Jerome Segal (1998)
Consumer Expenditures and Growth of Need-Required Income
SOME DISTINCTIONS BETWEEN TYPES OF NEEDS
- Absolute needs: can't live w/o them
- Contextual needs: What we need for a decent, acceptable life varies by
society (context)
- False needs: Think you need it but you don't
- Ski vacation, 2nd home
- Strong desires
- Segal's need required income: Involves both absolute and contextual
needs
OVERVIEW
- Segal argues that critics of U.S. consumption make some crucial
mistakes
- One: False assumption that in U.S. needs are met
- Discussion about consumption in rich countries assumes that
(except for poor) fundamental econ needs met long ago
- Assumed that consumption exceeds needs so much that we can
legitimately worry about overconsumption
- Two: False assumption that economic pressure due (mainly) to
inflated expectations
- Insofar as people in rich countries still feel hard-pressed
economically
- Due to disease of overconsumption (affluenza) where advertising
and emulation keep consumer always wanting more, even when
legitimate needs have been met.
- Segal denies that econ need in rich countries long been overcome
- He acknowledges huge differences in levels of
consumption between U.S. and 3rd world
- Most Americans legitimately feel hard pressed
- Fundamental econ needs are either unmet or can be met only at
high levels of income and consumption
- Segal thinks Americans are hard pressed economically because we
have structured our society to have high levels of need-required
income
- Americans are hard-pressed economically, not due (mainly) to
flawed human nature (i.e., our desires or needs are insatiable),
nor due (mainly) to advertising,
- But because of how we have structured society
- The result is we have to make a lot of money to satisfy our
needs
- We address econ need via individual provision:
- Each household seeks to meet its needs by trying to get
higher levels of income for itself
- A key structural feature that leads to high NRI
- But we could much more efficiently meet our needs by acting
collectively and lowering need-required income
- Need required income (=NRI) is how much money it takes to satisfy
econ needs
- Main reason people feel pressed economically is because NRI has risen
significantly and so although they have high levels of consumption,
they purchase relatively little beyond necessities
- NRI has gone up in real terms, that is, adjusted for inflation
- Coke 10 cents, now 50 cents; inflation is 500%
- Cost of electricity gone up 500%, but to power our homes
we now need to use more electricity so costs are really up
600%
- NRI also gone up faster than income growth
- That our income has gone up 700% doesn't make us better off if the cost of satisfying our needs has risen even faster
- Preventing the rise in NRI (the amount of money needed to meet
fundamental needs) should be a central policy objective for both 1st
world and 3rd world
- For the rich countries preventing growth in NRI will be necessary if
people are to live a simpler, less harried existence.
- Because NRI much higher, "progress" needs to be questioned: Despite
much higher levels of consumption (and income), we are not better off
(for our genuine needs have gone up even more)
End overview
- Segal's criticisms of idea of Americans as big overconsumers who
could easily cut consumption levels
- Potential for dramatic reduction in expenditure levels is far less
than critics of consumption assume
- America is not quite the extremely wealthy, bloated society
critics often assume
- Not clear middle class can cut consumption
- In 1994
- 12 % over 70,000
- 75% under 50,000
- Median, two parent family with children makes $45,000.
- Is it really that easy for these folks to cut spending?
- Top 1/5 accounts for 40% of consumption. If they consumed
only what 2nd 5th do, consumption drop only 13%.
- Idea that average American could cut 25 or 50%
consumption is a mistake
- True, increases in American consumption have been enormous
- Total consumption in U.S. risen dramatically (real terms)
- In 1994, our consumption expenditures were
- Twice that of 1960
- Three times that of 1929
- Median family income rose from $17,500 in 1947 to $41,000 in 1992
- If this is in real terms (adjusted for inflation), then we have 3
times as much money to spend
- It would seem we are better off?
- Is the increase in consumption due to psychological inflation in our
sense of what we need (as many argue)?
- (Segal answers yes, but this is only part of the story)
- Feel we need things never felt needed before (e.g., one or two
cars)
- Feel need some things never existed before-cell phones
- Feel need better quality of same old items (e.g., bigger houses)
- Segal agrees this escalation exists and checking it is needed to control
ever rising consumption
- Another reason for rise in consumption expenditures is to meet the
same needs we have always had
- Some of these needs previously were only partially met at low
levels of income (so now that we have higher income we can
consume more to meet these longstanding needs)
- But mainly, real cost of meeting these needs has grown
substantially
- This is not the claim inflation driven costs up
- Income required to meet core needs can vary widely
- Depends on the nature of an economy and social policy
- E.g., How much money does a family need to be relatively secure that a
newborn will survive (30 deaths in 1000) ?
- In Sri Lanka, infant mortality 24 per 1000
- In Congo (with similar income level) 83 per 1000
- Venezuela, rate is 33 per 1000 (yet income three times that of Sri
Lanka)
- Some places have social investment in clean water, inoculations,
government provided primary health care
- Others let individuals provide own health needs and families
must have money for good, clean water, health information and
medical care
- So whether needs are satisfied depends not just on level of income
(as we assume in US) but on how efficiently that income can be
translated into satisfying needs (and this depends on NRI level)
- Socioeconomic conditions and choices of society important in
determining personal income costs of satisfying needs
- If NRI in U.S. has risen substantially over the years this will explain
why even at higher income levels people continue to feel they have
little discretionary income
- EXAMPLES OF RISE IN NEED REQUIRED INCOME
- Transportation: Workers always needed to get from home to work;
when worked on farms, could walk; today almost all employees require
public or private transportation and money to pay for it
- Example of wife now working
- Between 1970 and 1991 married couple income rose 18%
- Because women entered labor force (from 40% to 59%) and
women's income has risen considerably faster than men's
- Married couples where wife does not work had no income
growth at all during this period
- Couple where wife works, medium income of wife is $23,000
(median for full time work for women in 1991)
- If subtract fed/state tax, social security, get $17,000
- NRI to support the wife working might include another car and
day care expenses
- If so, almost all of the increase in consumption goes to meeting
necessities incurred by decision to work itself
- Income up substantially, but family is still pressed economically
and now with both parents working they are under far greater time
pressure.
- SEGAL'S SURVEY OF CORE NEEDS WHICH SHOWS THAT
NRI HAS RISEN SUBSTANTIALLY
- Core needs: Housing, transportation, food, health care, clothing,
education, economic security
- Summary of results:
- NRI up for housing, transportation, education-day care & college,
economic security
- NRI up for society, not individuals: health care
- NRI not up for food, clothing
- Housing: Safe and reasonable distance from work
- NRI for housing grown a lot
- Need remains unsatisfied for many Americans
- Spend a ton but don't have safe housing at reasonable distance
from work
- Two factors
- One: Housing prices up (36%) relative to real income (up 17%)
- Between 1970 and 1994 median housing prices increased in real
terms 36% (23,000 to 109,000) (57% in Northeast, 71% in West)
- Real family income from 1970 to 1993 rose only 17%
- Young households (parents 25 to 34) real median income
declined)
- Age 35-44 rose only 11%
- No wonder these families feel real income pressure
- Two: Decline in personal safety led to growth of NRI for housing
- Greater demand for houses in safe neighborhoods with good
schools and these houses become more expensive
- For fixed level of safety, people have to move to more expensive
housing
- Such housing is simply out of reach for many Americans
- Transportation (Spend 5 times more on transportation)
- For most Americans, transportation needs relatively well satisfied but
only at markedly higher cost
- Since 1930s, % of total consumption spent on transportation doubled
- Real per person consumer expenditures rose by 2 ½ times, we
have a 5 fold increase in real terms in amount families spend on
transportation.
- Thinks nearly all this due to increase in NRI not luxury
- I want to know what increase in real income was, for if it was 5 times
too, then people would not be harder pressed
- Due to fact that 1st one and then two autos become necessity for
middle-income family
- Not due to inflated sense of necessity but to underlying socioeconomic
changes
- Shift to suburbs (for safe housing and decent schools) made one car
necessary
- And two-income families now made two cars necessary
- Add to this fact stores, schools and communal activities for kids
relocated outside residential neighborhoods (often to malls 5-10 miles
away)
- Early 20th century people had same need for transportation as do
now but could & did satisfy it quite well w/o autos
- Long distance travel? Trains?
- Today, family w/o auto would be far more restricted than in past
- Food
- Most American's need for food reasonably well met
- Decline of 50%, from 1/3 to 1/6 of consumer expenditures allocated to
food 1935-1988
- In 1900 43% of urban expenditures went for food
- Only 5% increase on expenditures for food in real terms
- No increase, possible decline in NRI for food
- Health care
- Defines need for health care in following way:
- If there exists effective treatment for significant health problem
(coronary bypass surgery to prevent heart failure), then by
definition a person with that problem has basic need for that
treatment
- This is an example of inflation in needs that is clearly not
psychologically based
- It is also an example where increase in NRI could signify progress or
increase in welfare
- Also a need for health care security (e.g, health insurance),
assurance that if develop health problem one will get effective care
- Cost of health care not paid solely by households, but by gove and
business
- Huge growth in health care expenditures not fully reflected in growth of
personal NRI for health care (as paid for by government/business)
- 1970-1990 total expenditures on health care tripled
- Yet we have been relatively successful in shielding personal
checkbooks from this increase.
- Stayed at about 5% of household expenditures from 1935 to 1994.
- We have needed to expand national income to financed increase
expenditures
- But individual family shielded
- Is this still true over the last 10 years?
- UNLIKE SPENDING FOR SAY TRANSPORTATION (WHERE
2ND CAR NEEDED TO GET 2ND WAGE EARNER TO WORK)
WHERE THIS INVOLVES LITTLE GAIN IN WELL BEING,
INCREASE IN SPENDING FOR MORE EFFECTIVE HEALTH
CARE REPRESENTS TRUE PROGRESS
- Clothing
- We have seen no increases in NRI for clothing
- 1917 17%, 1960 10%, 1990 5% of consumer expenditures
- Real per person spending for clothing fell 1960-1988.
- Interesting as people think desire for clothing subject to manipulation
by advertisers, emulation pressure due to fashion and keeping up with
Jones, but in fact NRI not gone up suggesting strength of these factors
in this and other areas overrated.
- Education: Effective and safe schooling for children (preschool to
college and beyond)
- Safe schools major reason people move to neighborhoods
- For most part we finance schools collectively (free up to high
school)
- Little NRI for these
- But college education costs gone up from 19% of family income in
1975 to 33% in 1993.
- Pre-first grade care: There has been explosive growth in NRI for day care and pre-kindergarten due to women entry into paid labor force
- Clear example of how significant part of higher incomes & consumption goes to fulfill needs previously filled by different social
arrangements
- From 1970 to 1993 20% to 40% of 3/4 year olds in nursery school
- Between 1960 and 1994 married women with children who
worked (some?) 18% to 62%
- Between 1975 and 1994 wives with child one year old or younger
when up from 31% to 59%
- Huge increase in need for child care, only small segment meets
need by buying child care services
- Doubled % of children in organized child care facilities
since 1977
- Only accounted for 23% of children under five of employed
mothers
- Since 75% of children with working mothers not in
organized daycare, child care expenses don't emerge in
aggregate stats
- For those who do pay for day care, expenses are staggering
- Of $42,000 median expenditures for families with wife working,
6,000 (1/7th) goes to day care
- Argues that increase in expenditures with wife working in 1990
compared to not working in 1970 is 18,000 so 1/3 of that goes to
pay for daycare.
- Economic security: protection against a sharp increase in NRI itself,
e.g. a serious health problem.
- Because of people losing jobs,
- Need for protection in this area is unmet for most Americans
- Gove unemployment insurance of limited protection
- Decline in income due to old age
- Because people living longer and uncertainty of Social
Security
- Given that high income people spend huge amounts on this, he
concludes it is an unmet need for most people.
- Substantial # of Americans for who this security need is unmet
- Summary: Segal's different picture of affluent society
- Americans increased consumption expenditures considerably
- Much gone to meet needs that were preciously unmet or because it
now costs more to meet those needs
- Americans feel like they need more money
- Not explained by inflation of appetites or standards of decency
- must have a bigger house, a newer care, better furniture,
new gadgets)
- But due to socio-economic conditions that lead to unmet needs or
increase in cost of meeting those unmet needs
- True of housing, transportation, college and pre-school
education and income security
- Food and clothing seen little rise in NRI
- In health and K-12 education, family largely shielded form
increase spending
- Segal's predictions for future:
- Predicts that food/clothing stay stable, transportation fixed (except if
gas goes sky high)
- Thinks society will perhaps be unwilling to shield families from future
increases in health related NRI
- Day care needs increase and schooling competition will also leading to
increased costs of housing in safe neighborhoods with good schools
near work
- This housing need for most Americans is likely to remain unmet
- Also income security needs unmet and with baby boomers reaching
social security age, it will become more unrealizable and NRI gap here
will get worse
- SOLUTIONS? WHAT TO DO?
- Not arguing for new gove programs
- In some areas, new gove programs may not be needed, but a "redirection in way our society thinks about our social life"
- To meet need for income security, we may need to change how we
thing about old age, work, meaningful activity and retirement
- Little will and few resources for these changes if see them as discrete
items on a new policy agenda
- For major change to be poss must rethink most basic questions
- What is an economy for?
- Goal: a society where NRI is low, that is, which is efficient in need
satisfaction per unit of income
- Decline in absolute NRI or in ratio of NRI to medium income
should become central objective of economy rather than simply
income growth
- IMPLICATIONS FOR THIRD WORLD DEVELOPMENT
- Third world development should not involve bringing them into the
consumer society but insuring social/econ conditions that keep NRI
low
- For 3rd world countries, this is obvious goal as allows satisfaction of
basic needs at low levels of income and thus some live who would
otherwise die
- The basic need development strategy is to try to find ways to satisfy
human needs at low levels of national and household income
- Simple living:
- In our society, low NRI would allow possibility of simple living.
- Simple living involves:
- One: Less time on the job
- For two career families being able to meet core need with two 30
hour jobs, or two 20 hour jobs
- A blessing
- Restore some peace and harmony to our hectic, harried existence
- Two: Become largely free from econ realm,
- In choosing jobs focus more on non $ aspects
- Can experiment, make mid-career changes, rethink life plan,
reeducate, take a bold plunge toward what always wanted to do
- Three: Less to be anxious about if we suffer drop in income, loose our
jobs or walk away from producing goods/services don't conform to our
values
- Four: High-productivity society with low NRI makes possible lives less
pressured, more centered on friends, family, activities of inherent value
and fuller dignity