The Tchotchke Economy

Robert Kuttner, over at The American Prospect, has an interesting column worth mentioning. He claims that the reason for stagnating wages for the American worker has nothing to do with the influx of illegal immigration, but rather with rising housing, health care, and college education costs. Kuttner writes:

Census data show median household income fell 3.8 percent or $1,700, from 1999 to 2004, according to economist Jared Bernstein of the Economic Policy Institute (on whose board I serve.) And this drop occurred during a period when average productivity rose three percent per year.

Moreover, as economist Jeff Madrick has observed in his book ''Why Economies Grow," the reality is worse because prices of commodities that make us middle class are rising much faster than inflation generally: housing, college education, health care, and also child care. These very rapid price increases are offset by falling costs of consumer electronics, basic food, and clothing, creating misleadingly low inflation measures.

According to economist Bernstein, whose study covers the years 1991-2002, households in the middle fifth of the economy increased their incomes (not adjusted for inflation) by 41 percent. Inflation during that period, as measured by the government's Consumer Price Index, went up 33 percent. That implies real living standards rose by a not very impressive 8 percent during more than a decade.

But hold on. During the same period, housing, healthcare, education, and child care went up 46 percent, or more than incomes. We cannot afford the big things we need and comfort ourselves with gadgets. The cheaper laptop, plasma TV, and GPS screen in your car make it appear statistically that living standards are not falling as much as they are.

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.

Kuttner makes an interesting point here. While prices on consumer products have fallen, we've certainly seen huge price increases in health care, housing, and college tuition. In fact, I have to wonder how many companies are substituting employee wage gains with imposing increasing health care costs on their employees. And yes, our politicians in Washington don't have a clue as to the problems ordinary Americans are facing.

I don't see it getting any better--not for a long time.