Life is harder now, some experts say

Two weeks work for a fridge?
In fact, many consumer goods are much cheaper than they were in the 1970s.  A look at 1971 Sears catalog offers a glimpse of some plummeting prices. In 1971, a basic Sears refrigerator cost $399.  Adjusted for inflation, that would be about $2,000 in 2005 dollars, or nearly seven times the $297 price of a basic fridge in today’s Sears catalog.  Put another way, a fridge costs more than two week’s work for an average earner in 1971, but less than two day’s labor today.

Other household items were similarly expensive in 1971 — an 18-inch TV cost $429 (the equivalent of $2,150 today) and a 24-inch dishwasher cost $249 ($1,200 today).

Lower prices are, of course, a boon for the middle class, which now enjoys many conveniences and luxuries that were formerly reserved for the well-to-do. This is the cornerstone point for those who argue that the middle-class squeeze is a myth.

“I can’t hazard a guess as to why there is such a malaise in this country about current living conditions, but ... we have never had it better,” economist Arthur B. Laffer wrote in response to a question from a Gut Check America reader. Laffer is one of a large group of economists and policy-makers who point to crowded malls and high stock market returns as evidence that middle class America has little to complain about.

But Amelia Warren Tyagi, co-author of “The Two-Income Trap,” and also Warren’s daughter, said weekend shopping trip receipts aren’t the best way to examine the state of the middle class.

"Yes, people are spending more on home electronics, but the dollars just aren't that big," Tyagi said. "Maybe they spend  a couple of hundred dollars more on stereo equipment. But they are spending less on tobacco. This is not to say that there's no frivolous spending going on, but as you add it all up, there's no more frivolous spending than there was a generation ago."

The source of the anxiety
With government data showing that Americans are spending much less than they did 35 years ago on clothes, food, and even entertainment, Tyagi says the anxiety they are feeling comes from somewhere else: the exploding costs of housing, health care and education.

In housing, recent data is most striking. Household incomes have largely stagnated in recent years, even shrinking 2.8 percent from 2000 to 2006.  Housing costs skyrocketed 32 percent in that time.

Even more striking is the amount of income most families are paying to stay in their homes. Banks have long had a standard that said mortgages should not be approved unless the monthly payment was 25 percent or less of the buyer’s income. That limitation clearly is long gone. The U.S. Census Bureau defines “house poor” as spending more than 30 percent of income on housing expenses.  In 1999, 26.7 percent of U.S. households were considered house poor. By 2006, the number had jumped to 34.5 percent.

Because of difference in government data collection methods, it's hard to reach back to the 1970s for a precise comparison point. But the rise in house-poor mortgage holders is striking by any measure. A 1975 Census report showed that only 8.9 percent of mortgage holders spent 35 percent or more of their income — including insurance, property taxes, and utilities — on housing.

The number of households spending half their income on housing — an amount that for most would be fiscal suicide — also has dramatically increased, from 10 percent in 2000 to 14 percent in 2006.

The cost of education has similarly spiked. Pre-school was largely non-existent in the 1970s, but today many families pencil in $1,000 a month for child care and early childhood education. On the other end, college costs have easily outpaced the cost of inflation.  For example, the average bill for attending a four-year public college rose 52 percent from 2001 to 2007.

Health care costs have climbed steadily as well. According to the BLS, the average household spent 4.7 percent of its income on health care in 1984, and 5.7 percent in 2005. 

In the end, the portion of an average family’s budget spent on fixed costs like housing has risen much faster than wages and inflation, while spending on discretionary items has declined. That means mortgages, more than lattes, are the source of middle-class anxiety, says economist Jared Bernstein of the Economic Policy Institute, a generally liberal think tank that focuses on the interests of low- and middle-income Americans.

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