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One of the key debates in poverty and opportunity policy circles is how best to measure the economic health of working families and whether the buying power of the middle-class has eroded over time. American Compass, in its newly updated Cost of Thriving Index, compares five major expenses (food, housing, health care, transportation, higher education) in 1985 and in 2022 to make the case that middle-class security is increasingly out of reach for many American families. American Compass Executive Director Oren Cass spoke with Spotlight recently about the new version of the Index. The transcript of that conversation has been lightly edited for length and clarity.

Why don’t we start with some background on this latest edition of the Cost of Thriving Index?

Sure. The Cost of Thriving Index is a project I actually started back in 2020, when I was wrapping up my time at Manhattan Institute and then we released it just as we were starting American Compass. The initial impetus for it was a lot of the debates that are going on about what has happened to wages for American workers in recent decades. So much of the fight has focused on which inflation adjustments should you use — if you use CPI (Consumer Price Index), it looks worse, but PCE (Personal Consumption Expenditures) is better and it’s down a little bit, or it’s up a little bit, so on and so forth. And so, I initially was trying to make sense of all of those different options but came quickly to discover that none of them were actually appropriate and that inflation measures are hugely important macroeconomic indicators, but they are not measures of the cost of living.

If you want to know what’s happening to the price level of the exact same goods, they give you all sorts of important information. But if you’re asking what it costs to raise a family in America, not just at some material standard of living, but building in socioeconomic status and participation in the society, then inflation can’t really give you the answer. Since inflation adjusted wages in 2022 are roughly what they were in 1985, is it logical to say people can afford the same things that they could in the past? What we’re saying is, in 2022, you can still buy a 1985 car and house and healthcare for what they cost in 1985 — which is impossible.

That led me to wonder, what if you actually were to define a basket of things that you could characterize as middle-class essentials? So, using 1985 as the starting point just because that’s when the data sets go back to, let’s look at what a health insurance premium costs. Let’s look at the typical cost of a three-bedroom home, which has absolutely gone up as homes have gotten bigger. Let’s look at what it costs to operate a vehicle for a year. Let’s look at what it would cost to be saving for college for your kids. And the least surprising part was that that is not affordable on a typical income today.

Now, I think most people would say, well of course, a family trying to get by on one income for a worker with a high school degree isn’t going be paying themselves for a full insurance premium and saving to pay the full cost of college for their kids. Of course, that’s not possible. What’s fascinating is if you rewind back to 1985, it actually was extremely achievable to afford all of those things and still have plenty of money left over for other things as well. What we wanted to do was to capture that trend and to demonstrate that something has really changed in the reality for a typical worker. If you’re looking from the perspective of the family that exists and is trying to make ends meet, it is just empirically the case that you could quite comfortably afford a broad set of things in the 1980s. And today we almost laugh at the idea that you could afford that set of things. Inflation measures are super important and tell us something useful, but this I think tells us something at least as important and probably more salient to the political and policy challenges we have.

Continue reading at Spotlight on Poverty & Opportunity
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