Wednesday 10 January 2024

Americans Are Not As Poor As They Think They Are

One of the peculiar side-effects of America's hegemonic dominance of global news, social media, and entertainment media is that the rest of the world is over-exposed to what Americans think of themselves. That includes their strange - and actually disturbingly narcissistic - belief that they invented slavery and racism. But also other silly ideas, such as that most Americans these days are poor, and literally cannot survive on what they earn

Of course it is true that some Americans are objectively poor, and that being poor in America is often more unpleasant than being poor in other rich countries. Moreover, without continuous government intervention in the form of tax credits and benefits the poorest 5 million Americans would suffer the same kind of absolute extreme poverty generally associated with poor countries like Sierra Leone (Angus Deaton). 

America's poorest do deserve political attention, and indeed depend on it for their bare survival. However, most poor Americans are not as poor as that, and most Americans are not poor at all, by any reasonable standard. Most Americans are richer than ever, and richer than most people in the rest of the world. The evidence shows that they consume more than ever: they live in bigger homes, drive bigger cars, buy more expensive brands, eat out more frequently, and so on. The reality is that ordinary Americans are some of the luckiest people in world history. 

What does it matter if most Americans sincerely believe something that is false? On the one hand all this self-pitying whining about the imaginary existential struggles of middle-class Americans is mildly annoying for the rest of the world to have to listen to. (It's like being stuck in a room with someone who won't stop loudly complaining about how expensive it is to run their yacht.) On the other hand, the whining is also bad for America. 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. These have an unfortunate tendency to combine into a cynical conspiracy theory of the economy as rigged by the rich against the rest (as in the popularity of the 'greedflation' theory).

Misunderstanding 1: Americans are poor because everything is more expensive these days

the prices - quickmeme

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 labour-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 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, and more time ahead of them to enjoy those nice things. Altogether the bundle of valuable goods and services they can afford is much better than that available to previous generations. 

It certainly seems that Americans are consuming significantly more than they used to. It may be that many Americans are consuming even more than they can really afford, but this seems like a problem of personal budgeting and psychological self-mastery rather than a problem with the economy itself. Americans may not be able to afford the lifestyle they feel they deserve (according to society's evolving norms, as seen on social media), but the lifestyle they can afford is nevertheless much better than that of previous generations and most non-Americans.

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

A lot of people recognise the important difference between  the median and the approach to calculating an average, and correctly note that just because America is a rich country in the aggregate that doesn't automatically mean the ordinary (middling, i.e. median) American is rich. 

Economic inequality in America is quite high compared to other rich countries (especially before taxes and transfers are counted). Thus, it is true that a disproportionate share of the economic gains of the last 40 years accrued to the already rich.

However, it is also true that all income groups in America have gotten richer in the past 40 years (according to reputable statistical agencies like the CBO).

Americans can legitimately complain that it is unfair that the rich benefited so much more from their country's economic progress than the rest of society. (I would already agree, as I think would the overwhelming majority of political philosophers.) One can even note how much richer the average (median) American would be if inequality had been lower (as it is in other rich countries). But calculating that imaginary counterfactual - 'the fairness gap' - is irrelevant to establishing the factual claim that most Americans are actually poor, or getting poorer. 

A more relevant dimension of economic inequality concerns differences in expenses rather than income: the division between the majority who enjoy housing wealth and the minority without it (especially younger people). 

Like every other rich country bar Singapore, America screwed up its housing market by making it too expensive to build housing where people wanted to live, and too easy for those who already lived there to block construction. It definitely needs to fix this! However, even this very real economic problem does not affect most Americans. (The OECD ranks the US no 1 for housing based on its scores on criteria like size, quality, and cost.) This is because most Americans are in the lucky position of having already bought their house (or they live in rent-controlled places) and so their housing costs are a quite affordable share of their income.

Why is Economic Pessimism so Entrenched Among Americans?

Typical bullshit meme statistic one can find
everywhere because people seem to want to believe it
If most Americans are richer than ever, why is the opposite belief so widely held? I think this probably has to do with the mirror in which societies these days try to observe ourselves: social media. 

We generally have difficulty figuring out how well or badly our country is doing in general. This is because we can only directly experience a tiny part of what's going on, and we lack a sense of context even to interpret that. We need help to figure out whether crime is up or down, and whether we should be scared of it happening to us in. Likewise, we can't figure out by ourselves how the economy is doing, nor even whether our own situation represents success or failure. 

These days we rely on social media to figure things like this out, while traditional media has adapted its content and style to optimise for social media sharing and cut its own production costs by republishing whatever is trending. But this obviously leaves societies very vulnerable to being misinformed. 

For example, younger Americans are disproportionately affected by the high cost of new housing, and they are also disproportionately represented in the social media space. Hence we hear a lot about their complaints and mistakenly assume that they must represent the majority experience.

Another way that social media is implicated in perpetuating the delusion of mass middle-class poverty lies in its characteristic tendency to amplify false but exciting claims that induce feelings of outrage and/or the pleasant feeling of validating what we already thought.

To help us figure out how our society is doing, the government and various non-partisan credible research organisations produce and circulate statistics, which then appear in various forms in media representations and political discussions. These statistics are still produced, and their methodology and accuracy continue to improve. These days however such credible statistics are crowded out by garbage ones that are more memeable. For example, those ridiculous statistics claiming that “[Terrifyingly high] percent of Americans are [shocking few] months from utter destitution”.

Similar versions of these statistics appear every few months and spread quickly through old and new media. They are put out by personal finance companies who seem to have found a reliable way of generating large amounts of free media attention for very little effort. There is no transparency or rigour in their methodology, and their highly memeable findings are obvious nonsense. (Real research institutions that care about getting their methodology and facts right, like the Fed, come to very different numbers.) Nevertheless, even obvious nonsense will be believed if it is endlessly repeated and left unchallenged.

However it happened, economic pessimism now dominates America (see e.g. this recent YouGov poll, in which pessimists outnumbered optimists by 2:1). And it will likely have major consequences for the 2024 election: for which politicians win office and what their policy priorities and ideas will be. And so this mistake will have real world consequences, in America and beyond.

Note: An earlier version of this essay appeared on 3 Quarks Daily