Recently, Scott Alexander on Astral Codex Ten published Vibecession: Much More Than You Wanted To Know. In this article, various causes of the vibecession were explored and discussed. One quickly dismissed hypothesis was that inflation in the United States is underestimated by official sources. I am afflicted by the vibecession and do not inherently trust mainstream economic indicators. As a result, I decided to directly calculate a metric that estimates the amount of disposable income left behind after all necessary expenses are accounted for. If this indicator showcases a decline in the average American’s spending power, then the vibecession has been explained. Otherwise, another explanation is required.
The Indicator: The Ratio of Necessary Expenses to Income
I decided on the ratio of necessary expenses to overall income as my indicator to determine if Americans are getting materially poorer. If the cost of essentials is rising over time, this ratio will rise. The inverse is also true. Measuring this ratio over time allows me to directly determine if the life of the average American is growing more or less precarious over time.
To calculate the necessary expenses, I combined the Fair Market Rent to the monthly cost of food and gasoline. This covers the amount of money needed to have a place to stay, eat well and transport oneself from place to place. If these expenses are not paid, death becomes inevitable. To determine income, I found the median personal income of Americans.
Results
I found that while a large portion of American income is consumed by essentials, this portion has remained relatively stable over time. The portion has varied between 0.63 and 0.40 during the examined period, with the lowest values occurring during the late 1990s. Currently, the portion of American income consumed by essentials is rising, though it has not reached the values of the mid-1980s. Therefore, American prosperity has not substantially declined over the past 40 years. However, life was exceptionally easy during the late 1990s and early 2000s. Until the coronavirus pandemic reversed the trend, things were also getting easier in the late 2010s.
Since the ratio of necessary expenses to income has not increased beyond values found in the 1980s and the early 2010s, excess essential inflation cannot be used to explain the vibecession.
Data Sources and Other Errata
I sourced most of my data, including the price of chicken, the price of beef, the average price of gasoline and an American’s median personal income from the Saint Louis Federal Reserve. I chose to use the Fair Market Rent of San Bernardino county as defined by the U.S. Department of Housing and Human Development instead of a national median rent indicator for three separate reasons. First, this source of data goes back far enough to analyze how conditions have changed over several decades. Second, I used San Bernardino county data because the process of calculating a national Fair Market Rent is exceedingly cumbersome. And third, I currently live in San Bernardino county because I currently live there and data from this location has the highest personal relevance to me.
I calculated food expenses as the price required to buy 2 pounds of chicken and 2 pounds of beef per day multiplied by 30 to produce a monthly food cost. I chose these staples as the main calorie source because I get most of my calories from meat and wanted to focus on personally relevant food sources. The cost of gasoline I used was derived by finding out how much it costs to drive 30 miles per day in a car that gets 25 miles per gallon.
A major weakness of my analysis is that I assume that the data sources I use are trustworthy. This is not necessarily the case, since there are incentives to produce incorrect values. For instance, an American’s median personal income could be overreported because a high median income looks good on a politician’s report. I would rather source my data from a third party that is incentivized to produce accurate data. Alas, I did not find a suitable source to use for this analysis.
Another weakness is that I do not consider taxes in my analysis. If taxes were included, they would increase the Ratio of Necessary Expenses to Personal Income. Taxes do this by reducing the amount of money a person can use to pay necessary expenses.
Formulae
Ratio of Necessary Expenses to Personal Income = (Necessary Expenses) / (Personal Income)
Necessary Expenses = (Food Expenses) + (San Bernardino Monthly Rent) + (Transportation Expenses)
Food Expenses = 30 * (2 * (Price of Beef) + 2 * (Price of Chicken) )
Transportation Expenses = (30 / 25) * (Price of Gasoline)