Photo (cc) by davitydave
There’s a huge blind-men-and-the-elephant problem when talking about the economy. Writers can’t help but talk about it like it’s a single thing that’s either doing well or poorly. Basically, if you’ve lost your job, the economy stinks. If you have a good job, it’s hard to understand what everybody is complaining about.
In reality, all economics, like all politics, is local. Home prices are up a stunning 18 percent near Seattle, Washington. That doesn’t mean the housing market is fixed. And even if you are in Seattle, if you are a first-time homebuyer, you sure don’t think it’s fixed.
People (like me) who want to comment on the economy intelligently can really only do so by examining narrower slices of it and making judgments that are a little more nuanced. That is why data that segments the population into finer groups is a gold mine. Fine data can help explain why some people think the economy is like a pillar and others think it’s like a tree branch.
A gold mine arrived recently. The Labor Department released new data from its Consumer Expenditures Survey, formed by panel of consumers who keep detailed diaries about all the money they spend. The survey subjects were broken into 10 income groups, so the top 10 percent of Americans spend like this, Americans in the 81-90 percent income group spend like this, and so on. Dividing people into these 10 slices also helps get away from the bland upper-middle-lower class descriptions that are really too coarse to form the basis of an intelligent discussion. (What does middle class mean, anyway?)
The Wall Street Street Journal’s excellent Real-Time Economics blog distilled the data into an easy-to-understand form. The Journal piece focuses on the interesting differences between how the rich and poor spend their money.
But I found something else fascinating about the numbers. Fully five of the 10 groups — the lower five — spend more than half their money on food and housing. More than half! Remember, this doesn’t include gas, or health insurance, or school, or anything other than food and housing.
Until you earn above the median income in America, you can expect to devote half of your spending to the most basic of basic life costs. That’s crazy. And if you think about the fragile nature of our consumer-driven economy, it’s even more crazy. It’s a fair assumption that if you are spending half your money on subsistence, you don’t have a lot left over for cars or new clothes.
I’ve noted this repeatedly in The Restless Project: It’s not about jobs, it’s about wages. So long as Americans aren’t making enough money, the economy will continue to sputter. Even for you 1 percenters out there, stagnant wages are a recipe for trouble. Meanwhile, this data should help make obvious why so many Americans don’t have emergency or retirement savings.
Of course, as you go up the income chain, the percent of your income you spend on the basics is less important. If you take home $100,000 a year, you can drop $50,000 on mortgage payments and food and have plenty of cash left over for vacations and your 401(k). Still, it’s astonishing what people in the middle-income tiers of America spend just to get by every day, and how much of their budget is devoured by fixed costs. We have a lot of work to do to fix America.