Americans Are Not As Poor As They Think They Are

by Thomas R. Wells: Americans dominate global (social) media and one result of this is that the rest of the world is overexposed to Americans’ ideas, and also to their ideas about themselves. One such idea that is more or less endlessly repeated is that even middle-class Americans are actually poor these days.

I accept that many Americans are perfectly sincere in this belief but that doesn’t make it true, whether one defines poverty in terms of meeting basic needs, or as a relative decline between generations or between America and other nations. Yes – some Americans are poor, really poor by any reasonable standard. But not most Americans, or the average (median) American, which is the claim I see constantly.

The evidence shows that most Americans are richer than ever, and richer than most people in the rich world – that they consume more, live in larger homes, and so on. They are objectively some of the luckiest people in world history. On the one hand all this narcissistic whining about imaginary poverty is mildly annoying for the rest of the world to have to listen to. On the other hand, it reflects shared delusions about individual entitlements and America’s economic decline that are driving a toxic ‘doom politics’ of cynicism and resentment, while also neglecting the needs of actually poor Americans.

Two misunderstandings in particular seem to drive the mistake: that everything is more expensive these days, and that the rich took all the money.

1. Americans are poor because everything is more expensive these days

It is true that prices for many things have increased in recent decades, and this reduces the amount of those things that people can buy. However, this does not necessarily mean that Americans are objectively poor, or poorer than they used to be.

Price changes are a normal part of economic development. In particular, as an economy gets richer, food and manufactured goods get cheaper in terms of the hours of work you have to put in to get them, while labor-intensive services like education and healthcare automatically get more expensive. Most of the price increases that Americans complain about are actually an inevitable consequence of their increased prosperity. (Although some, like the extreme cost of health-care compared to other rich countries are attributable to America specific causes, such as peculiarly dysfunctional institutional arrangements.)

When prices for certain things increase, people have to make trade-offs they didn’t have to before, and this may feel unpleasant because they can’t have everything they thought they could have (or exactly the same set of things that their parents had). But they can still buy plenty of nice things, including functional substitutes as good or better than what their parents had. Altogether the bundle of valuable goods and services they can afford is much better than that available to previous generations.

And this seems to be the case. Americans live in smaller households in larger homes and drive bigger better cars than they used to. It may be that many Americans can’t afford the lifestyle which they feel they deserve (and maybe they do deserve more!), but the lifestyle they can afford is nevertheless much better than that of previous generations.

2. Inequality: America is rich, but the top 1% took it all

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