- 5

Money and Our Economic Life

 

Jerome M. Sega!

the United States is such an affluent society, why

do so many people feel financially stretched to the

limit? After all, median family income is 50 percent
higher today than it was in 1963 when John Kenneth
Galbraith wrote The A?luent Society, and it is double
what it was in 1950.

One standard answer given by liberals to this
apparent paradox of contemporary American life is that
the American people are being manipulated by the eco?
nomic system to develop new desires that have little to
do with their fundamental humanity and a great deal to
do with the degree to which they have succumbed to
advertising and the mass media. If this is the problem,
the proposed solutions often focus on reducing our
wants, either collectively (by adopting new societal
values) or individually (by learning how to live with less
and like it).

This analysis contains some elements of truth, yet it
misses a central reality of contemporary American life:
It has become increasingly expensive to satisfy a
common core of need.

Mainstream economics often misses this reality
because it shuns the concept of needs, concentrating
instead on wants, preferences, or utilities. When main-
stream economists address the issue of the cost of
meeting human needs, they frame the issue in terms of
how much it costs to purchase a fixed basket of goods
and services in areas such as food, energy, clothing, and
housing, and then ask whether, after in?ation has been
taken into account, the cost of these items has risen.
The problem with such an approach is that human
needs cannot be reduced to a fixed basket of goods.

What it takes to satisfy our needs in areas such as
housing, transportation, food, health care, clothing, and
education depends on a variety of changing social con?
ditions. To meet the same need may require a very dif-
ferent configuration of goods and services at one
historical moment than it does at another.

In considering American life over much of the last

 

jerome M. Sega! is a research scholar at the University of
Maryland?s Institute for Philosophy and Public Policy. He is the
author of Agency and Alienation: A Theory of Human Presence.

century, what we find is that with changed, and often
deteriorating, social conditions, needs that could previ-
ously be satisfied at relatively low levels of expenditure
now can only be satisfied at higher levels of income.
Our sense that we have to run just to stay in place is
real, not primarily the result of an artificially con-
structed sense of necessity.

Let us consider the changing requirements in each of
these areas.

Housing. Most Americans today do not have what
they have always needed: safe, minimally attractive
housing, located a reasonable distance from work.
Arguably, a smaller percentage of Americans now have
such housing than did fifty years ago. Despite higher
incomes, almost all Americans have had to settle for
less. Many middle?class Americans commute vast dis?
tances in order to have comfortable, safe housing;
others, in order not to live impossibly far from work,
settle for questionably safe neighborhoods. For the
well-to-do, conditions are livable. For those of limited
means, conditions are often intolerable.

To whatever extent we satisfy our housing needs, it
costs a lot more in real terms than it used to. In the
Washington, DC. area, for example, to find a moder-
ately safe neighborhood with acceptable schools, you
would have to live in a community where homes cost at
least $175,000.

Americans care a great deal about housing. It is the
single largest area of consumption, one to which people
often commit more of their resources than they can
easily afford. Median family income is roughly $43,000
a year, before taxes. If that family buys a $175,000
home, it places itself under considerable financial pres-
sure. If it does not, it lives under daily pressure to earn
more so that it might someday do so. Why should we be
surprised that most Americans feel financially pres-
sured about housing?

While any family can improve its situation through
increased income, if we all had more money the primary
impact would be to increase the bidding war for housing
that satisfied our needs. The financial pressure would be

TIKKUN 5 9

A.J. GARCES

 

 

just as intense, and overall need just as unsatisfied.

It is essentially a supply problem but not one that can
be met through construction. We are paying the price
of the loss of cities as livable spaces. The problems form
the familiar litany of urban decay: unemployment,
crime, deterioration of schools. Everyone flees or would
like to flee. But none has escaped the higher costs. For
those who could not get out, the costs are there in dete-
riorated conditions. For those who had the means to get
out, the costs are there in higher prices and new neces-
sities. They show up in household budgets for housing,
transportation, and education.

Transportation. The ?ight of middle-class Ameri-
cans to the suburbs and beyond has radically changed
the nature of transportation needs for getting us from
home to work, to school, to stores, and to our friends.
Unlike safe housing, transportation needs are relatively
well?satisfied, but the costs are steep.

Since the 193 Os, the percentage of total consumption
devoted to transportation has more than doubled for all
income classes. Given that real per-capita consumer
expenditures rose by over 300 percent in the same
period, we have something in the neighborhood of a
600-percent rise in real terms in the amount that families
are spending on transportation. There is good reason to
think that nearly all of this represents an increase in the
cost of meeting a stable need for transportation from
home to work, schools, stores and communal activity,

60 TIKKUN VOL. 10, No. 6

rather than the growth of luxury.

The shift to the suburbs, motivated in large
part by the search for safe neighborhoods and
decent public schools, has made the private
automobile a necessity, and the emergence of
the two-income family has tended to necessi-
tate a second car. This trend has been rein-
forced by the relocation of stores outside of
residential neighborhoods, often to malls five
or ten miles away, and the shift of communal
activities, especially for children, outside of
their immediate neighborhoods.

In the early decades of the century, people
had the same need for transportation that they
have now, but they could and did satisfy this
need quite well without the car. Today, in
most parts of the country, a family without an
automobile would be far more restricted in its
activities than in times past. Thus, substantial
higher real income is required to meet the core
need for transportation.

Food. Although significant numbers of
American families fail to satisfy their need for
ample, nutritious food, for most Americans this need is
reasonably well met. Moreover, the income necessary to
satisfy this need does not appear to have increased in
real terms over the decades. In fact, there has been a
major decline in the percentage of consumer expendi-
tures for food. Between 1935 and 1988-89, its share fell
by half?from roughly one-third of household expendi-
tures to only one-sixth. (At the turn of the century,
almost 43 percent of the expenditures of urban wage
earners went for food.)

In real terms, household expenditures for food
increased only about 5 percent between 1935 and 1989.
This suggests that in real terms there has been virtually no
increase in the income required to satisfy the core food
need, and possibly there has even been some decline.

The fact that most Americans today can meet their food
needs with a historically small portion of household
income reveals the extent of the chasm between the
average family and those facing hunger. For most of
human history and well into the twentieth century, hunger
was only a step away. Today the social distance is vast.

Health Care. There has been a dramatic increase in
health expenditures at the h0usehold level. Overall
household expenditures for medical care and insurance
rose by over 50 percent between 1970 and 1990. This
increase emerged from several factors, including Changes
in technology which have brought about the development
of more effective treatments; the aging of the population,

which has resulted in increased health-care needs; and
rapid monetary in?ation driven by the unique, sometimes
rapacious, nature of the health-care industry.

What does not seem to be a major factor is in?ation
in our sense of necessity. If a patient has magnetic reso?
nance imaging done to examine a possible tumor, it is
not because he is seeking to keep up with the Joneses or
because he has developed a taste for luxury. The costs
of this procedure are meeting a need?a need for
health, and thus a need for whatever can appreciably
reduce the likelihood of dying of cancer. This is not to
say that there has been no in?ation in what constitutes
necessity in health care; perhaps the increasing reliance
on orthodontia is one example. But in the main, it
seems unlikely that in?ated standards have significantly
driven up our income needs in this area. Moreover,
even if there has been an expansion of ?unnecessary?
treatments and tests, the consumer is rarely in a position
to evaluate their necessity if a doctor orders them. As
far as the of consumption is concerned, this
is quite unlike feeling one just cannot do without the
new gadget the Joneses just bought.

Clothing. Over the last ninety years, spending for
clothing and related services has shown a marked
decline as a percentage of consumer expenditures.
From a high point of 17.6 percent in 1917-18, it
declined to 10.3 percent in the early 19605, and has
fallen since then to between 5 and 6 percent. In real
terms, per-capita spending for clothing fell between
1960 and 1988. Yet there is little basis for believing that
clothing needs are less adequately met today than thirty
years ago. Thus, it seems clear that in this area, at least,
we have not seen any increase in the income needed to
meet needs. Nor does there seem to have been any in?a-
tion in people?s sense of how much money (in real
terms) they ?must have? for clothing.

This is interesting, because it is clothing above all else
that seems most powerfully in the grip of changing fash-
ions and desires shaped by advertising. If one expected
to find a powerful escalator of inflated desires, an esca-
lator that makes people constantly feel a need for more
and better material goods, it would be in this area. But
apparently no such escalation has occurred.

This data may seem surprising, given the news
reports of teenagers killing each other over $200
sneakers, and the fact that very few people are casual
about their choice of wardrobe. What the numbers sug?
gest is that the fashion industry, while succeeding in fre-
quently changing our sense of acceptable dress, has
failed to get us to raise, or even maintain, the relative
priority we give to clothing expenditures. And they also
may reveal that the harmful social effects of advertising

may outstrip the extent of its economic impact.

Education. Families seek and need safe and compe?
tent schooling for children. They want schooling that is
effective in equipping their child to succeed in the
socioeconomic competition. Parents see their responsi-
bility, and a good part of their identity and fulfillment,
as bound up with how successful their children will be.

When the disparity between socioeconomic winners
and losers is very great, as it is in our society, the con-
sequences of not receiving good schooling are enor?
mous. In a society in which many aspire to a limited and
perhaps declining number of successful jobs, it is true
by definition that most will fail.

Given the fact that some private schools more ade-
quately meet children?s needs than do the inferior
public schools, an increasing number of parents find
that in order to provide a safe, competent, and success?
oriented education, they need income sufficient to send
their children to private schools.

There has been explosive growth in the amount of
income needed for day care and pre-school. This is
directly related to the entry of large numbers of women
into the paid labor force?a clear example of the fact
that a significant portion of higher incomes and higher
consumption goes to fulfill needs that were previously
filled by different social arrangements.

Day care typically costs of $120 per week, or roughly
$6,000 a year, are familiar to middle-class parents.

Before-tax median income for married-couple families

with the wife in the labor force is about $50,000.
Assuming annual expenditures of $42,000, the day?care
bill for these families would constitute one-seventh of
total expenditures. The $6,000 increase in needed
income incurred by families who pay for day care can

 

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MONEY AND OUR ECONOMIC LIFE 61

also be put in perspective if we note that in constant
1990 dollars, median family income in the United States
only rose $2,115 between 1970 and 1990.

Finally, higher education is a significant factor in the
growth in the amount of income required to meet
needs, in part because of an increase in the amount of
schooling young people need in order to compete for
employment. In addition, income needed has gone up
because tuition costs are rising at a rate higher than the
average rate of inflation. For example, between 1975
and 1990, the cost of one year?s tuition in a private four?
year college (in constant 1990 dollars) rose by $4,400.

he picture that emerges from even this cursory

examination is that once we start thinking of eco?

nomic life in terms of the human needs we bring
to it, and the amount of money it takes to fulfill them,
the image of af?uence, even for the middle class, dis-
solves. Instead, we find a society in which long-
standing, legitimate need is widely unmet, and which in
some instances is more thoroughly unmet than in pre-
vious, less affluent generations.

While our need for food and clothing is today met
with ever-smaller portions of our income, there are
other major areas in which the cost of meeting needs
has not only risen, but has risen considerably more
rapidly than has income itself. Thus, it is no surprise
that people should continue to find themselves hard?
pressed even at income levels which, by conventional
methods of analysis, are much higher than those of their
parents? generation.

Why, after adjusting for in?ation, do people require
more money in order to meet legitimate needs? Putting
the health sector and the introduction of effective but
expensive technologies aside, the dominant factor is the
breakdown of previous social systems within which
needs were met. Urban public schools were safer so we
didn?t need private ones, or we didn?t need to move to
the suburbs. There was public transportation, or we
lived closer to work, friends, and stores, so we could do
without a car, and certainly didn?t need two cars. With
the collapse of public provision for meeting human
needs, the burden has increasingly fallen on each indi-

vidual household.

 

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62 TIKKUN VOL. 10, No. 6

Gaining control of the money dimension of ordinary
life is not just a matter of individual frugality or cultural
definitions of identity. It is also a matter of social and
economic policy. In specific instances there may have
been deliberate policies intended to promote consump-
tion dependency?as when corporate interests pushed
for the abandonment of public transportation systems to
create a need for the automobile. But for the most part,
the level of income it takes for a family to meet legitimate
needs has not been the object of conscious policy.
Rather, it has been the unintended result of multiple
policies and processes, in some instances successes such
as vast increases in farm productivity, in some instances
failures such as the collapse of the urban environment.

What is needed is a new approach altogether. In
assessing the performance of Third World economics,
the inadequacy of focusing on aggregate levels of
income is well known. Economies can also be judged by
an alternative notion of efficiency??the extent to which
aggregate income is utilized to meet basic needs, with
success measured by the extent to which needs are
addressed at low-income levels.

An analogous way of thinking is needed in our
approach to the economic performance of rich coun-
tries. We need to rethink the bottom line. The eco-
nomic realm must be placed within the larger context of
what we deem to be ?the good life.? Part of what we
should want from our economy is that over time it lib-
erates us from the demands of economic life. It is not a
fantasy to believe in a pattern of economic evolution in
which households will increasingly be able to meet their
core needs with, if not less income, then at least less
work time, a world in which over time the economic
sphere will play a smaller and smaller part in our lives.

The task of developing an agenda and a movement
which will carry us in that direction is daunting, but
more fundamental is simply getting clear on where we
are and where we want to go. For good or ill, statistical
measures such as growth rates in per-capita Gross
National Product have tremendous power in shaping
our public discourse. The need for alternatives is today
widely recognized, but viable measures of what is really
important in economic life have been in short supply.

In reorienting our thinking about what constitutes
good economic performance, an index of need?required
income (NR1) that measures what we have been con-
sidering in this article?annual changes in the real
income required to meet legitimate economic needs?is
both feasible and of far-reaching power. It tells us part
of what we need to know about our socioeconomic life:
Are we, as a society, making progress in reducing the
extent to which having a decent life means running after
that extra buck? El