Economist Writing Every Day

Has it gotten easier or harder for Americans to afford the basic necessities of life? Part of the answer to this question depends on how you define “basic necessities,” but using the common triad of food, clothing, and housing seems like a reasonable definition since these composed over 80% of household spending in 1901 in the United States.

If we use that definition of necessities, here is what the progress has looked like in the US since 1901:

The data comes from various surveys that the Bureau Labor Statistics has collected over the years, collectively known as the Consumer Expenditure Surveys. The surveys were conducted about once every 1-2 decades from 1901 up until the 1980s, and then annually starting in 1984. Some of these are multi-year averages, but to simplify the chart I’ll just state one year (e.g., “1919” is for 1918 and 1919). The categories are fairly comprehensive: “food” includes both groceries and spending at restaurants; “housing” includes either mortgage or rent, plus things like utilities and maintenance; and “clothing” includes not only the cost of the clothes themselves, but services associated with them such as repairs or alterations (much more important in the past).

We can see in the chart that over time the share spent on these three areas of spending has declined dramatically, taken as a group. Housing is different, but it has been fairly stable over time, mostly staying between 22% and 29% of income (the Great Depression being an exception). There are two time periods when these costs rose: the Great Depression and the late 1970s/early 1980s. Both are widely recognized as bad economic times, but they are aberrations. The jump from 1973 to 1985 in spending on necessities was fully offset by 2003, and today spending on necessities is well below 1973 — even though for housing, it is a few percentage points greater.

A chart like this shows great progress over time, but it will inevitably raise many questions. Let me try to answer a few of them in advance.

One thing that could be going on is that consumers are increasingly spending more money on other things, but the real cost of these goods hasn’t declined. Maybe consumers are being squeezed by, say, the cost of education and healthcare (things they spent almost nothing on in 1901). Certainly it is true that families are spending their income on something else! While savings rates have increased (they were basically zero in 1901), families aren’t saving half of their income today.

But the intuition that the real cost of these goods has been rising is dead wrong. Certainly it is wrong for food, which we can see by using “time prices”: it takes a lot fewer hours of work to buy almost any food imaginable compared with 100 years ago, and for most foods even compared with 1980. Clothing is also much more affordable, as I showed in a comparison to 1898 prices. Housing is a tricky one, given that houses are much bigger and have more amenities today than in the past. I tried to do a reasonable calculation for size and quality of housing compared with 1971, and I found that while housing is more expensive relative to income, it’s not dramatically so: perhaps between 17% and 31% more expensive, depending on how much you value air conditioning.

Another reasonable question you might ask: how useful is looking at the national average? Isn’t there going to be a significant amount of variation, especially in housing costs, across the nation?

It’s a good question, and thankfully the BLS survey data gives us some information to address this concern. The surveys going back to 1901 not only have a nationwide average, but also data for Boston and New York City. That’s not quite true: the 1901 data is for Massachusetts and New York state, so I’ll drop those years from the analysis. But from 1919 forward, they are for these city MSAs. It is notable that in 1901, in these two places the average family was spending close to 100% or more of their income on necessities, probably relying either on charity or taking on debt to meet their basic needs.

Using these two cities as a comparison, we see that the patterns are very similar over time. The US average actually is a fine proxy for what is going in individual cities. Even though, for example, housing costs are much higher in New York than the rest of the country (and have risen much faster in recent decades), the general pattern is very similar.

New Yorkers spend 27.5% of their income on housing, rather than 25.4% in the US average, but these are not dramatic differences given the historical trends. Bostonians spend even less: about 24% of their income on housing. We might say that Boston has experienced a bigger decline in spending on necessities over time, which is correct based on this data, but in the long-run these are all very similar trends. Not only are these all lower than 1919 or even 1973, they are currently the lowest on record!

Finally, we can return to one more objection that I raised at the beginning of this post: what is the correct definition of necessities? Don’t we consider more things to be necessities today than in the past? Certainly we consider more than to be necessities today, but I would argue that this is a result of the increasing affordability of food and clothing, as well as the dramatic increase in the quality of housing, rather than a counterargument. We spend more on other things because our basic needs of the past are now easier to fit into our budgets!

To be clear, this analysis doesn’t mean that no one is struggling. If you are curious, much of the data since 1984 is available at finer levels of details, such as by income quintile, education level, region of the country, etc. Certainly for some families today, life is less affordable than, say, the average family in 1985. But we can also be too nostalgic for the past. Would you have guessed that in the “good old days” of the 1950s and 1960s, the average US family was spending 30-40% of their income on food and clothing, something that today we spend barely over 10% on? To understand the challenges we face today, it’s important to have the context of how bad the past was.