Via The Taupe Avenger, The Truth About Cars wonders if middle-class families can’t afford new cars anymore. (Warning: the author of that piece strongly insinuates the problems are Obamacare and immigrants. Which, no.)
The math is pretty simple. Median household income in the US is about $53,700; thanks to wage stagnation and the Great Recession, this is barely above where it was in 1989. The article uses a new Toyota Camry LE, which costs $23,905. According to Autotrader, in 1989 the basic 4-door automatic model Toyota Camry had a list of price of $12,158… which, in 2016 dollars, is $23,248. The basic 2016 Honda Civic starts at $18,640, while the 1989 model was $10,090 or $19,290 in 2016 dollars.
Note that the 2016 Camry and Civic are better cars the 1989 models. They are safer and more fuel efficient. So even if it feels like the middle class can’t afford new cars, it seems like that’s not actually the case. Incomes haven’t gone up very much, but the real price of a basic new car hasn’t gone up very much either.
Leave aside that this rough analysis is based on median incomes, which ignores changes in income distribution that would make new cars affordable to a smaller number of people. (If the middle class shrinks while the high-income and low-income classes grow, the median will stay the same but a larger number of people will be unable to afford a new car.) What’s going on here?
My guess is that people feel poorer because of the Big 3 items whose real costs really have increased greatly since the 1980s – housing, health care, and education. And in fact, the article unwittingly suggests this is true.
First, the mortgage payment that the hypothetical family is making is given as $2,100/month. With 10% down at current interest rates, that’s nearly a $400,000 house. As of February 2016, the median new home price in the US is just over $300,000. In 1989 it was about $120,000, or $230,000 in 2016 dollars. So while new car prices and real wages have more or less stayed the same, new home prices have gone up by about 30%. Suffice to say that if you live in some of the most populous parts of the country, it’s considerably worse than that.
We could say the same for health care – the article complains about Obamacare but of course the real problem is that health care costs in the US have grown faster than wages and inflation, and faster than the rest of the world, for decades. Likewise for education.
The increase in cost of housing, health care, and education probably explains most of the squeeze put on ordinary Americans over the last 25 years. Sometimes people realize this; sometimes they focus on the cost of something else like cars or gas. Unfortunately, even when people realize the costs of the Big 3 are the issue, they often blame the wrong thing – Hispanic immigrants, Obamacare, Chinese property buyers, Chinese factory workers, Chinese college students.
It’s easy to scapegoat, and convenient for the people who do not want to do anything to solve the problems of housing, health care, and education costs. The real sources of the problems are more complex. But they are of our making, and that means we can solve them, if we want to.