Tuesday, January 24, 2012

Our Declining Standard of Living

The average American is in the grip of mass amnesia, as urban activist and philosopher Jane Jacobs has called it (see her book Dark Age Ahead). Mass amnesia occurs when a population loses its cultural memory for one reason or another (such as war, natural disaster, technological change, or economic dislocation) and no longer remembers how life was lived by its parents or grandparents.

Case in point: When we claim our standard of living is better than our parents' was at the same age--as most of us invariably do on survey after survey--we don't know what we're talking about. There are few studies that compare standards of living then and now, so we are left guessing--and we guess wrong.

One way to compare standards of living is to look at expenditures. So let's take a look at the spending of two generations of peak spenders--45-to-54-year-olds in 1990 and the same age group twenty years later in 2010. In 1990, households headed by 45-to-54-year-olds spent $61,750, after adjusting for inflation. In 2010, households headed by 45-to-54-year-olds spent a smaller $57,788--nearly $4,000 less.

Today's 45-to-54-year-olds spend less than their counterparts in 1990 on most things, including restaurant meals, alcoholic beverages, other lodging (a category that includes hotels and motels), furniture, clothing, new cars and trucks, entertainment, and gifts. Today's 45-to-54-years-olds spend more than their counterparts in 1990 on mortgage interest, property tax, telephone service, daycare, gasoline, vehicle insurance, health insurance, drugs, and education.

Now comes the test: In which year was our standard of living better?

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