Here is how The Wall Street Journal interprets the above chart, taken from spending surveys and diaries of 14,000 US households, particularly as regards consumer spending: The American middle class has absorbed a steep increase in the cost of health care and other necessities as incomes have stagnated over the past half decade, a squeeze that has forced families to cut back spending on everything from clothing to restaurants.
Health-care spending by middle-income Americans rose 24% between 2007 and 2013, driven by an even larger rise in the cost of buying health insurance, according to a Wall Street Journal analysis of detailed consumer-spending data from the Bureau of Labor Statistics.
That hit has been accompanied by increases in spending on other necessities, including food eaten at home, rent and education, as well as the soaring cost of staying connected digitally via cellphones and home Internet service. With income growth sluggish, discretionary spending on things like clothing and movies, live shows and amusement parks has given way.
Of course, education and healthcare are two sectors (a) where government plays a big role and (b) that are infected by Baumol’s cost disease (higher labor costs despite stagnant productivity). Both are desperately in need of disruption by innovation and competition. Costs may go up but value may not.
The “necessity” of digital communications — via the internet or mobile phones — would seem to me a different breed of cat. iPhones are certainly more costly but also more useful than an old flip phone. And people are certainly spending money on digital services they see as valuable — such Pandora or getting various newspapers via iPad apps — than in 2007. This does not seem to be a problem. As for “home internet,” however, consumers would love for there to be more competition with four or five companies competing for the broadband dollar. Indeed, the WSJ chart suggests a pretty good middle-class policy agenda for the GOP or Washington policymakers in general: deregulation and transformation of Obamacare, higher-ed reform, and greater internet competition.