago.
You could also argue that the reason we have cheap consumer goods is that wages are stagnant, so consumer goods can’t go beyond a certain price point where people stop buying them. The rich can only listen to so many iPods — you need a price point that’s not painful for most people in order to cell the things.
They’re using “Most Americans have fridges” as an indicator of whether people have money or not?! No, seriously, I’m not saying what you think I’m saying, that is, that a fridge is a basic necessity.
What I am saying is that many people don’t buy their fridges, stoves, or other major appliances. Even in the kind of beat-to-shit rental you can get on a poverty budget most places, a fridge, stove, and sometimes even a dishwasher, washer, and dryer (less frequently) come included.
Also, another reason this index is so skewed is that things like tvs, stereo equipment, and telephone sets (and even, to some extent, computers and cell phones) have been around long enough for them to be scroungeable. Don’t tell me nobody here has ever bummed a tv off a relative who got a new one, or found a perfectly good small appliance or piece of furniture at the curb. Really dedicated scrounges even go dumpster-diving. (I have one friend who lined most of his apartment with metro shelving that he’d scrounged from Manhattan dumpsters.)
Seriously — how many of you, especially those of you out there who’ve been poor for a while, have bought everything you own retail? (*crickets*) Yeah, about what I figured…
It’s almost as though these NYT dim bulbs have lived in their little fluffy white coccoons of wealth and privilege so long they’ve never taken anyone’s cast-off stuff, and they wouldn’t know a Goodwill store if it walked up and bit them in the ass.
Another reason “the poor have TVs” is that they don’t exactly live in the kind of neighborhoods where you can send your kids to the park to play. Or go to the movies. Or let them walk to the library. Indoor entertainment is about all you safely have.
It’s probably important to note here that this is not an article, it’s an op-ed by a couple of officers of the Federal Reserve Bank of Dallas. It isn’t reportage; it’s propaganda.
I think that another part of the promblem is that something like 48% of Americans believe that they will someday be in the top 1% of earners. Obviously this is not going to happen.
Another problem? Greed, everyone wants to get rich, rather than be sustainable.
People forfeit decent opportunities for pipe dreams.
Now I don’t know how many people who read this blog actually fall into the “bottom fifth”, but I am guessing not many. Someone mentioned bad neighborhoods, which is very true in urban areas, but for most of small town America (in which I live) the neighborhoods are decent, it’s just that we are all poor. There aren’t jobs that pay alot here.
This is such a multifaceted problem, it really pisses me off that a ‘reputable’ news source would publish shit like that.
VCRs and DVD players are 20 bucks if you get them at the right time, really. And yeah, they’re a dime a dozen at any Goodwill/second hand shop.
In any case, we don’t have a society that you can actually be poor and actually survive in. It’s not like there’s multitudes of free land out there than one can go live on and eke out a meager existence off the land with.
Western Civilization requires..well..civilization really. Infrastructure. And one of the parts of that is that the concept of the self-reliant poor is unworkable.
And lets be honest. Attempts made by poorer folk to eke out some aspect of dignity in our culture, even if only for today..how can you blame people for that?
Thank you, Interrobang. And when it comes to VCRs, it seems that people who own them have probably owned them for a while, seeing as how people aren’t really doing their weekend splurging on a faincy new VCR nowadays. Hell, I have a VCR, but it’s ten years old. Am I rich now, and could my paycheck please be changed to reflect that fact? My dresser cost $10 at a yard sale, my couch and bed are both gifts from my in-laws, half my clothes are Mom’s hand-me-downs. I even have an exercise bike (20+ years old and so broken it provides no resistance at all). But after reading that article, I feel like a regular Miss Moneybags! Filets and foie gras for everybody!
These articles tend to be aimed at an audience in their 50s and 60s. Why? Because for them the idea of more than phone or even a TV was a major purchase when growing up. Now of course not so much. TV is the cheapest form of entertainment available outside of books and radio (I bet if you looked 40 years ago you’d probably get the same argument, just subbing radio for TV) and at $30 a month for cable hundreds of hours of entertainment for the price of a nosebleed NBA ticket.
I bought my TV & DVD player as a combo deal at Target for $130 several years ago when I had a then-steady job, a running car, and a roommate helping out.
It costs $500 to start a savings account that you won’t lose money on at our local banks - and that was true 10 years ago.
If you don’t keep a minimum balance of $500 - they raised it from $100 ten years ago or so - then they bill you each month so you’re better off keeping it in a teapot or coffee can instead.
But facts don’t matter in Conservatarian (or Liberaltarian) land, for the inhabitants of Planet Privelege.
I just did a long post on how “Bad Choices” is the new “Short Skirt” meme for the selfish, Reagan Dems and registered R alik, in this country.
Don’t tell me nobody here has ever bummed a tv off a relative who got a new one, or found a perfectly good small appliance or piece of furniture at the curb. Really dedicated scrounges even go dumpster-diving. (I have one friend who lined most of his apartment with metro shelving that he’d scrounged from Manhattan dumpsters.)
Thank you! And you’d think the growth in second-hand shops would be a data point, too, right? Especially the rise of “higher end” consignment clothing stores that resell last season’s fashions (from people who can afford to change out their wardrobe every season, I guess) and the outlet stores for high-end retailers like Nordstroms.
Back when I was a grad student, the combination of a healthy used furniture market and people with disposable income who would just throw stuff away made it really easy for me to have a lot of modern conveniences.
However, had I not been a student and had I had to face the issue of saving for retirement, feeding a family, and dealing with increasing food and gas expenses, I would have been seriously hurting regardless of my ability to snag a VCR from someone who wanted to get rid of his.
Rob really nails this one. This is tailored specifically to people who remember when buying certain consumer electronics was a major event. You know what’s a major sacrifice for me now? Trying to pay down my student loans and still keep up my IRA and 401(k) contributions while the costs of commuting approach $200/month. Coffee makers and VCRs can be had for a pittance at your average Salvation Army or flea market.
Thanks for writing this. I swear sometimes I wish I didn’t have two functioning brain cells to rub together when I read these “let them eat cake” articles, it just hurts my brain too much to finish them.
And speaking of brain damage, there must be something truly koolaidy about the water they’re serving out in those economics departments - or do they drink high class champagne all the time, as it is delivered by the tankerfull by their grateful richest-two-percent-who-fund-economics-tenured-professorships?
Seriously, don’t send your kids to study economics. It is so ideological they need to self-lobotomize to get the problem sets done, and by the time they have their bachelors, they’d as soon sell you to help the magic hand make dog food out of old people than pretend they care about anyone who doesn’t contribute directly to their salary.
Your usual mode of operation - search hard for something to be outraged about, extrapolate wildly from it, and ascribe hysterically evil motives to the author - is entertaining when it’s aimed at anti-gay wingnuts.
It fails badly when applied to economics.
The article made a fairly narrow point about measuring wealth, one which is dramatized by blunt metrics like “the average of the top twenty percent”. Yeah, yeah, it’s not a great metric and I could aim pages of criticism at it. But what else is new. Just because these metrics didn’t grind YOUR axe about the economy doesn’t mean that the article is “denying” reality. In fact, it’s offering a useful grain of salt that should be applied when evaluating any statement about inequality.
i don’t think there’s been a single “new” thing in any of my apartments since my (now soon-to-be-ex) husband and i got married. at that time we did splurge on a new DVD player–at Target. but i suppose to the NYT my 300 sq feet studio is freakin’ Xanadu…
Seating (free, off craigslist)! An eating surface! (borrowed, from the ma) A (seven year old) TV!
Two, count em, TWO semi-operational radiators! a half-size fridge! Windows with ACTUAL GLASS! why…it’s a palace!
Shorter Tony:
Silly Amanda! Don’t you realize that economics are just to hard for your female brain to understand? If god didn’t want the poor to be fleeced, he wouldn’t have made them sheep. Besides, I got mine - screw everyone else…
When I started grad school (and I was just broke, not poor), I slept on a pile of quilts, my computer “desk” was made out of old textbooks, I didn’t own a chair, and I was living in an apartment so scary that I lied to my mother about it. I once woke up to find it surrounded by police cars - but by that time I was used to it, and they were gone by the time I got out of the shower.
My point? I still had a TV and computer. The computer was used, but absolutely essential for continuing my education. The TV wasn’t essential, but it was dirt cheap. And what else was I supposed to do, since I couldn’t afford to go out on weekends? To call either item a luxury displays the ignorance of someone who’s never had to do without either item.
And, to continue Amanda’s point about the whole article, when I worked in consumer lending, it was a game for my boss and myself to find the worst car loans on people’s credit reports. One poor guy was paying 43% interest on his loan. 36% wasn’t even unusual.
Er, Tony?
The whole point of the article was to spout bad-math-worse-thinking-mumbo-jumbo to obfuscate the fact that poor people are
1. poor as all hell, and a fuckload poorer than rich people, by which I mean more than an order of magnitude
2. needing to spend more than they earn just to stay alive, with consequences of debt and massive insecurity.
But, you know, Amanda is just a silly girl! She can’t understand sophisticated economic statistics which dramatize stuff! Well so am I. And I just happen to have a PhD in physics from MIT, and can think faster and do better statistics than any economist.
So, ja, stuff it.
Maybe in major cities* a car is a luxury but there are large numbers of people that are dependent on a car to get them anywhere that isnt the corner store.
Exactly. And I live in a largish town/smallish city where development has been completely insane, and the corner store doesn’t even exist for most people. The closest I have, for example, is a gas station. You absolutely have to have a car here.
And cell phones? It’s cheaper and more convenient now to just have a cell phone and no land line. For people who might not be living in one place long-term a cell phone is a huge savings.
Perhaps we should devise a new busing scheme, whereby the walled-in rich and bused the the walled-in prisons and bases of the poor…and vice versa. Might build character.
Tony, I don’t have to scrounge. I do believe this bullshit was published in a major American newspaper. Your inability to understand the verb “scrounge” sets a baseline of stupid that makes it likely your economic understanding is completely backwards.
I don’t think I’ll ever get to a point where all my stuff is new. Most of my furniture is used, and before I moved in with Marc, change the word “most” to “all”.
I am no expert, but that number CAN’T be right. Anyone willing to throw some light on this?
This whole article could probably be summarized as “What more do you (poor people) want? YOU HAVE TVs!” which is analogous to “What more do you (women) want? YOU HAVE THE VOTE!”. It’s all the same monster.
“I am no expert, but that number CAN’T be right. Anyone willing to throw some light on this?”
Considering that the top 1/5th includes Bill Gates, the Sam Walton heirs, and all of the other billionaires and millionaires in the country, that number doesn’t sound off at all.
Even though that top 1/5th includes a lot of people making $100,000 or less (I don’t know what the minimum qualifying amount is), you balance that against the top 1% and it skews the average for that 1/5th way up…
Over and over on the front page of msn.com I saw the phrase: “Why you’ll never own a house.”
That phrase woke me up this morning.
But, hey… The ‘upper fifth’s’ money is doing well today. The market is up…
Amanda writes:
Your inability to understand the verb “scrounge” sets a baseline of stupid
The word “scrounge” does not appear in the article, in your post, or in my comment - only other commenters have used it. So I don’t know WTF you are talking about; perhaps this bizarre response sets a baseline of its own.
Glass houses and all that.
Add me to the list of those for whom the “poor people have stuff, therefore they’re not poor!” argument never makes sense. It’s like claiming that because we don’t have anyone breaking out in pestilential buboes, then therefore our health care system is totally great. Could historical and social contexts possibly be important here? Why yes, I think they are.
You know, if people who work in this economy can’t afford to buy the very things they make or produce, then the economy is killing itself. Even back in the bad old days, some people got that. Now you’ve got WalMart workers applying for food stamps, as well as low-ranking military.
Another factor is crime: with so many people struggling to survive, is it any surprise that some turn to crime? The situation practically demands dishonesty to survive, and then the top percent looks down their noses at what they call the inherent moral inferiority of the lower classes.
OK, so the ‘poor’ are consumers. Ok. And what happens when they can’t consume because the ‘rich’ have made it impossible to find work and get credit and even sell their belongings to eat?
What happens when the crime rates skyrocket? What happens when the poor who also can’t get healthcare become the ’sink’ for the next plague that ravages a large country?
I would also note that the majority of the ‘rich’ don’t drive cars ‘made in America’, although that’s become fairly meaningless now. They also don’t tend to shop at Wal-Mart or eat at McDonalds. Are the rich going to start having to support McDonalds and Burger King, Wendy’s, etc, because the ‘poor’ can’t afford to buy their shitty crap ‘food’?
The ‘rich’ have forgotten who really supports the economy.
I’d urge everyone to save their pat on the head ’stimulus’ gift, or pay off some debt.
Tony, in her defense, you did claim that Amanda had to “search hard” to find an article that appeared in the most valuable piece of newspaper real estate in the New York Times. Seriously, WTF were you thinking when you wrote that?
Pinky, that’s exactly what happens—-crime rates skyrocket, uninsured people force hospitals out of business, and the economy goes into free fall. Corporations value fast profit these days over long term investment. Look at the shark like tendencies of credit card companies. Look at the result.
Yes, maybe Tony could tell us the difference between “search hard” and “scrounge”? I mean, a difference visible to the non-troll eye?
Ginmar, _low_ ranking military? My cousin was a senior NCO with maybe seventeen years of service before he made enough to get his family off of foodstamps.
(Enlisted military are generally underpaid and treated like shit while everyone pays lip-service to their sacrifice. Officers get masters’ degrees and good jobs in the private sector. Officer/enlisted has been a class division since Charles Martel blocked the road to France, through the age of black powder war, and with some exceptions, remains a class division today.)
Fucking hell. That article made me want to punch my screen.
There are so many misleading statistics in there that the article has no value other than that of sheer propaganda. “Average income of the top 1/5th” my skinny white ass. Mrs. F and I together grossed about $90k in 2006, probably six or seven thousand more this year. That puts us in the top 11% of American households, ie, squarely within the middle of the top 1/5th. We have solid middle-class jobs that are unlikely to disappear absent some kind of apocalyptic catastrophe. We save a decent amount every month, plus each of us has good benefits including solid employer contributions to retirement funds. So by any measure, we’re doing great. But we also live in north VA, which is a horrendously expensive place to live. We get by, and get a little bit ahead each month, because all of the following factors apply:
a) we have no children
b) we drive a beat-up 12yo car, and we can share it b/c I walk to work, a privilege relatively few have.
c) we have no taste whatever for luxury goods. We deprogrammed ourselves from consumer culture a long time ago: we shop at Target and Costco, don’t buy jewelry, have had the same TV for years, drink cheap wine from Trader Joe’s, etc. When we eat out, it’s cheap ethnic food in owner-operated restaurants, not posh dining or corporate chains.
d) we both come from upper middle-class families who put us through college: both of us have minor debt from grad school, on the order of $100/mo each. They also helped us with the down payment for our house.
e) both of us are in excellent health and have quality employer-provided insurance.
f) my father is a master carpenter, retired and very bored, and has built us all of the furniture in our house. It’s lovely.
g) we have no outstanding credit card or other consumer debt.
h) we save about $5k/yr because we own rather than rent our house.
Please don’t think I’m tooting our horn. Of those seven factors, only C and G have anything to do with choices either of us has made. If we were from poor families, or had poor health, or both had to drive to work, or a whole host of other factors, we’d be in debt up to our eyeballs. And if you notice, even though we’re halfway through the top 1/5th, we’re only at about 60% of the median income for that fifth. And we’re probably going to get tagged with the goddamn AMT this year.
Think of the number of things that are wrong with a system that puts us so high up the ladder, ie, getting by but nothing like rich, purely as a result of accidents of birth.
Now think of the Republican response to poor people in debt: they got there because they made bad choices. Motherfuckers.
I am no expert, but that number CAN’T be right. Anyone willing to throw some light on this?
The numbers they’re using are salary only. Most rich people don’t draw a salary — they live off investments. So it’s not exactly covering the income of everyone in the country.
Bill Gates wouldn’t affect the numbers, because he doesn’t draw a salary.
Another reason “the poor have TVs” is that they don’t exactly live in the kind of neighborhoods where you can send your kids to the park to play. Or go to the movies. Or let them walk to the library. Indoor entertainment is about all you safely have.
I remember seeing an analogous argument used to claim that there was no farm crisis, since farmers were more likely than other Americans to own swimming pools and satellite TV hookups.
Owning your own satellite dish, say, may be the lap of luxury when you live in the suburbs, but it’s less so in rural areas where if you don’t own your own satellite dish there’s no TV to be had.
Yes, maybe Tony could tell us the difference between “search hard” and “scrounge”?
Look really really carefully. Count the letters. One was something that I wrote, one was something I didn’t write.
See, wasn’t that easy?
What pains me about this article is that I have as deep a commitment to progressive values as anyone. I place inequality above GDP, above economic growth, basically ahead of every other metric in evaluating the value of an industrialized economy. I’m even - GASP - a Canadian! It is not an exaggeration to say that I think about economic inequality every single day, ponder where it comes from, and imagine what might be done about it. It’s almost an obsession.
But when interesting, relevant, surprising, and probably correct points are raised by capitalist- and wealth-friendly sources, and those points are dismissed as nothing more than capitalist propaganda, what sense of hope I hold for those progressive values drains away. There is a substantiative point in this article about how inequality is measured, and because it doesn’t fit in with the rabble-rousing orientation of this blog, that point is not engaged with much seriousness.
In particular, it’s obvious that if the spending of the “lower fifth” in income exceeds that income by a factor of two, this gap cannot reasonably be dominated by borrowing. In fact, one would expect those with lots of debt to close the income/spending gap because their money gets sucked off by interest payments.
So why is it a problem that debt is not mentioned here? Maybe because it’s the only way to rationalize this data with a narrative of rich-versus-poor that MUST be sustained at all times.
I think that the article is, at its core, correct - that measurements of the lowest-income Americans are distorted by including people of high net worth in that figure. I’d think that anyone who cared about inequality would be interested in knowing that.
“The numbers they’re using are salary only. Most rich people don’t draw a salary — they live off investments.”
Good point. There are a good number of people making mid to high 6-figures, and a few that are making 7-figures as salary, but you’re right, most of the really big money is not wages/salaries.
Of course, it spends the same, whether you got it in a paycheck or a check from your brokerage…
Also, that represents another one of those subtle framings that many people would miss (me too) that completely alter the actual meaning of the figures.
But always remember: America is a classless society. Anybody can start out as a janitor and work their way up to CEO. (but it will probably only work if their parents own the company…)
searching for my coupon-cutting scissors
You have a special pair of scissors for cutting coupons? Does your opulence know no bounds?
I agree with the older-target-demographic comments - color TVs? Can you even get black and white ones anymore? Cell phone? I have one, ask me about my landline: nonexistent because it’s just as if not more expensive yet less convenient than the cell. VCR? It’s getting hard to buy a new one that doesn’t have a DVD player in it, because the only reason people still want them is that older users will have a VHS backlog they don’t want to update. My ipod was a bank give-away for opening a checking account. Major appliances? I have them all in my house, but they belong to my landlord.
Having consumer electronics is most certainly not an indicator of major wealth. It may be an indicator that someone is spending money foolishly, but not always, seeing as the ultra-disposable model of consumption means that last year’s model is usually pretty easy to get.
That would explain it, then. Because an average of 150,000 for the top 1/5th sounds WAY too small a number.
Actually, I thought Amanda dismissed them as not being relevant or surprising, and then for being capitalist propaganda.
What they’re doing, even if they don’t fully realize it, is pointing out the crappy quality of the statistics they claim to rely on. When you compare the bottom fifth of income and the bottom fifth of outgo, you’re not even necessarily talking about the same people. There’s nothing in the article that suggests they did the necessary work of tracking the actual consumption of the people in the bottom fifth of the income distribution rather than just asking what the bottom fifth of the spending distribution looked like.
And in general the “well, consumption isn’t as unequal as income” thing is pretty damn stupid because it’s been known for centuries that the poor spend all their money to survive while the rich put a bunch of it into savings and investment. Unless you’re a supporting a clan of cokeheads or collecting yachts and houses (oops, no, those can be considered investments) or have a personal staff the size of disneyworld, above a certain income level, it’s just not feasible to spend as much as you take in. And of course savings and investments have a current-consumption value in and of themselves — it’s a pretty nice feeling going to bed every night knowing that you won’t be homeless and eating out of dumpsters later in life. Worth at least as much as a used VCR.
Are we sure that the black market isn’t responsible for some of the discrepancy? Back when I was making $15,000/year, I couldn’t get any credit company to offer me a card and I doubt that pay day loans could account for people spending twice what they earn (through legal means) every year.
that measurements of the lowest-income Americans are distorted by including people of high net worth in that figure.
If it’s this and not debt that accounts for the difference, why are these phantom rich people only spending an average of 18k a year?
Why are bankruptcy and “get out of debt” services booming while restaurants are closing down?
It’s obvious you either never read this article, or the effort of thinking about it was too much for your poor brave synapses, who finally gave up the ghost. But by all means, continue to slob the knob of the wealthy elite. I’m sure they’re really grateful for your service.
The assumption that a middle class is necessary to keep the the economy going might be wrong. I was reading somewhere how a very large and growing percentage of the economy caters exclusively to the rich. In the end it does not mater if you sell 20 cheap cars or one ultra expensive one at the same price. We could end up with a rich class in obscene opulence while the rest of the country goes Brazilian.
Tony, I think people are disagreeing with you about what the “core” of this article was. Here’s my candidate:
“Looking at a far more direct measure of American families’ economic status — household consumption — indicates that the gap between rich and poor is far less than most assume, and that the abstract, income-based way in which we measure the so-called poverty rate no longer applies to our society.”
If poor people are consuming a lot (not 100% a matter of choice, as was mentioned with reference to cars as transportation and TV/DVDs as the only available recreation), but leveraging their consumption with hella hideous debt and (as the article points out) draining down their bank accounts, I think the gap between rich and poor is still pretty bad.
In fact, one would expect those with lots of debt to close the income/spending gap because their money gets sucked off by interest payments.
No, if they’ve defaulted on their debts they’re probably just sitting in collections.
Found the link
http://www.dailykos.com/storyonly/2007/9/10/173524/806
Unree-
No, he’s claiming that since the poor are spending more than they make, the extra money can’t be debt because turbot fruitcake toothpaste, so it must be rich people living off investments throwing off the average.
All this really proves is that the statistics they’re using are so inexact as to be meaningless.
And the more reasonable metrics we have of measuring this stuff are pretty unanimous that the poor are in debt up to their eyeballs.
Tony, you keep insisting that the article is making clear and relevant points that are probably correct. Since we’re obviously too blinded by our own ideology to see them, could you clarify them please? What exactly about this article do you think is correct and relevant to its thesis? What is its thesis, anyway, if it’s not “the economy is really doing just fine even for the poor!”
“We could end up with a rich class in obscene opulence while the rest of the country goes Brazilian.”
The first half of your statement is already true, and has been true for a long time.
The Rethugs are working hard to turn most of the country into a third-world hell-hole (which will probably end up worse than Brazil…).
Off-topic but not off-topic: The picture of the credit card that accompanies this blog entry is from SheldonBrown. It’s one of his April Fool’s jokes for bicyclists ( links to others are on the same page).
Sheldon was one of the most active and knowledgeable bicycle experts, a true humanist, and for many the reason to follow the newsgroup rec.bicycles.tech. Sheldon unexpectedly died last week. For many of us this meant losing a friend, even if we had never met in person.
Ned in Zurich
Hawt.
that measurements of the lowest-income Americans are distorted by including people of high net worth in that figure.
If it’s this and not debt that accounts for the difference, why are these phantom rich people only spending an average of 18k a year?
I read this as: “elderly grandmothers with very low income, yet who still own a house, some furniture, and have a little bit of savings.” Women like my grandmothers, who have pretty much sold off everything they own because Social Security isn’t enough to make ends meet, and at ninety they aren’t physically able to work anymore. That was their strategy for quite a while though—-sell off stuff to get by. Until there isn’t anything left to sell.
Some (assholes) refuse to admit a person is poor if they literally own something more than the clothes on their back.
While there are a few people who got themselves into debt due to upper/upper-middle class overentitlement as I observed in my Boston area co-workers, they are far from the vast majority of people suffering from predatory credit card banking practices.
The sad thing is that there is a catch-22. If you have credit cards, the credit companies will try to milk you for all you are worth….even if you are a “deadbeat”* like I am. If you attempt to forgo the use of credit cards as several high school/college classmates did, we find ourselves unable to rent apartments or obtain loans because we “do not have a credit history”.
* It is disturbingly revealing how this term is often used by credit card companies to denote people who pay back their credit balances in full each month.
Check. I would also say that in my area, computers are just as disposable as TVs and other disposable electronic goods. I’ve seen machines perfectly usable for basic office applications and internet access* of Pentium II/III/Mac PPC G3 vintage tossed out on at least a monthly basis.
One of the reasons I was able to learn enough about computers to do freelance work in college and beyond to earn extra cash and to cover what my near-full scholarship did not cover was thanks to high school friends who allowed me to muck around on their old computers.
In fact, in the last 15 years I’ve been using/working on computers, the vast majority of the computers I possess were dumped/given to me by clients, friends, and neighbors. In fact, people in my current neighborhood dump so many decent functioning computers that I’ve been giving them away to low-income adolescents and adults who need something for basic office applications and internet access.
*I am typing this message on a Pentium III PC from 2001 that I found abandoned in a dumpster 2 years ago.
“Air-conditioners, cars, VCRs or DVD players, microwave ovens, washing machines, clothes dryers and cellphones have reached more than 80 percent of households.”
Besides the fact that this doesn’t even make much sense (Does that mean over 80% have ALL of these things? Some of them? At least one? How much over 80%), wouldn’t that mean that something like slightly less than 20% of households don’t have them?
In other words, around one-fifth of households don’t have what are now considered the basics for living an all right life. Hm. Where did one fifth come into play before in this article?
Here’s the economic white elephant: While the bottom two thirds are swimming in debt, they can’t get mortgages or auto loans. The mortgage is a problem in places where housing prices have gone up because in many places home prices have and are dropping, yet rental prices are still jacked up. The same people who could benefit from lower housing costs can’t because they’re too far in debt to get a home loan, so they’re stuck paying four figures for a rental when they could get a house for three. This is especially true for areas recovering from disasters. Not being able to get a car is part of the trap that keeps the poor down. As another poster mentioned, many people are dependant on their cars for work because they don’t have access to public transportation. That limits their job options. I know if I lost my car, I’d lose my job shortly there after.
Very rarely are either of those two things mentioned.
Off topic but not off topic: The picture accompanying this post comes from
Sheldon Brown. It illustrates one of Sheldon’t April Fool’s jokes for bicyclists.
Among his many talents, Sheldon was a major figure in promoting bicycling, especially as a source of technical knowledge in the newsgroup rec.bicycles.tech. He unexpectedly died last week, and for many of us it was like losing a friend, even if we had never met.
Ned in Zurich
Jonah “whiny pratt” Goldberg has been pushing this BS for a couple years - IIRC last year he was going “even poor people have telephones, color TVs and Cars! There’s no such thing as poverty in the US” thereby showing how inherited privilege does not actually result in a *literal* aristocracy, in which the best rise to the top.
Wow. That’s what I get for being bad at math — I think you’re right.
And here goes the ‘economy’…
URL: http://www.msnbc.msn.com/id/23131149/
We’d better be getting a HUGE bang for that stimulus package. Isn’t that like an alcoholic having ‘one last binge night’ before quitting?
What they are arguing is that some of the people in the bottom fifth of income really aren’t that poor (as in, they have previously earned a fair amount of money but aren’t right now). This would be one reason that the consumption of the bottom fifth is higher than it might be.
What this says is the bottom fifth of the US in wealth is not equal to the bottom fifth of the US in earnings. This means that the median for the bottom fifth of earnings for the bottom fifth in wealth is probably higher than what’s given. This is true, there are probably some relatively rich people that are in the bottom fifth of earnings.
The reason the article is very misleading is that they use these very same people to look at the average consumption and if we were able to leave out the relatively rich, the change in the average earnings will probably change much less than the average consumption (to see why, suppose there is only one person in the bottom fifth who shouldn’t be there and that it’s Bill Gates who earned nothing in wages but spent $10 billion–if we drop him off, the total earnings might only go up by $20 thousand while the total consumption would go down about $10 billion).
Then, as Amanda, notes there is the increasing debt of the bottom fifth which nobody considers a good thing.
This whole argument is the usual thing: the Romans gave the poor the Circus, we give them gadgets. Neither makes the people better off, but they’re both a way to keep us distracted.
Tony, the point this article is trying to make, which is that there is no widening gap between rich and poor, fails completely because they’re using one measure for the bottom fifth and another for the top fifth. That is:
They first say that the average income is of about 9.000 $ for the bottom 5th while the top 5th has an average 150.000 $ (roughly). And then they ponderate those figures with the data income, which equates to about 18.000 $ for the bottom 5th and 69.000 $ for the top 5th. They explain the big difference between income and spending in the bottom 5th by assuming that an important part of their wealth comes from non-taxable earnings. But they forget two essential things:
One, that a part of those earnings come from the sale of necessary goods - such as houses and cars- or the withdrawal of account savings, which is, indeed, an impoverishment.
And two that, as it’s been pointed over here, the top 5th also has its fair share of people who earn non-taxable goods. Which means that the figures of 150.000$ average income in the top 5th is as skewed, were the article using the same measurements, as that of the bottom 5th. I’m sure the earning gap is way, way higher than what is hinted in the article, and that the specific weight of consumption in the measurement of wealth is way, way lower than it should be.
You know, that’s the first thing I thought of when I read that article too- “They could be doing just fine, OR they could be going into massive soul-crushing debt!” The amount of cognitive dissonance I got was enough to keep me quiet for days.
If you have credit cards, the credit companies will try to milk you for all you are worth….even if you are a “deadbeat”* like I am. If you attempt to forgo the use of credit cards as several high school/college classmates did, we find ourselves unable to rent apartments or obtain loans because we “do not have a credit history”.
Oh, tell me about it. Even if you try to walk the middle ground you get screwed! Seven years of credit history — I got my first card at 18, used it all through college and for three years thereafter while I was working and saving for grad school. Student loan payments on that history too. Go to get my very first apartment (I’d been bumming off the parents to save money) and I had to have Mom co-sign for the apartment. Why? Because I “didn’t have enough lines of credit.” I had just the one card, and because I was responsible about using it, they raised my limit repeatedly. I think, at the time, I had something like a $12,000 limit on the card and habitually carried less than $500 balance. But because it was my ONLY card, they said I didn’t have enough proof of credit.
There is something SERIOUSLY f’d up about our credit systems in general.
Even the “poor people have VCRs and other luxury goods” bit is very misleadingly done. They talk about how these goods have penetrated to “more than 80%” of households, which means well under 90%, otherwise they’d be saying “almost 90%”, which means that well under half the the people in the bottom fifth have these things. In other words, no, the average poor person doesn’t have a DVD player, not even a scrounged one.
Another thing to consider here, by the way, is that doing the numbers by household also completely screws things up, because it makes no sense to say, for example, that the per capita wealth of the Gates household was cut by 80% when he married and had kids. The 1.7 average size for the bottom quintile suggests that, yes, there are a lot of poor widows and widowers in there (along with the homeless singles) to counterbalance the impoverished families. If you’re a family of four in the bottom quintile, even assuming you spend the average amount, your spending per person is about 40% of the number the authors give. (And of course if you’re in the upper quintiles, typically with larger households, the reverse applies — a single person making that kind of money has three times the spending per person as the authors suggest. And since most more-than-2 households included kids, it’s misleading at best to suggest that they account for an adult-equivalent share of either earnings or spending.)
Oh, and one more thing — let’s say that “only” half of the lowest quintile of households is really as bad off as the income numbers suggest. That would “only” be about 10 million households, or about 15-30 million people absolutely destitute in a nation that styles itself the richest in the world.
Hell, I suppose we should be grateful they didn’t call poor people fat.
Hell, I suppose we should be grateful they didn’t call poor people fat.
I guess you didn’t get the memo — turns out that if someone’s fat, that’s automatic proof that they’re not poor. Because, hey, they’re eating enough, right? Right?
/megan mcardle
thank goddess someone important noticed this tripe and called BS on it. Isn’t NYTimes ashamed of itself?
The scary thing is the authors are some of the people who determine FED policy. Republican mindset has seeped so thoroughly into govt that po-folks might just as well give up or start marching on the affluent suburbs.
I wonder if De Long or someone with some credits in economics can assure us that “let them eat debt” and “sure! hawking your life savings is really just like income” are NOT the mainstream definitions for prosperity used by sane economists.
Where was Krugman? Where was Rich? If this goes unanswered, my esteem for the gray lady will be much damaged.
Oh for the good old days when the poor were desparate and sold their daughters cheaply. When the wage slaves toiled for low, low rates for 10 hours a day. When people took any job, even being my servant, to keep the wolf away.
Now these lower orders want health care, vacations, lunch breaks, and pensions. Isn’t it enough for them to know that they are serving the gloriousness that is me?
Next thing you know, they’ll want to eat bread.
People who vote for neo-cons when they themselves are poor;
http://memory-alpha.org/en/wiki/Ferengi
Word to that! Looking around my apartment, here’s what I see:
-Shelves (2), got from a friend who was tossing them
-beige couch, got from stepmother when she combined houses with my dad
-two ottomans that go with the beige couch.
-brown couch (OH NOES THEY DON’T MATCH) that we had when I was growing up. It’s been bounced back and forth between my mom’s, my uncle’s and now it’s mine.
-computer table. I don’t know WHERE this one came from - I think my mom picked it up for like $5 when her old company got bought out and they were cleaning inventory.
-computer chair, a birthday gift from my father.
-low, long table (1 ft high), also hand-me-down of unknown origin
-a nifty little endtable I found by the dumpster one day. It’s perfectly good, I don’t know why someone was throwing it out. I even smelled it, just to be safe (had to get it away from the dumpster first for accurate reading)!
-a chair found at same dumpster.
-blue cushy chair I manhandled for a few blocks on bulky pick-up day (I love bulky pick-up day)
-minifridge from college, currently used only as a lamp stand. The lamp was another “had it growing up” item.
-folding table with two chairs. Gift from mother. Probably $25 at Target or somewhere.
-mattress + box spring, gift from former roommate when he bought a humongous king-sized bed. Prior to that I was on a small twin mattress, on the floor, with a foam pad on top (pretty undersized when you’re well over six feet tall)
So with the exception of the minifridge and computer chair, I don’t think I own a single piece of furniture that WASN’T either dumpster-retrieved, a hand-me-down, or found at a garage sale/clearance sale.
Oh and my computer has been serving me faithfully, with only minor upgrades, since 2001. Best money I ever spent.
I don’t own a television, DVD player, or VCR. Computer takes care of all that for me.
I’m in the bottom sector of the economy. My only income is art sales and Allan’s loan commissions– and with the real estate sector tanked just as Allan finally found a good market niche, we’ve made less than $10,000 between us for several years running. Health issues have limited our ability to do “day jobs”, the fight for disability payments is something I postponed all too long, and we’ve spent nearly all our retirement account money, paying the tax penalty for doing so too early.
I have a TV. Up until December, our television was older than I was. Then grandma moved to a smaller place, and my parents gave me her old and now too big 20″ TV. It is not new enough for digital. It’s the biggest TV I’ve ever had. My DVD came from friends who got it free with a purchase they needed to make.
In a few months, the health issues may be under control. We might have 2 jobs each and build up our savings again, so the one valid point in the article is that poverty might not be permanent.
“Probably correct”? Either they’re correct or they’re not, Tony. If you think they’re right, why not say so? Or is it just that you assume anyone who is “wealth-friendly,” whatever the hell *that* means, must be right because you like having money, too?
(For the record, I’m now in the ridiculously tiny percentage of people with high incomes and I like having money. I just don’t feel that requires me to crap on poor people in the process.)
Samantha–
From what I’ve observed, your situation is pretty common for people at the low end of the income scale. I have a friend who also made less than $10,000, and she had three TVs until recently. All had been gifts, and one was broken and another had a badly fading picture.
I think that the main trouble with this NYT article is the failure to distinguish between low income people who are big consumers, which would include retirees spending down their savings and people spending insurance or inheritance windfalls, and low income earners who consume relatively little. By focusing on the first group, the authors are able to come to the conclusion that real poverty is almost unheard of in the US.
And by ignoring nonmaterial concerns, like the stress that comes from knowing that you might get evicted if you can’t find someone to lend you money, or that you’re one catastrophic illness away from being in debt for the rest of your life, the authors can conclude that being poor isn’t so bad after all.
I wonder if De Long or someone with some credits in economics can assure us that “let them eat debt” and “sure! hawking your life savings is really just like income” are NOT the mainstream definitions for prosperity used by sane economists.
And don’t forget the reverse mortgage, people! Considering that so much of our national economic policy relys on the assumption of inherited wealth (read: “The Hidden Cost of Being African-American”), it’s worse than what you think, and it’s been going on for quite awhile.
LS, what you describe seems to be a feature, not a bug. The interest you have to pay on credits you do not need is a hidden fee on the one credit you do need, payable years in advance.