Sunday, May 24, 2009

The affordability flim-flam...

I suspect we may be in for another adroit about-face by the commodity lobbyists who loudly and proudly claim credit for our food affordability.  The use of this measurement is sheer genius, since it carefully substitutes the issue of actual food costs for percent of income.

As I have pointed out, even the ERS at the USDA carefully notes that affordability is largely due to faster growth in average income compared the growth in food expenditures.  This happy circumstance  has masked the fact that food expenditures have exceeded inflation consistently for years.

In other words, our food costs more, and often more than other countries, but our average income is high and growing which makes the ratio (affordability) look like a bargain.

But the average income is a troubling and largely unused demographic measure.  Indeed, in my posts on inequality of income, I have noted the increasing spread between mean (average) and media (middle-of-the-pack) income.  Note how much higher the affordability number would be if we used median income, instead.
Another common measurement of personal income is the mean household income. Unlike the median household income, which divides all households in two halves, the mean income is the average income earned by American households. In the case of mean income, the income of all households is divided by the number of all households.[59] The mean income is usually more affected by the relatively unequal distribution of income which tilts towards the top.[55] As a result, the mean tends to be higher than the median income, with the top earning households boosting it. Overall, the mean household income in the United States, according to the US Census Bureau 2004 Economic Survey, was $60,528, or $17,210 (39.73%) higher than the median household income.[60] [More]

 [Click to enlarge.  Note the numbers at the bottom] [More]

In fact, the distribution is so skewed that the "average" American earns more than 60% of all Americans. Consequently more the three in five pay more than the widely touted figure for their food.  In fact, our affordability for median wage earners is similar to folks earning the same in places like Mexico.

Since so much of the growth in income was accruing to a few at the very top, the average income continued to zoom, while median income barely budged.  This phenomenon could be reversing as high-earners have been hit hard by the recesssion, thus lowering the average closer to the median.

Suddenly the brisk rise of food prices (which looks set to resume) cannot be masked by faster income growth - indeed the a decline in average income is not unthinkable.  That ratio could jump to the point the we would be something other than the "most affordable". One caveat: shoppers are changing food consumption patterns, so food expenditures could fall as fast as income. This is especially true as less away-from-home and meat purchases become the norm.

The spinmeisters such as Larry Combest will undoubtedly rise to the occasion.  My guess is they will blame it on falling upper-tier incomes.  This would be the most honest approach they have used to date. But I doubt they will point out that income has always been the important actor in this useless measurement.

Oddly, along with the food-fuel argument that separated corn prices from food prices, this will be another flat admission that what farmers are paid does not have much bearing on food costs.  Hardly an effective subsidy slogan, as I have pointed out before.

More to the point, families who actually buy food know what is happening to their budget these days. If nothing else, being reminded of "affordability" rings hollow (and begs the question "For whom?") for most Americans in the checkout line.  It remains to be seen whether this pseudo-statistic will endure a possible reversal as consumption cutbacks race falling average income.

1 comment:

Brandon said...

We 'actually buy food' and don't eat out a lot and I have just not seen the radical increase in food prices everyone has been talking about the past couple years. I don't know if it has to do with our location, suppliers, or what. We even buy a lot of protein products and if you are careful about your shopping habits groceries are a bargain in my opinion.

Now eating in a restaurant is a whole other ball of wax. $2.50 for a glass of ice tea?! I am still wincing at that!