October 28, 2012
What explains the fact that “access to the good life” has increased so significantly over time for low-income Americans? One main reason is the “miracle of the marketplace,” especially the miracle in the manufacturing sector. Thanks to significant advances in technology and gains in worker productivity, the costs of most manufactured goods have consistently declined year after year, making goods produced in our factories ever more affordable relative to our income, especially for low-income households. Greater global access to consumer products like low-cost clothing from abroad has also contributed to the increased affordability of manufactured goods for Americans.
The chart above illustrates the increasing affordability of manufactured goods over time. As a share of disposable personal income, spending on life’s “basics”: food, motor vehicles, clothing and footwear, and household furnishing and equipment, has declined from more than 40% of disposable income in 1950 to about only 15% in recent years. Whereas almost 40 out of every 100 dollars of disposable income were spent on household “basics” from the manufacturing sector in 1950, only about $15 of every $100 of income is spent for those “basics” today. The increased affordability of “food, clothing, transportation, and household items” means that even low-income households now have greater access to the “good life” than at any time in history, an often-overlooked achievement in all of the discussions on income inequality, stagnating income, and the supposed decline of the middle class.
That’s fine, until we encounter a run of “bad luck.”