Monday, February 7, 2011

A Rising Tide Raises All Boats

We often hear complaints about how the economy over the last 30 years has been unfair to many Americans. We hear there has been a declining standard of living.  How does this square with the facts?  Not very well according to a recent article in USA Today.
Personal income per person in the United States is $40,454 today.  In 1980, adjusted for 2010 dollars, it was $24,709.  That is a 64% increase.  Let's look at a few details.
  • Spending on housing was $3,262 in 1980 compared to $6,138 today.
    • However, the average house size has increased from 1,740sf to 2,438sf
  • Spending on health care has increased from $1,796 per person to $5,438.
    • This is where the largest increase in spending has occurred over the last 30 years.  To put this in perspective, India's health care expenditures per person are less than $50 and in China they are around $80 per year.
  • Spending on recreation has increased from $913 to $2,310.
    • Airline miles flown annually, per person, has increased from 962 to 1,898
    • The number of cable tv channels has increased from 28 to 565
  • Spending on vehicles and gasoline has remained fairly constant-$2,105 in 1980 vs, $2,269 today
    • There are 104 vehicles for every 100 driving age people in the U.S.  We have more vehicles than drivers today. In 1980, we had to suffer with 92 for 100.
  • Spending on clothing is almost the same-$1,078 vs. $1,090
    • This has been possible because we import almost all clothing and it is made with very low cost labor.  This has allowed us to be better clothed than ever and move spending dollars to other categories like recreation and housing.
  • Of course, taxes still take the biggest bite out of the average person's income.  $7,320 in 1980 and $10,882 today.
    • Taxes cost the average person more than housing, recreation and transportation-combined!
  • Food has decreased from 13.4% of the average's person's income in 1980 to 9% today according to personal income expenditure data.
    • This is a good example of how increased productivity in the agriculture sector has ended up benefiting everyone.  These gains are spread through the entire economy.
The data shows how our quality of life has also improved.
  • Violent deaths per 1,000 has dropped from 17 per 1,000 in 1980 to 5 per 1,000 today.
  • Life expectancy at age 50 has increased from 78 to 81.
  • 2.5GB of computer power which cost $214,000 and consumed an entire room now fits on a flash drive the size of your pinkie and costs $7.
  • There are 293 million wireless phones in use today.  In 1980, there were none.
What is the lesson here?  Innovation and increased productivity benefits everyone in an economy.  Or as President Kennedy so aptly stated, "A rising tide raises all boats".  It should lead us to stop putting so much attention on how we cut up the pie and focus more on making the pie bigger.  This is the only way that anyone increases their standard of living over the long term.  


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  2. It would be interesting to see if the trend for airline travel and miles flown has increased steadily since 9/11. Have we "recovered"? It would also be interesting to note that the real estate bubble has also burst since the recession began. It is scary to think what could be next.....