Income and Spending (Economic Evolution PowerPoint)
According to the myriad of pie charts constructed about past and current American spending habits, we now spend significantly more on leisure and nonessential items than in 1900. This is attributed to the fact that the employed have two times as more income to spend today. Not only that, we would spend 6% of our budget on food instead of 14% if it had the same condition as consumables in 1900 because the quality of products is much better nowadays.
Income Elasticity of Demand: occurs when we have an increase in income, we spend a larger percentage of our budget on something else.
This is what happened with the US defense spending, which increased by a factor of 160. If the American defense budget was a country, it would be the 12th largest on Earth. The United States government is also the largest employer in the world. America is so well-off as a country that the poorest 5% in the nation are richer than 70% of other people in the world.
Income understates the extent of our economic growth. This is because commodities don't matter as much as the services provided by the consumption of them. Real economic growth is underestimated by 1.4% per year.
Measurements of living standards miss:
- availability of goods
- capability of goods
- convenience of goods
- how much time we don't have to spend obtaining said goods
Risk is also lower in today's economy. For example, in 2007, the cost of wheat tripled. No one really noticed. Because wheat is in pretty much everything, this same scenario would have had detrimental effects on people a century ago. If modern people did anything anything, they drank one less Starbucks latte a week. The cutbacks are dramatically different.
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