Observations on life

My political economic theory

Have you ever heard of the “Economic reality common sense paradox?”  I kind of doubt it mainly because I just made it up.

My theory is simple. It says you can’t rely on economic statistics or political interpretive rhetoric to explain how individuals and families live their economic lives.

Simply put, the struggling middle class, the people who aren’t making a living wage, the victims of the rigged economy and stagnant wages as the rhetoric says, are not as bad off as the rhetoric suggests. Why? Because individuals set their spending priorities and in doing so create what they can and can not afford; which often is counter to what I would classify as common sense and logic … yes, my 72-year-old logic. In addition, we tend to ignore the relative standard of living we all have.

imageFor example, over 90% of Americans have cable or satellite TV access in their homes. The average American home as 2.86 televisions (for 2.5 people). In the 43 states with lotteries, the average spending (with variations among the states) is $300 per adult; generally skewed toward lower-income. The average worker spends $1,100 a year on coffee. And img_0043American families are big on entertainment (movies, sporting events, electronics) averaging $2,485 per year. As you may guess that spending goes up with income, but even the lowest 20% by income spends $1,002 on entertainment. 

According to Psychology Today, women spend over three weeks pay each year on … shoes. Forty-percent of millennials have at least one tattoo at an average cost for a basic tattoo of $100 (very basic). According to brewbound.com “Every year consumers shell out an average of $1,270 on beer. The highest reported amount was $10,000 while the lowest was just $100. Twenty-two percent of consumers buy and drink beer two to three times a week while 20 percent imbibe just once a week and 9 percent pop open a bottle more than five times per week.” According to one study, the average beer drinker spends 3% of their yearly income on their brew … and that ain’t high income people.

Do you see any basic necessities in the examples above? With all those TVs we have, why bother going to the movies and stadiums?

And while all this spending was going on, in 2015 the credit card debt per American household was $5,883.44 and the average credit card debt for families with credit card debt was $15,762.97

IMG_2120One could assume that many of the above Americans overlap with those who cannot afford health insurance, to pay student loans or to save … for anything.

And to think there are some of us who lived our working years exactly the opposite way. No, Walmart didn’t steal your American dream, nor did Wall Street or anyone else. If your dream is gone, most likely you sold it yourself by the life choices you made. 

So, about that theory of mine. For many Americans resetting their spending priorities and lifestyle easily changes their struggle. Income statistics, wage growth and Old BSs rhetoric is not representative of how Americans live their lives. If they were, there would be a lot fewer nail salons, Chinese take out restaurants and bars. 😎

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7 replies »

  1. Back many years ago in a saving and loan bank window (before they could issue credit cards) on Washington Ave., Newark, there was a sign in the window “instant credit instant debt” How true even today.

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  2. Nice that we have theories on economic consumption. I always though it was people confusing Needs with Wants. I was glad to find out from the posts that I win $300 a year by not playing the lottery but sad to find out I might be drinking it away.

    But I have good news for everybody. Affluenza is a pre-existing condition therefore the insurers must cover it under Obamacare.

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  3. As I see it, the problem with your hypothesis is that it runs up against the “Paradox of Thrift.”

    The paradox claims that if everyone started saving more, there will be less consumption and the economy will suffer. Slow economic growth will lead to reduced revenue and a negative feedback loop is initiated. Apparently all of the world’s central banks are on board with this theory which is why interest rates are so low, even going negative in some places in order to spur consumption.

    What people spend their money on today is not based on necessity but on a relative consumption basis with their peers. (Keeping up with the Jones’).

    I think this materialistic phenomenon started long ago with the introduction of credit cards and other easy credit. The true cost of consumption could be ignored and overshadowed by the pleasure of immediate gratification.

    Sooner or later our reliance on debt will end and chances are it won’t be pretty.

    https://en.wikipedia.org/wiki/Paradox_of_thrift

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    • Since we are not a nation of savers, the paradox is false. Very few are saving for anything. We are a credit bubble economy, spending created out of thin air, with nothing backing it, but our promise to pay every month. I have $11,000 in unsecured credit card debt, and can service this debt with 20% of my monthly income. So, I still have 80% of my income to pay my bills. The debt will be paid off in 24 months because I use 40% of my income, this will save me over $2,000 in interest payments. But, if I die before I pay the debt, the banks get nothing. What a system. Record low wages for the bottom 50% of workers has created this bubble. Most families use credit to maintain the illusion of a middle class standard of living. This was not so 40 years ago, most used credit only to buy a house or car, assets that have some value, that the bank could get if the borrower defaulted.
      The reliance on debt will never end. It will just inflate and deflate with the economic activity of the lenders and borrowers.

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