According to research from the Brookings Institution, more than four-fifths of forty-year-old Americans live in households with higher real per capita family incomes than their parents did at the same age. And indeed, measuring gains in terms of real (i.e., inflation-adjusted) incomes understates the good news. First, adjustments for inflation can never fully capture the gains in standard of living made possible by the introduction of new products: no matter how much money you made in the early 1970s, you could not surf the Internet or use an ATM or listen to an iPod or take ibuprofen for a headache or get an MRI if the headache persisted.
Furthermore, calculations of real income are always made on the basis of a single monolithic estimate of inflation. But it turns out that the prices of high-end consumers goods have been rising much faster than those of low-end goods, and thus the inflation rate for the poor has been lower than that for the rich. Which means, in turn, that conventional estimates understate the true gains made by the poor in terms of material standard of living.
Look, for example, at a comparison of all households in 1971 to households below the poverty line [emphasis in original] in 1994. Some 72 percent of poor households had washing machines in 1994, compared to 71 percent of all households in 1971; 50 percent had clothes dryers, while only 45 percent of all households had them in the early 1970s; 98 percent had refrigerators, up from 83 percent a couple of decades earlier; 93 percent had color televisions, a dramatic increase over the 43 percent figure for all households in 1971; 50 percent had air conditioners, as opposed to 32 percent of all households earlier; and 60 percent had microwave ovens, while fewer than 1 percent of all households had one in 1971. In some important respects, then, poor Americans have a higher standard of living than average Americans did a generation ago.
Why does all of this matter? Because it means that the material consequences of socioeconomic underachievement are growing ever less severe. Of course it is fundamentally good news that the material circumstances of the least well off are improving. But there is a downside: just as downward relative mobility sharpens the incentives to work hard, amass human capital, and get ahead, upward absolute mobility dulls those incentives. It is a grim, uncomfortable fact that the lash of material hardship is a powerful motivator. If living conditions for those in the bottom half are decently comfortable, the motivation to expend the effort needed to move upward will have to come from somewhere else. And it might not come at all.