More Middle Class Squeeze

Thanks to some good comments on yesterday's post I decided to do some additional research. As Webfoot put it, "Is the middle class being squeezed because of the economics of the times or are they being squeezed by their own injudicious use of their own resources?" Mr. H. added, "I completely agree with Webfoot's comments about the middle class propensity toward instant gratification and consumerism. Most of the debt incurred is not necessary." On the other hand Don wrote, "I agree fully with your comments about the attack on our middle class, (see the book Nickeled and Dimed in America) but do you think the average citizen understands what is happening?" This discussion is important and deserves some investigation.

I looked into four cost components I feel are significant factors in the middle class standard of living and are rather essential for maintaining it: housing, health care, gasoline and college tuition. Here's what I found.

Home prices were an average of three times per capita income in the 1970s. This had risen to 5 times PCI in the 1980s and stands at 9 times today. In California and Florida these had risen as high as 13 times PCI, though the recent falloff has reduced that to 11. These figures come from the Wall Street Journal and the Stanford Institute for Economic Policy Research. It is clear that housing costs have tripled as a share of income over the period in question.

Health care has risen from 5% of American gross domestic product in 1960 to 13% in 2000 and 16% in 2006. The cost per capita stood at $7026 in 2006. These data come from the Agency for Health Research and Quality and the American Medical Association. As in the previous example, U.S. resources devoted to this cost have tripled as a percentage of available resources. That is a direct cost to those middle class Americans who are self-employed or must otherwise buy their own coverage and an indirect cost to the salary compensation of those who are employed by others.

Gasoline prices in constant 2007 dollars stood at $1.50 per gallon before the first Arab oil embargo of 1973. They rose to $1.80 in 1974. They stand today at a national average of $3.31. These figures come from Z-facts and the American Automobile Association. The price rise in real terms in this case is 2.21 times the earlier cost, not as high as for the previous two categories but still a substantial drain on a family's discretionary funds.

College tuition and fees at public four-year universities cost, on average, 8% of annual per capita family income in 1975. By 2005 it had risen to 21%. For private universities the respective figures are 31% and 80%. Note that these figures considerably understate the full costs since they do not include books and living expenses or the effect of reduced scholarship availability for the middle class. Even so, what we see here has increased 2.63 times over its previous bite from the family income.

In sum, it looks to me as though the middle class squeeze is quite real. I grant that these are subjectively chosen markers but I would contend they are all expensive yet essential components of maintaining a middle class lifestyle. I, too look with amazement at people who are not wealthy yet buy non essentials like absurdly expensive sneakers, televisions, video game systems and motor vehicles. It would indeed be welcome to hear more voices advising the American consumer to exercise considerably more restraint and responsibility as a counterweight to the constant drumbeat to buy, buy, buy. One recalls President Bush's response when asked what Americans could do to help in the wake of 9/11, "Go shopping."

But with that all said, it is inescapably evident from these enormous increases in real terms that the economic facts of life make it far more difficult for people today to enter and stay in the middle class than it was for their parents and grandparents a generation ago. And I am quite convinced that if these trends are not reversed the societal effects will be profoundly destructive in a number of ways.