Thursday, July 27, 2006

Are You Better Off Today than you would have been 25 or 50 years ago?

Here in Connecticut, New Haven Mayor John deStefano is running for Governor, and his ads lament the fact that the middle class is “hurting.” One advertisement says, “My dad was a police officer. Back then, working people could scrimp and save and become middle-class. It was a different time,” while a 1957 Chevrolet appears in the picture.

DeStefano is right about one thing, it was a different time. And he certainly isn’t the first, nor will he be the last to make such a claim that somehow, 50 years ago or 25 years ago was a better time for the middle class. Katherine Newman was touting that in 1993 in her book. More doom and gloom about the declining standard of living are Here or Here or Tamara Drault's recent book, Strapped.

However, what all these claims fail to realize is simply how different “middle class” is today from back then. If most “hurting” middle class members tried to live like people did 50 years ago or 25 years ago, they’d find that the old times weren’t so great, and what people had to scrimp and save for pales in comparison to what we’ve got today.

It’s akin to someone lamenting that a baseball team doesn’t hit as many home runs as they did 25 years ago, without mentioning that their new ball park has an outfield wall that’s 60 feet farther from home plate.

What are some of the things that people take for granted today but were oblivious to 25 and/or 50 years ago? I’m going to try to give some indications of how people lived in 1956, 1981 and today, and the costs of these choices. At the end of each section, I summarize these cost savings, and I assume 130 million households in the United States. This is to live today at a standard roughly comparable with 1956. I'm not going to compare what people spent on X in 1956/1981 versus today, but instead I am going to compare what they spend today versus what they'd have to spend to get the same level of product or service prevalent in 1956 or 1981.

Big Houses: NPR reports that the average house size has doubled since the 1950s, and now stands at 2,349 square feet. Writes NPR:
Consider: Back in the 1950s and '60s, people thought it was normal for a family to have one bathroom, or for two or three growing boys to share a bedroom. Well-off people summered in tiny beach cottages on Cape Cod or off the coast of California. Now, many of those cottages have been replaced with bigger houses.”
What does this extra space end up costing? B4ubuild reports that an average house costs $45 to $150 per square foot to build. I’m going to assume that the extra 1,100 feet of living space now would skew a little to the lower end (since the “extra” space that people have now consists mainly of bedrooms and extra living rooms, not an extra kitchen). At $45 per square foot, an extra 1,000 square feet will add $49,500 to the price of a house. With an average mortgage rate of 6.25%, this equates to $304.78 in additional cost per month just for the added square footage (assuming a thirty year mortgage). I don’t know what the average size house was in 1981, but if we split the difference, this works out to about $152 in extra mortgage costs for the extra square footage.

YEARSAVINGS
1956$3,657.36
1981$1,828.68


Air Conditioning: in 1953, sales of room air conditioning units exceeded 1 million for the first time. However, almost no houses had central air, while by 1997, 47% of houses had central air conditioning and 25% had wall or window units according to the US Department of Energy. 93% of people in the south had air conditioners in 1997, and the average American household spent $140 on energy for air conditioning. The average cost of a central air system for your typical house is somewhere around $4,000, which means an extra $24.63 per month on your mortgage at 6.25%. To make the comparison the same fo the 1956 standard of living, supposing the average house had one window unit, with the average cost to run a window unit costs about $20 per month, you’d need to run it about 3 months, for $60 per year. So the average household spends about $80 per year more on energy than it would need to to maintain a 1956 standard of living. I'm going to assume that 1981 was equivalent to today in terms of air conditioning. It was probably a little less, but I'm not going to count it here.
YEARSAVINGS
1956$375.55
1981$0.00

Cell Phones: 195 million people had cell phones in 2005 in the United States compared to essentially zero in 1981 and zero in 1956. The average monthly cell phone bill is just under $50 according to the CTIA. Since I'm analyzing households, I'm going to say there are 1.5 phones per household on average. Thus, there's a savings of $75 per month if you wanted to live like they did in 1956 or 1981.
YEARSAVINGS
1956$900.00
1981$900.00


Computers: No one had a home computer in 1956. In 1981, a few techno-geeks had TRS-80s, Commodore 64s or early Apples. Today, most middle class families wouldn’t conceive of not having a fairly modern PC with an internet connection, and probably a wireless router, inkjet printer and large color monitor. In 1981, modems were practically unhead of. If you figure that the average home PC with a monitor and basic printer costs about $700 and has about a three year life before replacement, this equates to about $20 per month in equipment costs for the computer per month. Add in another $30 per month for an internet connection. Then add another $25 for the occasional purchases of non-game software, printer ink and printer paper, recordable DVDs and CDs, and it’s likely that the typical household spends $75 per month on their home computer. Shelling out a few bucks at a yard sale would probably get you a much better computer than existed in 1981 in the most advanced research laboratory.
YEARSAVINGS
1956$900.00
1981$900.00


Video Games: most people in 1956 would not have been able to conceive of video games. In 1981, there were some rudimentary systems with lame games. Today, there are some serious game consoles that can display graphics that in 1981 could only be dreamt of. In 2004, in the United States, we spent $6.2 billion on console and portable game software, $3.7 billion on game hardware and $1.1 billion on PC games according to Wikipedia. This equates to about $84.61 per household per year. If you want to have a 1981 style video game unit right now, you can purchase a joystick with 10 embedded games from the early 1980s for $17.99.
YEARSAVINGS
1956$84.61
1981$84.61


Televisions: In 1955 (I don’t have data for 1956), 67% of households had a television set, but only 4% had more than one television. Recall in Back to the Future how Marty was thought to be joking when he tells the 1955 McFlys that he had two televisions. In 1955, no one had color television sets. By 1980, 98% of the population had television, 50% of families had more than one TV and 83% of families had a color TV. However, television sizes were certainly significantly smaller, no one had plasma or LCD screens, and no one had stereo. In 2001, the average family had 2.4 televisions. In 2005, Americans spent $17 billion on digital televisions. Assuming three quarters of these purchases were for houses and the remainder for businesses, that would amount to $98.07 per household spent on digital television. Assuming the average non-HDTV set costs about $200, and a household purchases a set every four years (the average household has 2.4 sets, so this means that the life is around 8 years), the average household spends $50 on tube-TVs per year. To get to a 1956 standard of one black and white television, no remote, screen size of 12 inches or less, you’d probably have to shell out about $25, if you could actually find a B&W TV. By 1981, I'd imagine my family was normal: we had a color TV downstairs and the old black and white TV upstairs. To meet this standard, expect to shell out about $250. Assuming a life of 8 years, to get to 1956 standards, you’d need to spend $3 per year on TVs, and to get to 1981 standards, you’d need to spend $30. This is versus $148 for our standard today.

YEARSAVINGS
1956$145.00
1981$118.00


Cable TV: No one could even conceive of cable TV in 1956. In 1981, only 20% of the population had cable, and our most basic package would look like some sort of super system to someone in 1981. The average cable bill in 2004 was $50.98 per month, although my cable bill is sadly much higher. Assuming that it would cost $20 to get a 1981 package, we’re spending $31 more per month than we would to get to a 1981 standard of living, and $51 more per month versus a 1956 standard of living.
YEARSAVINGS
1956$611.76
1981$371.76


VCRs: The first videocassette recorder, the Ampex, was introduced in 1956. However, with a $50,000 price tag, only large TV stations could afford it. No middle class households owned one. 1981 was the height of the Betamax-VHS fight. Still, in 1981, most households didn’t own a VCR (in 1985, only 14% did, while this would hit 66% by 1990). Today, of course, you can purchase VCRs for about $30. So I'm not going to even factor in a cost savings, since if a VCR has a four year life, that's only a saving of less than a dollar per month.

DVDs: The first DVD players and discs didn’t hit the market until 1996 in Japan and 1997 in the United States. So in 1981 and 1956, you couldn’t have had a DVD player, which can now be purchased for approximately $50.

Movie Rentals and Purchases: Americans spend about $8.8 billion on video rentals per year, or about $67.69 per family per year. According toHome Media Research, consumers spend $15.9 billion on purchasing movies (primarily DVDs). This is about $122.30 per household. I'd say that works out to about six movies per year on average, which seems about right. I'm not sure what people spent in 1981 when VCRs were new. Of course, most people didn't own a VCR, but I'm going to say the average family rented 6 movies, which would run you $30 today.
YEARSAVINGS
1956$189.99
1981$159.99


Radio: There was of course Radio in 1956 and 1981, but FM stereo didn’t exist until the 1960s. Now, of course, we have satellite radio. In 1956, the satellite hadn’t yet left the drawing board (Sputnik was launched in October 1957). In 1981, no one of course had satellite radio. Today, there are about 6.5 million subscribers of XM and 4 million of Sirius according to Wikipedia.

Prescriptions: In 1956 or in 1981, a whole host of medicines was unavailable versus what we have at our disposal. Lipitor, Viagra, Zocor, Claritin, Crestor, Zetia, Zoloft, Nexium, etc. Any health plan that has prescription coverage inherently covers medicines developed since 1981: all medicines that were available in 1956 or 1981 are now available as generics, which means that they’re dirt cheap. If you don't have health care and your doctor happens to prescribe you medicine that has been around for 25 years (and there are indeed some of these medications), you can probably get it at your pharmacy for a few dollars. In the United States, pharmaceutical sales in 2004 were $235.4 billion. Most Americans, of course, don’t pay for pharmaceuticals directly, but instead have their insurance companies pay. Some Americans don’t take any pharmaceuticals, but other Americans pop pills incessantly. In any event, the pharmaceuticals do get paid for, and any businesses paying them will pass through the costs to their employees via lower salaries or higher insurance premiums. Americans spend an average of $1,810.76 on drugs per household. Assuming that 10% of these are for generics that were around in 1956 or 1981, the supplemental increase on drugs is about $1,629.69. Back in the 1950s or 1980s, there was no lipitor, and thus the hardness in your arteries in your heart couldn't be stopped. Back in the 1950s or 1980s, there was no Viagra and the softness in your...
YEARSAVINGS
1956$1,629.69
1981$1,629.69


Medical Care: many people bemoan how expensive medical care has gotten, and it’s almost too bad that there isn’t an option to buy an insurance plan that would only cover medical achievements up to a certain year. That way, people could get an idea of advances in medical care. The first CT scan was in 1972, and was incredibly primitive by today’s standards. Between 1956 and 1981, there was the first successful transfer of a pancreas, liver, heart, and heart/lung; since 1981, there have been a few others which seem mainly experimental to me, but I'm not a doctor (nor do I play one on TV as the silly ad campaign of the 1970s stated). Ultrasounds were still very experimental in 1956. And in case you don't think all this medical stuff really does any good, life expectancy tables might convince you, as average life expectancy of someone born in 1950 was 68.2 years versus 77.3 years in 2002. Not all of this is related to medicine (some is to better cars, see below, as well as more safety on various industrial and consumer machinery, etc). I have no idea what I'd price 1956-level health care would cost, but I would imagine that the savings would be substantial (I'm also not convinced you could tell a doctor, "Don't use any equipment developed after 1956"). Medical imaging (MRI, CAT, etc) costs $100 billion per year, which is equivalent to $769.23 per household. Even if you didn't get any images, you paid for it through your insurance. I'm not sure what was available in 1981, but let's say $100, because ultrasounds were available.
YEARSAVINGS
1956$769.23
1981$669.23


Automobiles: many people think of the late 1950s as the golden age of the US automobile, but what they don’t realize is that today’s car available to the typical consumer packs features that were practically unheard of in the 1950s. Safety systems such as lap belts, crumple zones, radial-ply tires, and front and side-impact airbags are often standard on today’s cars. In 1953, the chances of dying in an auto accident was four times as great as today. Some of this is due to medical advances, and some due to improved drunk-driving laws. Electric mirrors, power steering, anti-lock brakes, cruise control, eight speaker stereo systems and heated seats are also not limited to a few expensive luxury models. In order to have the same basic functionality of a typical 1956 car, you’d likely not be able to choose anything but the most basic car available today, and even then, the performance and safety would exceed the average 1956 car. I’m going to assume that if the typical American purchases a new car for $25,000, (according to the the FTC, it’s $28,400 ), he could get 1956 functionality for $13,000. In 1955, there were 1.16 cars per household, whereas in 2003, there were 2.03 cars per household. Thus, living at a 1956 standard of living would require you to spend $15,080 for 1.16 inferior cars versus $50,000 today (actually a little should be knocked off each one of these as businesses and local governments own cars). Assuming cars last eight years, this amounts to additional spending of $4,365 per year on cars to live beyond a 1956 standard. Due to business ownership, let’s cut that to an even $4,000. In 1981, the average household owned 1.72 cars, and while cars today are better, there isn’t as much of a difference as with 1956. I would say instead of $4,000 per year, the difference is probably closer to $1,500.
YEARSAVINGS
1956$4,000.00
1981$1,500.00


Lots of other stuff: There are a whole slew of things that are of course better now than 25 or 50 years ago. Some of them are somewhat silly, but people still shell out additional money to get titanium golf clubs, even if their game isn’t helped at all. Digital cameras allow the almost instant production of photographs, as opposed to waiting a few days for the local shop to develop them. I-pods allow the creation of digitally-pure music track lists, an improved airport structure allows people to travel more freely about the country. Long distance calls currently are often part of a flat-rate package, and most Americans think nothing of calling their friends across the country, while in 1956, few places had direct dial of long distance. In 1981, long distance was prevalent, but families reserved long distance calls for either late at night or on special occasions. You also sat next to the phone that was wired to the wall; there were no cordless phones in 1956, and in 1981, they were extremely rare. Food was radically different: in 1956, fruits and vegetables were really available only when they were “in season”, as shipping fruits from South America or even from California to the midwest was difficult. People didn’t have stainless steel propane grills or stainless steel refrigerators in 1956 or even in 1981. There were no ATMs in 1956, and in 1981, they were practically non-existent. In order to withdraw funds from your account, you had to visit the bank during business hours. Clothing styles are apparently much better today than in the 1950s or 1980s, but since I have no nose for fashion, I have no idea how to measure this. But shoes seem to be a lot nicer today, and athlete’s shoes seem to be better for impact, and dress shoes seem to be a lot more comfortable. Dishwashers didn’t catch on until the 1950s

I’ve heard a lot of people say that all this new stuff doesn’t make people any happier, and for a lot of people, that may be true (but for the guy who has a cholesterol level of 188 instead of 250 thanks to Lipitor, he may disagree, and while this would be a great place for a Viagra joke, I'll refrain). However, the middle class and even those who are at the lower end of the economic spectrum still shell out money for these things, and no one is forcing them to. Another common claim is that we have no leisure time today versus in previous decades. However, this report by the Federal Reserve shows that since 1965, Americans have more leisure time, not less.

So as you’re sitting there reading this on your 19 inch color computer monitor while listening to your Ipod and enjoying your 68 degree room cooled by central air conditioning and while eating an apple that is nine months out of season, and while you hear your cellphone ring, and while you just noticed someone sent you digital photos of yesterday’s fun times, and while you’ve got your plasma TV tuned in to a tennis match halfway around the world, can you really be certain that 1956 or 1981 was a better time?

50 years ago, half the families in the country earned less than the median household income. Today, again, half of families are below the median. But that median is so much higher than the median of 50 years ago. And 50 years from now, our median is going to seem primitive.

Here is a Summary of annual cost increases versus 1956 lifestyle. These are just my estimates, and of course your situation is going to be different.

Item19561981
Larger House$2,743.02$1,371.51
Air Conditioning$281.66$0.00
Cell Phone$900.00$900.00
Computers$900.00$900.00
Video Games$84.61$84.61
TV$145.00$118.00
Cable$611.76$371.76
Movie Rental$189.99$159.99
Prescriptions$1,629.69$1,629.69
Medical Imaging$769.23$669.23
Cars$4,000.00$1,500.00
Total$12,254.96$7,704.79


(Note: the housing costs have been reduced by 25% to account for the fact that mortgage interest is tax deductible)

So in any event, the 1956 standard of living is $12,255 cheaper, and with a 25% tax bracket, the above represent about $16,000 in additional wages. And this doesn’t even begin to contemplate lots of other expenses like better golf clubs, long distance direct dialing, and so on. It’s anyone’s guess what this would all cost, but I sincerely believe that if a typical middle class family today decided they were going to live close to the standard of a 1956 middle class family, and watch only the big networks on a small black and white tv, have no internet, have one phone, one car, etc., that their total savings would be well over $20,000 pre-tax, or nearly half of the $44,389 median household income.

Mayor deStefano, the 1950s were indeed a different time.

2 comments:

Anonymous said...

Just want to tell you I really enjoy your blogs. Thank you =)

Half Sigma said...

If you're in your fifties, and you bought your house more than 20 years ago, and you have a good career track, then this is probably the best of times ever.

It's not the best of times for young people whose labor value has depreciated because of immigration and foreign competitoin, and who are priced out of the housing market