« Jumpin' Giulianis! | Main | Is Hillary Clinton Playing the Gender Card? »

November 02, 2007

Affluence vs. Security

Iphone
Was reading through Bob Kuttner's soon-to-be-released book The Squandering of America, and came across his restatement of an argument he made last year about the "Tchotchke Economy."

The emblem of the new economy might be a 35-year-old, listening to an iPod, living in a house much smaller than the one he grew up in.

To use a favorite word of my grandmother's, call it the Tchotchke Economy (a Tchotchke is a small trinket): Plenty of nifty, ever cheaper electronic stuff -- and ever more costly housing, education, healthcare. An iPod is swell, but it doesn't exactly make you middle class.

This gets to the heart of a long-running debate between left-leaning and right-leaning economists -- namely, are living standards getting better or worse? The Right says they're getting better -- we've got the internet, and iPods, and all sorts of awesome, dirt cheap consumer goods. The Left says that that may all be true, but housing, and education, and health care, and fuel -- the big ticket items in our lives -- are getting far costlier, and incomes aren't keeping pace.

They're talking about two different things. I haven't quite worked this theory out yet, but my sense is that economic status has been cleaved free of economic security. So the sort of goods that signal affluence -- iPods and iPhones and laptop computers and plasma televisions -- are becoming much cheaper, more broadly accessible, and thus more widely owned. Lots of people, particularly young people, can thus claim economic status. The trappings of our wealth are all around us.

Yet economic security is quite a bit further from reach. It's impossible for me to imagine how I'll ever buy a home. Further education for me and eventual education for my kids are far beyond what my salary seems able to bear. And let's not get into health care. Point being: The affluence I can easily purchase into my 20s seems liable to crash right into the security I discover is out of reach in my 30s.

Meanwhile, from where I sit, the American Dream is a pretty weak force. White picket fences aren't the culturally transmitted vision of prosperity. Electronics are. Awesome stuff is. We're seeking goods, not security. And we can buy goods. Which makes us feel prosperous. And if you feel prosperous, if you consider yourself affluent, you can't merge that self-conception with economic insecurity, and thus it's hard to consider yourself part of a coalition in need of economic reform, or more advantageous public policy. By offering status without security, folks lose the class discontent that would turn them into a constituency for the security. And so they don't get it.

November 2, 2007 | Permalink

Comments

"The trappings of our wealth are all around us."
Trappings? Make that traps, pls! Thousands of former house owners who HELO'd themselves into foreclosure because of their desire for iPod's, designer appliances and fancy cars will agree.
:-(

Posted by: Gray | Nov 2, 2007 12:07:03 PM

Isn't this sort of the direct result of our generation being the children of the "me" generation? Our parents grew up in relatively Tchochke-less homes, but once they reached adult-hood and had purchasing power, they bought all the crap they ever wanted and all the crap their kids ever wanted rather than creating economic security. So, naturally, the lesson our generation has learned is that you can have what you want now and not worry about what happens later.

It makes sense, then, that people who are able to buy what they want would think their in good shape financially even if they don't own anything worth more than $2k.

Posted by: Cody | Nov 2, 2007 12:14:57 PM

While square footage is nice, it's not the be-all and end-all of prosperity. I try to console myself when I come home after work by telling myself that if I lived in Amsterdam, I'd have a pretty good-sized apartment.

To a degree, that 35-year-old made a conscious choice to by an iPod and a surround-sound home theater system in his modest-sized inner-ring-metro-area home rather than use that money, drive out to the distant exurbs and buy a bigger house.

Posted by: Tyro | Nov 2, 2007 12:15:39 PM

"they're" not "their" :P

Posted by: Cody | Nov 2, 2007 12:15:49 PM

Point being: The affluence I can easily purchase into my 20s seems liable to crash right into the security I discover is out of reach in my 30s.

Getting from 'here' (disposable income) to 'there' (the 20% deposit on an affordable mortgage) is the problem.

I don't know much about the Japanese experience, but I'd be curious to learn something about the dynamics of a culture that has its fair share of gizmos and gadgets, the habit of saving, and where most urban residents rent small apartments.

As for status indicators: Bourdieu would have a field day with it all.

Posted by: pseudonymous in nc | Nov 2, 2007 12:20:58 PM

"I try to console myself when I come home after work by telling myself that if I lived in Amsterdam, I'd have a pretty good-sized apartment."

Wow, that's a good method to get a positive twist out of a not-so-positive situation. I just tried that. Yup, if my 500 sqft studio would be in NewYork, I would really be living in luxury. Hey, I already feel better!
:D

Posted by: Gray | Nov 2, 2007 12:32:48 PM

I had the misfortune of seeing the execrable Ben Stein give a chat about poor folks in America. He says that poor people are just a bunch of whiners. For example, did you know that alot of allegedly poor people in America live indoors? And that they drive cars (it could be a 15 year old bombed out Honda Accord with 250,000 miles on it, but still!) Why, a great number of them probably have televisions! And working telephones! You know, they own some stuff! Just like you and me! He summed it up by saying that poor people should just shut up already, they've got it great, as great as he does, and he has to "work" for a living or something. Then he probably collected a check for $25,000 and went to dinner in a limo.

Posted by: chowchowchow | Nov 2, 2007 12:39:11 PM

If you are going to tackle the problems of things such as high house prices, high cost of higher education and the cost of, say, cars, the only way you are going to be able to do that is to seriously rethink our entire monetary policy. These are the three primary purchases people make in their lives for which they intend to borrow to do it. They are not making purchases out of their own cash, but rather are making purchases of credit. Because of our insane monetary policy, credit is incredibly cheap, this makes people more willing to take out credit in order to purchase these things, without spending too terribly much out of their own pockets. Thus, as actual payment of these items is further and further removed from anything of any real value to the purchaser, the seller feels more and more secure in selling at higher and higher prices. We can see, just as an example, what happened when the Fed reduced interest rates incredibly earlier this decade: housing prices skyrocketed. This had nothing to do with an increase in the intrinsic value of the homes themselves, it was simply Fed generated inflation at work. Credit was cheap, thus people were willing to pay more thus people obviously were willing to sell for more, thus raising prices in the entire system. The same sort of things apply also to cars and to higher education. By returning monetary policy to a sound foundation, prices will become more in line with reality rather than some credit driven pipe dream, and the prices of these things will come back into line with what real people like you and me can afford, rather than what fat cat bankers can afford to lend. That is why we all need to support Ron Paul for President in 2008.

Posted by: Ron Paul Fan | Nov 2, 2007 12:39:42 PM

where is megan mcardle to give the official libertarian response.

I'm a recent college grad, likely making a much lower salary than Ezra and feel much more optimistic. Although housing and education costs are relatively higher now than 30 years ago, new financing methods make it much easier and cheaper to take out loans. I disagree with ezra's assessment that its more difficult to own a house now or send your kids to college now.

And its much easier now for even poor people like myself to make capital investments. I max out my Roth IRA through a vanguard fund, which is cheaply run and allows people like me to invest in their future. I don't have much money, but I'm able to contribute 5k a year, which will likely give me a 7 figures when I retire. who needs social security.


Posted by: anon | Nov 2, 2007 1:02:30 PM

Ezra read this book.
http://www.amazon.com/Your-Money-Life-Transforming-Relationship/dp/0140286780/ref=pd_bbs_sr_1/104-4364964-1699930?ie=UTF8&s=books&qid=1194022741&sr=8-1
http://www.yourmoneyoryourlife.org/
It may help you a lot. For most people it is not how much you make it is how much you save that counts.

Now some of the problem with real estate prices is slow growth policies that are pushed by current home owners to the detriment of young people.

Clark Howard even talks about this but here is a link to Edward Gaeser who has done a lot of work on this.
http://www.economics.harvard.edu/faculty/glaeser/papers.html

Posted by: Floccina | Nov 2, 2007 1:04:04 PM

Hmm, the thing about ipods and computers is that they pay for themselves. Everyone I know downloads music for free now, and I rarely buy magazines or newspapers any more. Ron Paul Fan also has a point about cheap credit for the big three purchases of home, education, and cars.

I'm skeptical that you or Kuttner can make an issue out of this specifically. The smart people eschew tchotchkes if they can't afford them.

Orwell, '37:

But they don't necessarily lower their standards by cutting out luxuries and concentrating on necessities; more often it is the other wayabout-the more natural way, if you come to think of it. Hence the fact that in a decade of unparalleled depression, the consumption of all cheap luxuries has increased. The two things that have probably made the greatest difference of all are the movies and the mass-production of cheap smart clothes since the war. The youth who leaves school at fourteen and gets a blind-alley job is out of work at twenty, probably for life; but for two pounds ten on the hire-purchase system he can buy himself a suit which, for a little while and at a little distance, looks as though it had been tailored in Savile Row. The girl can look like a fashion plate at an even lower price. You may have three halfpence in your pocket and not a prospect in the world, and only the corner of a leaky bedroom to go home to; but in your new clothes you can stand on the street corner, indulging in a private daydream of yourself as Clark Gable or Greta Garbo, which compensates you for a great deal. And even at home there is generally a cup of tea going-a "nice cup of tea"-and Father, who has been out of work since 1929, is temporarily happy because he has a sure tip for the Cesarewitch.

Trade since the war has had to adjust itself to meet the demands of underpaid, underfed people, with the result that a luxury is nowadays almost always cheaper than a necessity. One pair of plain solid shoes costs as much as two ultra-smart pairs. For the price of one square meal you can get two pounds of cheap sweets. You can't get much meat for threepence, but you can get a lot of fish-and-chips. Milk costs threepence a pint and even "mild" beer costs fourpence, but aspirins are seven a penny and you can wring forty cups of tea out of a quarter-pound packet. And above all there is gambling, the cheapest of all luxuries. Even people on the verge of starvation can buy a few days' hope ("Something to live for," as they call it) by having a penny on a sweepstake.

Of course the post-war development of cheap luxuries has been a very fortunate thing for our rulers. It is quite likely that fish and chips, art-silk stockings, tinned salmon, cut-price chocolate (five two-ounce bars for sixpence), the movies, the radio, strong tea and the Football Pools have between them averted revolution. Therefore we are sometimes told that the whole thing is an astute manoeuvre by the governing class-a sort of "bread and circuses" business-to hold the unemployed down. What I have seen of our governing class does not convince me that they have that much intelligence. The thing has happened, but by an unconscious process-the quite natural interaction between the manufacturer's need for a market and the need of half-starved people for cheap palliatives.

Posted by: Steve | Nov 2, 2007 1:19:14 PM

"The Left says that that may all be true, but housing, and education, and health care, and fuel -- the big ticket items in our lives -- are getting far costlier, and incomes aren't keeping pace. "

This is more difficult to prove than it seems. Taken one by one housing see above post but home ownership is up as is square feet of living space per person. New techniques do improve education so you get more (“direct instruction” seems promising) for what you spend but also people are getting more years of education. In health care we spend more but we also get much more (see Joe Namath and compare his knee surgery with a knee surgery done today. Still in healthcare we spend way more than is economically optimal. By this I man that we would get more utility from spending less and having more money. We do not so much buy fuel as miles travel at a given level of comfort and prestige, light, warmth etc. And with things like the Prius, the compact florecent bulb, better windows and insulation and 17 seer cold climate heath pumps we get more of what we want out of a given amount of fuel (ttp://www.gotohallowell.com/) and we get cleaner air and water as a plus

Posted by: Floccina | Nov 2, 2007 1:35:00 PM

People complain way too much about the hight cost of housing. As goods like toys and electronics get cheaper and cheaper, people spend their excess wealth on other things. Things like housing and health care. Now health care is all screwed up for its own reasons, but housing is now a positional good. That means the price of real estate in desirable locations is driven primarily by a bidding war of who wants to live there. And as other goods get cheaper, more and more income will get diverted to this bidding war. And... so what? We need to adopt policies that allow for reasonable lifestyles in the less desired living locations. This is the anti-urban living argument. Urban living is great and everyone who wants to and can outbid everyone else should be able to, but the rest need good options. Probably better transportation policy in an important part of this equation. Also, this is where pronounced inequality comes into play. Except this time, we don't need to be worried that much about the top 1 percent, we just need to make sure we don't leave the bottom 1/3 behind. If we can handle that, increasing housing costs are not actually a problem. In some sense, they're a sign of a healthy society.

Posted by: mpowell | Nov 2, 2007 1:38:11 PM

"Although housing and education costs are relatively higher now than 30 years ago, new financing methods make it much easier and cheaper to take out loans."
Uh, you did notice that because of the mortgage buble it has become almost impossible to buy a house without 20% downpayment, didn't you? Looks like the 'financial methods' are back where they were in the late 90s...

Posted by: Gray | Nov 2, 2007 1:39:15 PM

PinNYC — I haven't read extensively on this, but Japan does have a segment of its youth population which, post-Bubble Economy, has moved in with their parents and accepted low-paying service jobs in order to maintain their consumption habits (I lived about an hour away from Fukuoka city and the number of luxury handbag outlets approaches the ludicrous) and avoid having to deal with the housing market. They're known as freeters or parasite singles. Several of the younger (late-twenties / earlier-thirties) teachers I worked with there still lived with parents, including one who made an hour-and-a-half commute to school from the prefectural capital where her parents lived. Though actually, teaching assignments, which rotate regularly, were made at the prefectural level and there was no guarantee you wouldn't be shipped off with your family to the other end of the prefecture every three or four years, so her response wasn't all that unrealistic. Sorry, getting off-topic now.

Posted by: mc_masterchef | Nov 2, 2007 1:39:22 PM

I'm not sure how the Ipod is any different than the Air Jordans in the 90's. That is, there's always been a distinction between status and security. How many times have you heard the refrain from someone who has an extremely luxurious Mercedes that's parked in the driveway of a crumbling house on the bad side of town say, "Well, people don't see my house necessarily but they always see my car"? Or have seen the kid in the schoolyard with the brand-spanking new version of Air Jordans but watched him pull out his reduced-lunch card. Or visited a developing country and stepped into a one-room shack in a remote rural village, only to find three televisions. And the list goes on. Doesn't seem new to me.

Posted by: louisa | Nov 2, 2007 1:41:12 PM

gray, regardless of the credit bubble, it is infinitly easier and cheaper to take out loans now than 30 years ago.

Posted by: anon | Nov 2, 2007 1:46:00 PM

Anyone who is able to sock away $5k into a Roth is making well above the average income for their circumstances. I imagine 'anon' is single and living in one of the cheaper cities in terms of cost of living or 'anon' is just lying.

Part of the problem I see is that the American Dream has changed. Even in the 80's when I was a teenager the image of the American Dream was going to college and getting a good job...basically doing better than your parents did. Now it seems the American Dream is winning American Idol or being a professional athlete or becoming an Internet millionaire. It just seems the core imagery of the post-war American Dream has changed to some unattainable collection of wealth and publicity. It is easy to fall into the malaise of failure at an early age when it is apparent that those goals are out of reach. Sure the majority of youth are raised in solid homes that stem this to some degree, but our overall cultural discourse has devalued work and replaced it with greed and celebrity.

Posted by: Ricky | Nov 2, 2007 1:49:35 PM

"The Right says they're getting better -- we've got the internet, and iPods, and all sorts of awesome, dirt cheap consumer goods. The Left says that that may all be true, but housing, and education, and health care, and fuel -- the big ticket items in our lives -- are getting far costlier, and incomes aren't keeping pace."

Oh, come one, please! Smell the damn roses!

This is Baumol's Cost Disease. Average wages are set in an economy by the average productivity in that economy. Secondly, we know how to increase labour productivity in manufacturing better than we do in services. Thus we epxect (yes, expect!) services to become relatively more expensive as compared to manufactured items over time.

That explains education a nd health care. Housing is, as you might have noted, in a bubble right now, driven by several years of negative real interest rates. Fuel is a little different, I agree.

But in education and health care, it's nothing to do with economic security or status: it's just the way the universe is. It's easier to increase productivity in manufacturing than it is in services.

Posted by: Tim Worstall | Nov 2, 2007 1:57:12 PM

There is a related but bigger issue associated with this trinket buying which in the most pessimistic scenario results in the collapse of our nation's economy (and western civilization). College graduates working in cell phone stores selling services to college graduates in cell phone stores. Less and less of us are actually making things and providing truly useful goods and services.

Posted by: Greg | Nov 2, 2007 2:03:05 PM

There is a related but bigger issue associated with this trinket buying which in the most pessimistic scenario results in the collapse of our nation's economy (and western civilization). College graduates working in cell phone stores selling services to college graduates in cell phone stores. Less and less of us are actually making things and providing truly useful goods and services.

Posted by: Greg | Nov 2, 2007 2:03:22 PM

I understand health care and education, but how does a white picket fence offer security?

And as far as education goes, a higher percentage of people go to college today than did 30 years ago. It is the standard that everyone must go to college that is new.

There are many, many things we need to improve, but on the whole things have continually gotten better not worse. Admittedly, almost seven years into the Bush presidency that can be a hard case to make, but it is still true.

Posted by: Mark | Nov 2, 2007 2:12:34 PM

"gray, regardless of the credit bubble, it is infinitly easier and cheaper to take out loans now than 30 years ago."

Easier, ok, because the banks already have your financial history in their computers nowadays (who needs privacy?). But isn't 'cheaper' just a side effect of the artificially low interest rates at the moment? And don't forget that this drives inflation, too. Have you taken this into account?
:-/

Posted by: Gray | Nov 2, 2007 2:18:22 PM

The problem isn't housing, mostly; it's housing in certain places.

A mile or so from my house there's a quite nice, 2-bedroom house on 5 acres of land for sale for about $100k; that's about what I spent on 12 acres and a 1-bedroom house. If even that's too much, you can get a trailer and an acre for less than $50k.

Posted by: SamChevre | Nov 2, 2007 2:18:36 PM

I've found that I have less money for gadgets now that I need to put money into my Roth IRA, 401(k) and savings account for a new car. Responsibility really cramps my style.

Posted by: Tyro | Nov 2, 2007 2:30:31 PM

The comments to this entry are closed.