Random Corner - Slack & the 60's - EdsCave

The other night I was reading some essays by Ray Bradbury, the author of the well known novel 'Fahrenheit 451'.  In it he mentioned that he and his wife were scraping by in the late 1940's, paying $30/month for an apartment in Venice Beach , CA.  This reminded me of reading something very similar in a biography of Steve Wozniak, the inventor of the Apple computer. He had claimed to be paying $150 a month in the mid 1970's in Silicon Valley.  Thinking about these numbers for a few moments, it occured to me that they were waaaay below what one would expect if adjusting modern rents for official CPI  (Consumer Price Index) inflation. It also struck me as interesting that two such creative leaders would see fit to mention this.   

The 1950's through 1970's were decades of social and creative upheaval in the United States and elsewhere.  There were social revolutions such as the civil rights movement and  technological revolutions such as the development of transistors and the integrated circuit.  While the root causes were surely complex, I believe that one factor was simply slack in the economy for the average person - meaning that you simply did not have to work as many hours or for as high wages to barely get by as you would today.  While an easier time of just squeaking by certainly contributed the the 'beatnik culture' of artists, and the 'turn-on, tune-in, drop-out' drug  culture, it also enabled other people, such as Bradbury and Wozniak to take greater risks than they would have been able to at many other points in time.

Was there, however, actually significantly more economic slack for the average person back 50 years ago?  I looked at a few economic measures to find out. First, consider the minimum wage. It was $0.30/hr back in 1940 and has increased over time to $7.25/hr in 2015.  While this may seem like an enormous increase (a factor of nearly 25), CPI inflation has increased about a factor of 17, so this seriously dilutes any real gains.  If one considers the relative buying power of the minimum wage over time, the situation gets a little more interesting. The figure below shows how the relative buying power of the minimum wage (adjusted to CPI) has varied between 1940 and 2015.

As you can see, the minimum wage's buying power rose rapidly after WWII and peaked in the 1960's and 1970's, after which it started to decline significantly.  

Now some people may claim that CPI is inadequate to describe 'real' inflation. Another interesting metric that can be developed is the ratio of monthly wages at minimum wage (assuming 160 hrs/mo) to median US rent. That figure is below. You can see that ratio peaked at nearly '3' back in 1950.  One often hears that people should spend no more than 1/3 of their gross income on housing, so this suggests that back in 1950 it was possible to get by on a full-time minimum wage job in many parts of the US.

Renting is well and good, but if you are planning on staying anywhere for more than a few years, owning property has several advantages - one of the big ones is that for a fixed-rate mortgage, inflation works for you as your nominal income tends to goes up but your 'rent' stays constant.  Another metric of interest is the number of years of wages needed at minimum wage to buy the median US house, which is shown in the figure below.

This graph is quite sobering, as it implies that back in the 1940's and 1950's one could almost afford a median house on minimum wage (5 X yearly wage),  but that in 2000 (the last year I had the housing data for), it would take nearly 12 years of wages to buy the median US house - completely pricing minimum wage earners out of the housing market with conventional (conservative) financing.

Only a minority of full-time regular employees earn minimum wage.  I had three reasons for using this data to show the change in 'slack' over the past 70 years.  First, being defined by law, it is a reliable set of figures.    Secondly, it serves as a consistent yardstick for the lowest compensation rung for regular employment. Finally, it may actually be applicable as a 'base-rate' for creatives who are not working full-time.  The stereotype of the aspiring actor or writer waiting tables is hardly fiction - many creative people are forced to eke out a living at   part-time jobs while plying their art.  The ability to do so, however, has seriously eroded over the past 40 years. Tthis loss of economic slack may have serious impacts on the ability of current and future entepreneurs and artists to make their contributions to our society, as opposed to simply taking the 'safe' route of a 'regular' career to make the rent.

Data Sources:
http://www.usinflationcalculator.com/inflation/consumer-price-index-and-annual-percent-changes-from-1913-to-2008/
https://www.dol.gov/whd/minwage/chart.htm
https://www.census.gov/hhes/www/housing/census/historic/grossrents.html
https://www.census.gov/hhes/www/housing/census/historic/values.html

Form the Blog, 8 March 2017