Economic conditions worsen: especially for the poor

There's a story in the Washington Post that is an appropriate counterpoint to the bailout of Bear Stearns and the Fed's attempt to keep the financial spigot flowing for the markets and investment banks, activities that most directly affect the wealthiest Americans whose fortunes depend primarily on the financial markets.  Neil Irwin & Alejandro Lazo write, in Inflation Hits the Poor Hardest, Washington Post, Mar. 21, 2008, that hidden in the 4% overall increases in the prices of goods and services from a year ago are increases that will be particularly hard for those on limited incomes.

An analysis of government data by The Washington Post found that prices have risen 9.2 percent since 2006 for the groceries, gasoline, health care and other basics that a middle-income American family has little choice but to consume. That would cost such a family, which made $45,000 on average in 2006, an extra $972 per year, assuming it did not buy less of such items because of higher prices. ... This contradiction -- high inflation for staples, low inflation for luxuries and in wages -- helps explain why American workers felt squeezed even before the recent economic distress began.

And as Jaren Bernstein of the Economic Policy Institute notes, these statistics tell us a lot about the "middle-class squeeze."   "The idea that you can understand the kind of budget constraints that middle-class families face by looking at overall inflation is wrong. You have to look at the core items a middle-class family buys."  Id.

Comments

[John O. Fox]

For this year’s election, I have updated my (short) 2004 book, 10 Tax Questions the Candidates Don’t Want You to Ask. It is now on-line, free and may be found at:

10taxquestions.com.

I believe that the future of the income tax, Social Security and Medicare ought to be a central issue of this year’s presidential and Congressional elections, but, as you know, candidates tend to speak in sound bites that fail to clarify what really is at stake and what makes sense. Readers of my book, written for the general public, will understand how to evaluate tax policies as they arise in the campaigns. We might even get candidates to answer these questions, which ought to help us understand their basic values as well as their views about tax issues.

John O. Fox
90 Fearing St.
Amherst, MA 01002
Visiting Associate Professor
Mount Holyoke College