This Chart Shows Why Americans Believe They’re Poorer
This Chart Shows Why Americans Believe They’re Poorer by
Economists talk about growth in terms of gross domestic product (GDP) or income. These factors are important, but they don’t mean much to average people. For example, GDP totals $19 trillion for the U.S. This is good, but doesn’t tell me anything about the average family.
Ronald Reagan summed up how Americans think about the economy in a 1980 debate with President Jimmy Carter. Reagan ended with a simple question: “Are you better off than you were four years ago?”
That’s how we think about the economy. We ask: Are we better off?
The only difference between now and 1980 is the time frame we think about. Now, we often compare our current situation with how we were nine years ago, before the Great Recession led to so much change.
A Crisis of Confidence
To answer “Are you better off than you were nine years ago?” families think about their income. But they think of how much their income grew in a very particular way.
Families understand inflation. They know they are only better off if their income grows more than inflation. Families also know that inflation in their “must pay” bills hurts the most. They fall behind even when income rises if there isn’t enough money to pay for kids’ activities or an occasional dinner out.
In economic terms, families value gains in real disposable income. Disposable income is money left over after paying for basics like housing, food and clothing, and real income means it’s adjusted for inflation. Gains in real disposable income show how much better off we are.
The chart below shows the average annual change in real disposable income over the past nine years. This is the time frame since the Great Recession. For comparison, the chart shows the same measure going back to 1969, the earliest date the data is available. The trend is clear: Real disposable income has been growing at a slower and slower rate over time.