Sunday, March 8, 2015

How Lousy Life Was … Recently

As part of my continuing meme that people don’t get the importance of economic growth because we don’t tell people often enough how recently life was lousier, I bring you this chart from Mark Perry at Carpe Diem (he has links to the data there too):


What do you like to do: eat at home, or eat out at a restaurant/bar? I think that’s a no-brainer. So, what we’re showing here is a dramatic improvement in well-being, on a small and unimportant data set, albeit one that’s familiar to all of us on a weekly basis.

There are those that say that the standard of living has not improved in the U.S. over the last two generations (or the single one shown here). Charts like this are easy to come by, and they shout out that those people are simply lying, or repeating the lies of others.

Now, this chart says nothing about the distribution of spending. I’ll discuss that below.

A few notes first:

  1. One might complain that this chart isn’t adjusted for inflation. That won’t matter since we’d normally adjust both series by the same price index. Inflation by the CPI was about 70% over this period. Spending at grocery stores was up by 80%, which means real grocery spending was up. But spending at restaurants and bars was up by just shy of 200%. That’s a lot of real (fun) discretionary spending.
  2. You could also argue that this should be adjusted for population growth. Except that was up by 25% over this period. That actually implies that real per capita spending at grocery stores actually declined by about 15%. We can probably thank Walmart for doing that single-handedly: Walmart only had 6 stores selling groceries at the time this data set starts; now they have 1,980. But for restaurants and bars, combining inflation and population growth says that spending should not quite double, and it almost tripled.
  3. Yes, I probably should have gotten the raw data, taken natural logs, and posted a corrected version. Actually, I did all that (of course, you knew I would, right?). But it didn’t show anything very different, so I figured I wouldn’t steal Mark Perry’s thunder by changing his chart.
  4. One might argue that the average ticket has gone up at restaurants and bars over this period. I do not have that data handy, but I’m pretty sure our hospitality faculty can provide data showing that the real price of most hospitality services has actually declined over this period.

Now, inequality: I’m not going to say that maybe that hasn’t gotten worse (although I really don’t think so). But let’s take seriously the idea that it has. Most discussions of inequality focus on the top 1%, the top 10% or the top 20%. If all of that spending at restaurants and bars was done by the top 20%, how much would their spending have had to increase? Spending at restaurants and bars tripled, so if one fifth of the population made that happen, their share must have gone up by 15 times. Halve that to account for inflation and population growth, and you’re saying that a generation ago the top fifth went out one day a week and now they go out all seven. That’s ridiculous. But, if you do it for the top 10%, the story becomes that they used to go out one day a week, and now they go out 14 days each week. That’s not even possible. There isn’t much point in even calculating what would need to have happened to the top 1%. One could make the argument that this is all celebrities getting bottle service in Las Vegas and Miami, and that this has gone up a lot over the last generation. But in order to believe that you’d need to think that the rich never spent gobs of money foolishly. Yeah … right. If anything, when most of “the rich” people in the country live in places like, say, St. George, it’s hard to argue that they even have extravagant tastes.

In the end, this simple graph tells a story of sustained economic growth improving the lives (in a minor way) of a very large fraction of the population.

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