Arnold Kling  

Overspending and Obesity

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My post-vacation essay is somewhat wide ranging.


by far the biggest indicator that middle-class squeeze is not quite what is portrayed in the media was the volume of construction and the prices of homes. Since our first vacation there almost twenty years ago, thousands of housing units have been built in Bethany, with much of the building taking place within the past five years. This expansion in supply has done nothing to hold down prices, however. We passed a development, located across a four-lane highway from the ocean, offering "luxury townhomes from the $700,000's." It seemed incredible to us that you could sell a townhome in a second-rate location in a middle-class resort for that much money. Each time we passed another new home site, I would mutter "looks like more middle-class squeeze going up."

...There is a parallel between the problems of middle-class squeeze and obesity. Self-control is required in order to live within one's means financially and in order to maintain a low body weight.

...politicians who take on middle-class squeeze or obesity as public policy issues may be causing harm. Sending out a message that government is the solution may serve to weaken the cause-effect connections that people need to make in order to solve what are fundamentally personal problems. The damage caused by exacerbating the cause-effect disconnect that weakens personal willpower may far exceed the benefits of whatever actual remedy the government is able to deliver.


On the topic of obesity, Iain Murray writes,

Fitness, not weight, is the issue. Ironically, the surest way to make us thinner would be to enact energy-suppression measures that would make us poorer, and therefore less able to afford the high calorie meals restaurants provide. That might also drive people to tobacco, too. It wouldn't make us any fitter, though. Overall, a fat society is healthier than a poor one.

For Discussion. Suppose you decided that middle-class squeeze is a public policy issue. What legislation would you enact, and what would you expect it to accomplish?


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CATEGORIES: Income Distribution



TRACKBACKS (3 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/113
The author at The Liberal Order in a related article titled Obesity writes:
    I have to agree with Arnold Kling that the increasing incidence of obesity in this country is a personal issue and not a public policy concern. I also believe that the problem is caused predominantly by our sedentary lifestyles more [Tracked on August 29, 2004 12:23 PM]
COMMENTS (21 to date)
Sam Jew writes:

Cut payroll taxes. Make up the revenue with a tax on bond interest.

Matt writes:

I have been thinking about this a great deal recently. People think the rise in real estate prices is money that comes from nowhere. It does however have a source, it comes from young people like myself having to work longer and harder to own a home.

I can accept this, after all my generation will be healthier and working longer than our parents anyway. Unfortuantely while prices reflect the new reality, morgages don't.

I would write legislation backing new financing options for people like myself. 40 year financing for people under 35.

Just a thought!

Kelvin 2.7 writes:

The idea that the middle class is being squeezed is hard to swallow. However, if the middle class is being squeezed, it's probably the result of government-sanctioned monopolies forcing them to overpay, so the answer would be either to create competition for these monopolies or to regulate them. This would increase the spending power of the middle class.

William Woodruff writes:

All,

The middle class squeeze is complete fallacy.

I was pondering the issue last week when I noticed the proliferation of pricy coffee bars in my neighborhood. Americans obvious have adequate discretionary income when they purchase $4-5 cups of coffee and $ 3 muffins (!). They drive up to the cafe in $40K SUV's which consume copius quantities of petrol.

What middle class sqeeze ?

William

Sam Jew writes:

1) Maybe the target market for that cafe isn't the middle class.

2) Anyone can afford $8.

3) Maybe the people driving those gas-guzzlers bought them on credit.

4) As long as well-paying jobs are rare, the middle class will continue to be squeezed.

It's fascinating to me what intellectual light-weights conservatives are.

Brad Hutchings writes:

In the spirit of being an intellectual lightweight, maybe we could find a new name for "the middle class". It seems to elicit a Pavlovian response. How about "the C students"?

But seriously... Sam, you say there is a shortage of well-paying jobs. I have two questions for you. (1) What is the annual pay and typical working hours of a job you would consider well-payiing? (2) How do you think a job, especially a well-paying one, comes into existence? Tell us a short story that shows your understanding of the process. The lightweights that we are, we need to be spoon fed. Thanks!

Kelvin 2.7 writes:

According to the US Bureau of Labor Statistics, a middle class worker earns between $30,000 and $40,000 per year. If the middle class is being squeezed, then this amount must not be enough to maintain their lifestyle. Expenses rising most are health insurance and college education. Both suffer from price inflations caused by government intervention. Government could alleviate much of the "middle class squeeze" through regulatory relief. For example, allowing the purchase of catastrophic health coverage would cut the tab for medical insurance.

Tom writes:

Let's say middle-class squeeze amounts to lack of fiscal discipline, which means that the middle class (on the whole) is spending more and saving less. If that's the case, a public-policy solution would be to (1) increase taxes on consumption (perhaps by levying a national sales tax, including a sales tax on homes), (2) elminate income tax deductions for property taxes and mortgage interest (for starters), and (3) reduce taxes that discourage saving (perhaps by eliminating all taxes on capital gains and interest). Such a policy should have the effect of raising investment, increasing productivity, and making Americans less dependent on Social Security for their retirement. These ideas aren't new, but they seem applicable to the issue at hand.

Mcwop writes:

Kelvin 2.7, is that household income? If two typical workers are married each earning between $30-40K, then that is a household income of $60-80K. Just curious could not find the needed info at the BLS site.

Kelvin 2.7 writes:

A recent study by the U. S. Census Bureau puts median household income a bit above $43,000.

Lawrance George Lux writes:

Middle Class squeeze does exist, and it is a problem. Five million more Jobs were lost in the Bush years than were gained, and they all came from the high-end of the Middle Class Income Jobs. What replacement for them there was came in the low-end or lower than Middle Class Income. The NYTimes reports that those with Incomes of less than $75000 gained less than the Inflation rate in the three Bush years.

Current Government policy was the worst proscription for Middle Class squeeze. Low Interest rates plus bad Stock Market reduced the premium on Savings, inducing the Middle Class to spend excessively. Current Housing is mainly based on draining Savings instruments for down payment, while high monthly payments forstall future Savings by these Households.

Things to do to stop excessive expenditure patterns:
1) Make new Constructions bear the full cost of Hookups and Services--an additional $14000 per housing unit.
2) Force mandatory Savings accounts--$2000 per year for full Social Security Taxpayers, which can go into any designated Savings plan--but cannot be cashed out for twenty years, only transferred to another Savings plan if requested.
3)No new Consumption taxes, simply a Income tax surcharge of 3% on any Consumption level above a certain maximum per Income bracket--Mortgage payments separate from other Expenditures, but also with a limit per Income bracket.

Does it seem like Big Brother economics--it is. Will it settle the Middle Class squeeze--it will. lgl

dsquared writes:

I've often in the past noted that the term "middle class" seems to mean anyone who earns more than a subsistence farmer but less than Michael Eisner (and is therefore a completely meaningless term in its modern usage) and I suggest that this discussion rather proves my point.

Ryan Kauppila writes:

"an Income tax surcharge of 3% on any Consumption level above a certain maximum per Income bracket" - The bureaucracy required to establish, maintain, and enforce such a program should alleviate any unemployment concerns - and could well be the policy prescription Kerry is searching for. Of course, I thought once I turned 21 I would no longer have to pay the homeless man on the corner to buy my goods for me anymore. I would rather pay my 4-year-old niece the 3% and ask her to purchase my new LA-Z Boy rocker for me. I'll even throw in a trip to Dairy Queen. Addressing the issue raised in the original article by Mr. Kling, the problem with any policy to regulate issues of self-control is that the government (policy writers) must define 'enough' - an acutely difficult problem. What level of food consumption establishes someone as middle class - what is 'enough' consumption to not be lower class - and what types of consumption does it entail. Personally, I think not having HBO in modern day America is a cause for human rights workers - and definitely a mandatory requirement to be considered middle class. I guess it all comes down to the old saying of there are two ways to be rich - Have Michael Eisner-esque wealth of have Mother Teresa-esque wants. I just don't want the government trying to determine where on that consumption possibilities frontier I should fall.

Lawrance George Lux writes:

Ryan,
The 3% surcharge would be assessed in the good old-fashioned economic way: you make $40000, you can't prove you saved $4000, you pay the 3% surcharge. lgl

William Woodruff writes:

Lawrence and Sam,

You say....
Anyone can afford $ 8 AND Maybe they bought the gas guzzling SUV's on credit.
?? ??

What ? What ever became of personal choice ? Of course the target of $ 3 cups of coffee and $ 2.50 muffins is the middle class, Starbucks has generated an entire industry on this middle class consumers, to the tune of 30% surplus value(s).

And even the SUV's bought on credit must be paid for ! There is no free lunch.

IF ANYONE CAN AFFORD $ 8, THERE IS NO SQUEEZE

Further, who said the middle class must spend excessively ?

I earn far less than the members on this board, and my wife has not worked for years (graduate student...). Squeezed ? I spend less.....

Which from Keynes to Friedman is the what the good doctor (er, economist) orders for government.

William

Sam Jew writes:

In response to some of the comments explicitly directed towards me,

I define a well-paying job as one paying at least $100k US per year and requiring maybe 80-100 hour weeks. I don't believe such jobs are being created, (as I said, well-paying jobs are in short supply) but during an economic expansion such as we enjoyed during Clinton's term, such jobs are created when the bottle-neck to growth is people with certain skillsets.

I would also address the notion that if anyone can afford $8, there is no squeeze. $8 is asspennies. Why would anyone describe it in so many capital letters?

As to the people who buy massive vehicles, most such people are simply selfish and/or short-sighted anyway.

Of course, it really takes a special breed of intellectual light-weight (pseudo-intellectual dittohead is probably a better term) to think that the solution to our current economic malaise is more saving and less spending by either individuals or governments.

That's precisely the problem with the economy currently.

Paul N writes:

#1 thing we can do: liberalize zoning laws that restrict new housing construction.

No one in California will allow anything that reduces their property values, but if they really cared about the middle class, they should.

William Woodruff writes:

Sam,
I will not stoop to your level of name calling.

You define $ 8 as being A**pennies. If it is entirely insignificant to you, send me $ 8.

I suppose you believe Alan Greenspan, Jeffrey Sachs, Milton Friedman, John M Keynes and Adam Smith are "Lightweight Intellectuals.

All of the above advise "rationing' when governments are faced with deficits?

What should government do when faced with weak demand ? Subsidize SUV's ? (Done). Wage war with another country 7,000 miles away on false premises ? (ditto).

I suppose you believe all forms of expenditures are postive, because they contribute to GDP growth? Alright.

Tonight, I will send someone to your house to burn it down (the gasoline, car and wages mean, you guessed correctly, GROWTH !) Even the wages of the fireman (to put the flames out..) the gas put into the firetruck (GROWTH !) and even the wages of the insurance adjuster, his car EVEN the gas S/he put into the company car, GROWTH.

All positive ?

William

Sam Jew writes:

Pseudo-intellectual dittohead,

I will happily part with $8 in EXCHANGE for a good cup of coffee and a good muffin and the chance to chill out in a relaxing environment not my home for a period of time chosen by me.

Of the names you dropped, the only ones who have any good ideas relating to our current problems are Keynes, a liberal, and Smith, who was merely stating the obvious. (see above for an example)

I don't have the time or patience to go into the numerous problems with the present administration's economic policy, nor to address your broken window fallacy strawman in any detail, but I will explain for the sake of the slime molds who subscribe to conservative economic ideas, the state of the economy as it exists currently as well as the problems it faces.

The firms have cut and continue to cut payments to households in the form of wages which has caused money to pile up in offshore bank accounts. And the government (under shrub) has cut taxes of the firms and the people who supply the firms with capital, thus fattening the BVIs further.

According to ridiculously stupid idiots such as yourself, the firms will invest that money in creating jobs. But we can plainly see that they aren't because of the extremely puss-worthy risk profile of capital today. Anyone with money has it buried underneath a mattress right now and federal policy is exascerbating this problem that they, like you, are too stupid to even understand.

William Woodruff writes:

Sam,

Again, the insults. Pity, instead of defending your argument, you merely resort to childish insults. Notice, as well you have yet to address my point. However, I am not suprised.

My point is that $ 8 coffee, and nearly $ 3 muffins is a reflection of relative affluence. How many substitutes are there for an $ 8 trip to the cafe in a $ 40K SUV ? Far too many to list... Remember, Income-Expense=Savings (Investment), and if the strapped American would not spend $ 8 at the cafe, and instead drive a more sensible
$ 20K car, which consummed less petrol, they would lessen the wealth transfer (and subsequently, be less "strapped"). Or even a more novel idea (how be it radical), pay off the $ 40,000 billion in unsecured liabilities. How un-American, consume......less !

If middle class consumers were really being squeezed, they would not be able to afford (the) $ 8 trip to the cafe, and Starbucks shareholders would not be enjoying a 400% increase in share price post IPO !

And how do have you responded my contention ? Insults. Creative.

Regarding your statement of "intellectual lightweights" You listed Milton Friedman and Alan Greenspan. Well, sir......

You can reach M. Friedman by telephone or read "There is no such thing as a free lunch" Essays on Public Policy (Horton & Co, 1975) or Essays in Positive Economics (American Economic Review, 1953)about government profligacy. But as you state the Noble Prize winner is a "intellectual lightweight". Or perhaps, Alan Greenspan's recent testimony to congress about the dangers of deficits (government outlays, are part of the equation, remember Econ 101). But, that particular "intellectual lightweight" is merely the Chairman of the Federal Reserve.

Send the $ 8 by cashiers cheque, thank you.

Regards,

William

Sam Jew writes:

Regarding the apparently vast sum of $8 for a venti caramel frappuchino and a muffin, I would say that this is a middle-class thing to do, because the alternative is more akin to going to see a movie or buying a couple drinks at a bar, rather than being something only Thorstin Howell III would engage in.

Let me simply say that although the percentage mark-up is undeniably great, the low per-head cost and value-add of actually leaving your house like someone who isn't a hermit/alcoholic makes the above activities well within the range of normal activities for just about every person in the world who isn't a substinence farmer/hermit/alcoholic.

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