Why does buying power seemingly not correlate with how people feel about the economy?


I’ve been looking into economics recently as a way to understand wealth inequality, and I read something that just doesn’t make sense to me.


This source says that the 2018 nominal median income per capita was $33,706. It also says that in 1967, the national median income per capita was $2,464,but that would be equivalent to $18,261 in 2018 dollars. That’s roughly half of what our actual per capita income is.

From what I understand, the 1967 economy was doing fairly well, and throughout the 60s the economy was growing. So why is it that now, despite making twice what would expected if you just looked at inflation, people feel like the economy is really bad for the individual and that people aren’t earning enough money?

In: Economics

I’m by no means an economist or economic expert but I like to look at these kinds of things and ask similar questions. The biggest disparity I think lies in the fact that we’re here comparing an objective sentiment with a subjective sentiment. To say “Median income per capita now is X and back then it was Y, but if you assume some inflation rate then it’s equivalent to X/2” is an objective statement.

Feelings about the economy however are entirely circumstantial and can’t really be proven. With the rise of news and social medias, a lot of people are just adopting the feelings that “experts” propound on TV or in publications and articles. If I know I’m not an expert on finances and the economy and I hear some bigwigs in suits talking about the economy is in shambles, citing some numbers that sound compelling, I’ll just defer to their expertise and conclude it’s in shambles. On top of that, back in the day the truly luxury items were for the ultra wealthy and you didn’t see them as much because there weren’t a lot of avenues for sharing. Nowadays, there are some luxury items which have entered our everyday lifestyle like iPhones, not to mention the fact we now are targeted with ads and follow celebrities 24/7 to see what they wear and what they buy and all. All that adds to our sense of our current salaries and economic situation not feeling like it’s enough.

I hope that helps a little bit. Just my 2 cents. I could be wildly wrong lol!

That’s interesting.

Looking at data from [median **household** income](https://www.multpl.com/us-median-income) and [median **household** income adjusted for inflation](https://www.multpl.com/us-median-real-income) gives a couple more datapoints.

The 1967 household median was $7,142.97, about 290% of the per-capita median. The 2016 household median ($59039) was only 190% of the per-capita median ($31099). So bills at the household level are therefore significantly harder to afford than they were then.

A couple of facts to consider there are that average population per household only dropped very slightly on average (from 2.19 to 2.02) [source](https://fredblog.stlouisfed.org/2016/12/the-puzzle-of-real-median-household-income/?utm_source=series_page&utm_medium=related_content&utm_term=related_resources&utm_campaign=fredblog). Meanwhile the percentage of women in the workforce increased from 41.1% to 56.8% [source](https://www.dol.gov/agencies/wb/data/facts-over-time/women-in-the-labor-force#labor-force-participation-rate-by-sex-race-and-hispanic-ethnicity). From that significant increase, we’d expect the ratio of household to per-capita to be significantly *higher* than it was then, not significantly lower. That would seem to indicate that even with more people working, fewer people in the household, and higher per-capita #s, wages haven’t kept up such that it’s harder for a median household to pay bills.

But to your point of why does the economy look relatively bad if the raw inflation-adjusted numbers look higher, let’s consider what those numbers measure and how they’ve played out. Not everything inflates at the same rate. As you can see [here](http://www.mybudget360.com/wp-content/uploads/2014/10/college-tuition.png), [here](https://www.mybudget360.com/wp-content/uploads/2014/10/real-tuition-vs-salaries.png), and [here](https://cdn.howmuch.net/articles/price-changes-in-usa-in-past-20-years-2294.jpg) there are some really big discrepancies. So sure, durable/one-time consumer purchases like big screen TVs or maybe a pair of pants are dramatically cheaper. But the major ongoing household expenses (housing, utilities, healthcare, and education) greatly exceed the inflation rate.

One contributing factor is lifestyle inflation.

The 1960s household would have a nice family room with a single tv. A kitchen without a dishwasher or microwave usually. The kids rooms were small as most rooms are just for sleeping, changing clothes, and playing with what few toys they might have. The driveway has just one car as a 2nd car isn’t worth the price and women stay at home with the kids anyways.

The 2020 house has a family room similar to the 60s, but includes some smarthome devices, tablets, computers, and probably a smartphone in everyone’s hand. The TV has jumped from 24-30 inch to 55+ with subscriptions for various services. Kitchens are no longer empty counter space for work, but lined with appliances and devices to simplify food prep and cooking. Dishwashers are standard, much like the coffee machines and toasters in every home. The rooms have grown in size to accommodate all the things children have now days. TVs, Toys, Clothes, and more that makes a 60’s kid envious. We also have a car for both working adults, as well as one for the oldest kid usually.

So while we can say… we make more on average these days. It’s also pretty true that we apend much more on just living up to our standards these days too.

Income is only half the story. You can’t forget expenditure. Even if incomes have grown, if the price of essential goods and services grows faster then consumers are in a net negative position compared to the 60s.