PBS Frontline: The Middle Class and the New American Economy

[Al in Ohio]

Mostly true but what the media is generally horrible about is providing context.

So for instance this site nerdwallet.com provides some pretty good debt numbers,and I cross checked them with the Federal Reserve numbers. (I should add I trust Feds numbers cause in my experience banks seem to be pretty good about keep track of loan balances etc.) As opposed to a census worker spending an hour asking somebody questions like "in the last 3 months how much did you receive in dividends"

Here are some highlights.

Now 11 trillion in debt sounds huge, but not so huge in the context of 16 trillion economy.

But more importantly look at the dramatic increase of the wealth of the country $65 trillion at the peak in 2007 and with the stock and housing markets both rebounding we will almost certainly see a record in 2013.

The chart is unadjusted for inflation or population growth and according to Wiki but even after adjusting for those two factors you end up with doubling of wealth from 1970 to to day. As the wiki article illustrated while the rich clearly got much richer since 1989 (i.e the same time as the documentary) even those in the bottom 20% got richer. The only group that got poorer is those without high school diploma (like Mr. Stanley) and that it turn is a shrinking group.

But of course this type of context is never provided by the media.

I really find your facts insightful, but finding an inflationary adjusted and per capita can have an enormous impact on the real value of wealth per capita, especially if adjusted for "real" inflation and not what the FED reports. If real inflation is somewhere between 3-6% per year and you compound that each year and adjust for that since 1970 your doubling is going to reduce to less than 20% of that due to inflation erosion alone over a 43 year period. (Assuming a generously low average 4% annual inflation rate - knowing it was over 7% over the decade of the 70's and about 5.5% in the 80's ) we have a present worth value of that doubling reduced by 1/(1.04) to the n where n is 2013-1970= 43 periods or 1/5.4= .185 So you need to multiply that perceived wealth by .185 to account for inflation. Now for population adjustment by census figure googled on wikipedia: At 1970 203M. At 2010 it 307 M. That's a factor of 2/3rds less people to account for that reported 1970 era wealth.....so overall adjustment for both===>. .66x .185 = 0.122

So doubling when adjusted to account for today's dollars compared to back then and also adjusted for an increase in our population changes " doubled wealth per capita ends up being only "one fourth" as much wealth. This is interestingly close to adjusted income comparisons over that period for the same job skill.

 

[clifp]

I really find your facts insightful, but finding an inflationary adjusted and per capita can have an enormous impact on the real value of wealth per capita, especially if adjusted for "real" inflation and not what the FED reports. .so overall adjustment for both===>. .66x .185 = 0.122

.

Hey we agree. Using the CPI calculator $1000 in 2012 dollars is worth $169 in 1970 $ and multiplying that by the lower population .66 =.112 a tad worse than your figures.

 

[RAE]

This link provides some data on trends in US consumer debt from the 1950s through this year: Consumer Debt Statistics

Here are a couple of excerpts from the article:

"Even though the U.S. population roughly doubled between January 1952 (156 million people) and 2012 (315 million), the amount of debt grew from $160 per person in 1952 to $8,800 per person at the start of 2013." (note: mortgage debt is not included in the above).

"In 1980, the consumer credit per person was $1,540, which was 7.3% of the average household income of $21,100. In 2011, consumer debt was $8,200 per person, which was 11.8% of the average household income of $69,700. This means debt increased 61.3% faster than income from 1980 through 2011."

There is no doubt in my mind that consumers have had to borrow more and more money over the last several decades to acquire many of the things we've been talking about. You simply have to look at debt in addition to the things people own, in order to get the complete picture as to what is going on here.

 

[Sesq]

I believe a lot of those average debt figures include credit card balances that are paid off monthly. I put almost everything on my cards, so part of that rise in debt may just be transitory.

That said, I would certainly wager debt burdens have risen, especially since access to credit has grown massively.

 

[clifp]

This link provides some data on trends in US consumer debt from the 1950s through this year: Consumer Debt Statistics



"In 1980, the consumer credit per person was $1,540, which was 7.3% of the average household income of $21,100. In 2011, consumer debt was $8,200 per person, which was 11.8% of the average household income of $69,700. This means debt increased 61.3% faster than income from 1980 through 2011."

There is no doubt in my mind that consumers have had to borrow more and more money over the last several decades to acquire many of the things we've been talking about. You simply have to look at debt in addition to the things people own, in order to get the complete picture as to what is going on here.

Fine so lets do that. If we put everything in 2011 dollars. Household income in 1980 was $57,600 vs $69,700 and 1980 debt was $4203, vs $8,200 in 2011. So the increase in annual income is roughly 3 times the increase in debt. Households are also slightly smaller 2011 vs 1980 so there is more money spend on per person, but lets ignore that. It isn't like the additional $4,000 debt is spent just so the 2011 family can afford groceries. The average 2011 household has more stuff. Just to highlight a few things. The 2011 household has ~.32 more cars and ~.25 more bachelor degrees than the 1980 family. They also have things that were rare or non existent in 1980 which have become ubiquitous in 2011, microwaves, DVD, a computer, a cell phone, and large screen TV.

Now while Dave Ramsey or Suze Orman might scream about the evils of debt, I suspect the vast majority of people would happily be $4,000 further in debt for a 1/3 of a average car, one year of college,and all the gadgets I listed. Add to that interest rates for are much lower today than in 1980. For example the average car loan in 1980 was 15% vs 3-4% today. My subsidized student loans in 1980 were 9% vs 3.9% today. I'd take the average 2011 household income and balance sheet vs the 1980 family in a heartbeat, wouldn't you?

 

[mpeirce]

Now while Dave Ramsey or Suze Orman might scream about the evils of debt, I suspect the vast majority of people would happily be $4,000 further in debt for a 1/3 of a average car, one year of college,and all the gadgets I listed.

The problem isn't really having some amount of debt, it is that when people load up on debt that works for them when times are good, they set themselves up for more problems when times are bad.

People with a large debt load have a lot less resiliency when the inevitable downturn comes along. Businesses have the same problem, that's one big reason why there are so many more bankruptcies during recessions.

 

[Which Roger]

I don't think it will be too long before the automation of service jobs picks up.

The automation of farming freed up labor for manufacturing. The automation of manufacturing freed up labor for the service economy.

I fear that the automation of the service sector will free our labor up for standing in the unemployment line.

The automation of the service sector is well underway. But automating the service sector has resulted in huge growth of the tech sector. Amazon is a perfect example. A lot of retail store service jobs have been eliminated, but a whole new industry has been created with the rise of virtual stores.

Twenty years ago, there were probably just a handful of jobs involving the internet. Now there are millions.

 

[Which Roger]

The automation of the service sector is well underway. But automating the service sector has resulted in huge growth of the tech sector. Amazon is a perfect example. A lot of retail store service jobs have been eliminated, but a whole new industry has been created with the rise of virtual stores.

Twenty years ago, there were probably just a handful of jobs involving the internet. Now there are millions.

To follow up on my own post: This is a good example of how our economy has changed, and why the chasm between the "haves" and "have nots" has gotten bigger and more difficult to traverse. Capitalism rewards productivity. You are paid for how much you produce, not for how hard you work. Back in the day, when most people's work involved farming, working in a factory, stocking shelves, etc, there was a fairly strong correlation between effort and productivity. A really hard worker might be able to stock a few more shelves than an average worker, but certainly not an order of magnitude more. But these days, it is not uncommon to have an order of magnitude or more difference in productivity between two workers who are both providing equal effort. The reason is that these days productivity is much more closely correlated to knowledge and skill set than it is to effort.

 

[RAE]

If we put everything in 2011 dollars. Household income in 1980 was $57,600 vs $69,700 and 1980 debt was $4203, vs $8,200 in 2011. So the increase in annual income is roughly 3 times the increase in debt.

Another way to look at the same figures I provided is that, as a percentage of income, debt was about 7.3% in 1980, versus 11.8% in 2011.

 

[clifp]

Another way to look at the same figures I provided is that, as a percentage of income, debt was about 7.3% in 1980, versus 11.8% in 2011.

Fair enough but also have to look at the interest rates. So for example $4200 (the 1980 debt in expressed in 2011$) in the form of a say an typical 5 year auto loan in 1980 (15%) would require payment of $100/month vs $151/month monthly payment for $8,200 debt at today 4% interest rate for a 5 year auto loan. This put the debt/income ratio of 2.1% for the 1980 family, and 2.6% for 2011. Neither ratio is particularly crushing. Of course neither include house payment which is typically where people get in trouble.

 

[nvestysly]

I just read the followup information posted here on the PBS web site. The Frontline program and the discussion on this thread has certainly been interesting. I fall mostly into the camp of - it's the choices you make in life - realizing that not all situations have positive outcomes. However, a series of poor choices will likely lead to a negative outcome while a good choice or two thrown into the mix might lead to a more positive result.

I also find it very interesting that many people think the government should simply increase wages and that allows everyone to live the proverbial American Dream. For example, here's a comment from Terry Neumann on the followup web site:

Q: What do you want people to take away from your story?

A: Never give up. Just never give up — and be aware of everything that’s going on. The politicians want to point the finger at everybody. They need to find a solution and get better wages so that people can support their families and live the American dream like everybody wants to live

The never give up parts strikes a chord with me. The families in chronicled in this program are fighters for sure. Unfortunately, Terry seems to have fallen in the same trap - finger pointing - as those politicians. If they would just increase wages we could all live the life we want to live. I'm not an economist, and I don't play one on TV, but I don't think this is how the economy works.