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Why we're squeezed
Sep. 15th, 2012 12:16 amMy household is not particularly well off, at least not by US standards, but we have a pretty good life: good food, a solid roof over our heads, a number of labor-saving luxuries like a dishwasher and a vacuum cleaner. However, our budget is squeezed.
How are we squeezed? Here are some costs to consider.
The cost of purchasing or renting a home zoomed up over the past couple of decades. One relation of mine got a piece of real estate in a popular urban market in the mid-1990s. That property is, I believe, currently worth some 3-4 times the original purchase price; it might be higher. If it were to be rented out, the rental rate would reflect the increase in the value of the property.
Transportation rates have gone up as well. The cost of purchasing a vehicle has gone up considerably, and public transportation is more expensive than ever--if you live in a part of the country foresighted enough and dense enough to have public transport. If you have one of those increasingly-expensive cars, there are also the rising costs of fuel to consider. Gasoline I was able to find (at a very inexpensive location) for 80 cents a gallon in 1999 is up to $3.90 a gallon today. Yes, any Brits reading this can point and laugh now.
Communication costs have zoomed up through the stratosphere too. While the cellular phone provides a mobility that a landline lacks, it is also considerably pricier as well as the more common option nowadays. A landline that might have cost $40 a month in the late 1990s has been replaced by a cell-phone with rates that can top out over $100 a month today, and it costs that much despite draconian regulations about changing providers and a distinct lack of any service guarantee, unlike with landline plain-old telephone service.
Education costs... when someone I know went to a well-regarded Boston-area university in the mid-to-late 1980s, the annual cost to be an undergraduate including room and board finished at a staggering $20,000 a year. This upcoming year, nearly 25 years later, the annual cost at the same university, again including room and board, is on the order of $57,000.
Cable TV costs... the 1996 telecommunications act which deregulated the cable industry was supposed to encourage savings to cable customers. The average rate paid by a cable subscriber in 1995 was around $23 a month. If you don't get a bundled package, this year it's more like $86 a month.
The cost of accessing the internet isn't coming down either, though at least the rates have stayed relatively constant. The usual means of accessing the internet in the late 1990s was dial-up service, and usually came in at around $20-$25 a month. A standard non-bundled high-speed connection will currently run around $45-50 a month, and that's with speeds far lower than you can get in, say, Singapore.
Childcare costs aren't small either. In the mid-1990s, I lived with someone who got a voucher covering most of the cost of weekly childcare, which otherwise would have been $150 a week or so. My family has (better quality) childcare for my daughter, at $240 a week, but I know of families who are paying $400-500 weekly for childcare.
This doesn't address the ways in which many towns, faced with budget shortfalls, are nickel-and-diming their way to fiscal balance. Many have started charging for items that never required extra fees before: school bus service, trash pick-up, after-school sports, in a few places even the costs of a fire department visit.
Health insurance? I think many of you already know that the cost of health insurance has more than tripled since 1996, even while the cost of deductibles and co-payments (the part you pay before insurance pays out) have done a similar or higher jump. We pay more per capita in the US for health care than any other nation on Earth, and we get a lot less bang for our buck than most other industrialized nations.
The two major things that haven't quite gone up at the rate of inflation? The cost of food and the median wage. Food costs have actually gone down as a percentage of income in the US, but income has stayed basically flat for most workers. Some of you may have seen the graphic, the one showing that the wage of the average worker, in constant dollars, went from $32,000 in 1971 to $29,000 today, while the average at the top (same constant dollars) went from $2 million to $16 million in the same timeframe? Now, constant dollars are not what I referred to above, but to give some idea of what constant dollars would mean? Minimum wage in 1971 was $1.60 an hour. Lots of workers could reasonably expect to earn more than that. If the minimum wage had been indexed to the Consumer Price Index, which it never has been, the minimum wage would be a little over $9 an hour right now, across the country. Currently the federal minimum wage is $7.25 an hour, and has been since 2009.
Is it any wonder why we're squeezed? Housing, transportation, health insurance, communications, home entertainment--all of these have gotten more expensive for everybody at the same time as most people have less and less money to pay these higher and higher rates.
When everybody shared in the wage increases, we built a strong and vibrant economy, one based on middle class demand for goods and services. When the sharing stopped, the middle class started borrowing money to maintain the middle class life, hoping that the money would start coming in sometime via promotions or investments, allowing the debts to be paid. And now, the middle class has pretty much exhausted borrowing. Without middle class demand pushing the demand part of supply-and-demand, the economy is in lousy shape. What do you call an economy with lots of supply and no demand? A sick one. Dare I say, depressed.
The middle class cannot afford to keep borrowing.
The middle class can no longer afford to keep paying for everything piecemeal.
The middle class needs better wages, along with enough jobs to keep people employed.
Is it any wonder why we're squeezed?
How are we squeezed? Here are some costs to consider.
The cost of purchasing or renting a home zoomed up over the past couple of decades. One relation of mine got a piece of real estate in a popular urban market in the mid-1990s. That property is, I believe, currently worth some 3-4 times the original purchase price; it might be higher. If it were to be rented out, the rental rate would reflect the increase in the value of the property.
Transportation rates have gone up as well. The cost of purchasing a vehicle has gone up considerably, and public transportation is more expensive than ever--if you live in a part of the country foresighted enough and dense enough to have public transport. If you have one of those increasingly-expensive cars, there are also the rising costs of fuel to consider. Gasoline I was able to find (at a very inexpensive location) for 80 cents a gallon in 1999 is up to $3.90 a gallon today. Yes, any Brits reading this can point and laugh now.
Communication costs have zoomed up through the stratosphere too. While the cellular phone provides a mobility that a landline lacks, it is also considerably pricier as well as the more common option nowadays. A landline that might have cost $40 a month in the late 1990s has been replaced by a cell-phone with rates that can top out over $100 a month today, and it costs that much despite draconian regulations about changing providers and a distinct lack of any service guarantee, unlike with landline plain-old telephone service.
Education costs... when someone I know went to a well-regarded Boston-area university in the mid-to-late 1980s, the annual cost to be an undergraduate including room and board finished at a staggering $20,000 a year. This upcoming year, nearly 25 years later, the annual cost at the same university, again including room and board, is on the order of $57,000.
Cable TV costs... the 1996 telecommunications act which deregulated the cable industry was supposed to encourage savings to cable customers. The average rate paid by a cable subscriber in 1995 was around $23 a month. If you don't get a bundled package, this year it's more like $86 a month.
The cost of accessing the internet isn't coming down either, though at least the rates have stayed relatively constant. The usual means of accessing the internet in the late 1990s was dial-up service, and usually came in at around $20-$25 a month. A standard non-bundled high-speed connection will currently run around $45-50 a month, and that's with speeds far lower than you can get in, say, Singapore.
Childcare costs aren't small either. In the mid-1990s, I lived with someone who got a voucher covering most of the cost of weekly childcare, which otherwise would have been $150 a week or so. My family has (better quality) childcare for my daughter, at $240 a week, but I know of families who are paying $400-500 weekly for childcare.
This doesn't address the ways in which many towns, faced with budget shortfalls, are nickel-and-diming their way to fiscal balance. Many have started charging for items that never required extra fees before: school bus service, trash pick-up, after-school sports, in a few places even the costs of a fire department visit.
Health insurance? I think many of you already know that the cost of health insurance has more than tripled since 1996, even while the cost of deductibles and co-payments (the part you pay before insurance pays out) have done a similar or higher jump. We pay more per capita in the US for health care than any other nation on Earth, and we get a lot less bang for our buck than most other industrialized nations.
The two major things that haven't quite gone up at the rate of inflation? The cost of food and the median wage. Food costs have actually gone down as a percentage of income in the US, but income has stayed basically flat for most workers. Some of you may have seen the graphic, the one showing that the wage of the average worker, in constant dollars, went from $32,000 in 1971 to $29,000 today, while the average at the top (same constant dollars) went from $2 million to $16 million in the same timeframe? Now, constant dollars are not what I referred to above, but to give some idea of what constant dollars would mean? Minimum wage in 1971 was $1.60 an hour. Lots of workers could reasonably expect to earn more than that. If the minimum wage had been indexed to the Consumer Price Index, which it never has been, the minimum wage would be a little over $9 an hour right now, across the country. Currently the federal minimum wage is $7.25 an hour, and has been since 2009.
Is it any wonder why we're squeezed? Housing, transportation, health insurance, communications, home entertainment--all of these have gotten more expensive for everybody at the same time as most people have less and less money to pay these higher and higher rates.
When everybody shared in the wage increases, we built a strong and vibrant economy, one based on middle class demand for goods and services. When the sharing stopped, the middle class started borrowing money to maintain the middle class life, hoping that the money would start coming in sometime via promotions or investments, allowing the debts to be paid. And now, the middle class has pretty much exhausted borrowing. Without middle class demand pushing the demand part of supply-and-demand, the economy is in lousy shape. What do you call an economy with lots of supply and no demand? A sick one. Dare I say, depressed.
The middle class cannot afford to keep borrowing.
The middle class can no longer afford to keep paying for everything piecemeal.
The middle class needs better wages, along with enough jobs to keep people employed.
Is it any wonder why we're squeezed?
