Economic “Boom” Proves False As Median US Wage Falls 12.5%
You want to know something important, dear reader? Something that really matters? Well, read on...
We’ve been saying that the boom is a fraud. It is a speculative boom, not an economic boom. It lifts up asset prices and makes rich people think they are richer than ever. But it doesn’t increase real economic output - at least, not in the United States of America - or make average people any better off.
Of course, the leftists have been saying this for years. But who cares what they say. Even when they do spot a real problem, they invariably come up with a solution – more government meddling - that makes it worse.
Still, this is something they’re not wrong about.
An item from yesterday’s news:
According to data from the Pew Charitable Trust’s Economic Mobility project, a generation ago, American men in their 30s had median annual incomes of about US$40,000. Today, men of the same age, make about US$35,000 a year, adjusted for inflation. That’s a 12.5% drop over the last 30 years.
What do you make of that, dear reader?
We begin by asking the obvious questions: how is it possible that the biggest boom in the most advanced capitalistic economy in history has not made ordinary people wealthier? How could it be that Reagan’s Supply-Side Revolution...the blissful Clinton years...and the super-debt, super-spending era of George W. Bush...have altogether failed to produce one solitary dollar of extra income for the average working man?
The leftists will have their silly prognoses and their quack remedies...the rightists will have their claptrap excuses and their pass-the-blame apologia.
And the average working stiff? He seems not to have even noticed. He’s living on borrowed time and borrowed money. He sees the new house his family lives in...he looks out in the driveway and sees his new, foreign-made car...and he goes on the Internet and finds new ways to get more credit. What me worry?
On the Yahoo News site, we found the following offer:
$510,000 Mortgage...Under $1,698 per month!
Let’s see, the average guy earns only US$35,000. Take some out for taxes and health insurance...yes, he might be able to swing it, if he doesn’t eat.
But even if he could make the payments - interest only - how could he ever put aside enough money to pay it off? But don’t worry, he’s getting used to things he can never get out of - tax obligations that follow him, no matter where he goes in the entire world...credit card bills...mortgages.
He has taken what Friedrich Hayek called ‘The Road to Serfdom.’ He is becoming a slave...to his credit cards, to his government, to his mortgage, to his nation’s foreign meddling and domestic commitments. The poor man has no way out.
Bill Bonner
The Daily Reckoning Australia
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About the Author
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Comment by Chris. Fulker on 31 May 2007:
I'm afraid the poor wage-earning middle-class man WILL find a way out. He may decide, in his myopia, to use his government to bail himself out. Help out mortgage-holders? Control prices and raise minimum wages? Reduce interest rates to provide even more cheap credit? But all of these will fall like feathers, amounting to nothing more than printing new "money".
Within the next few years we will see populist politicians, going mad in their desperation for tax revenue. They will set up scapegoats: immigrants, big business, small business, banks, tax evaders, "profiteers" and "hoarders." They will close borders, put up tariff walls, monkey with exchange rates and do other helicopter drops. But the man in the street will be filled with gathering impotence, rage and frustration, as he watches his standard of living plunge and his children labour in proverbial convenience stores. These young people will (increasingly!) spend fortunes on university and graduate degrees only to emerge with - more paper.
In the end, there will be violence in the streets - pots and pans will be banged and cars overturned...
Comment by Realist on 1 June 2007:
Oh, let's be honest here. None of this is a surprise. Globalization was always a race to the bottom - a way for robber baron CEO's to dump their reasonably paid first-world employees and replace them with desperate third-worlders who would do the same jobs for a fraction of the price. Anyone who doubted that the vast majority of US employees would have to compete in that race was, ummm, shortsighted, I guess, is the most polite thing I can think of. I can think of many less polite ones.
Circumvent environmental regulations by moving to the third world? Check. Drop pensions and health care the same way? Check. Get desperate US localities to give you your infrastructural needs instead of you paying taxes for them? Check. Dropping all remaining US employees to part-time to evade wage and benefit laws? Check.
Etc., etc.
Human dignity? Who cares. Sustainable communities? Ha! Responsibilities to employees and local governments? Get real. These robber barons have shaken themselves loose from all considerations except one: profit. They can and will do prostrate themselves and sacrifice their own people for money - it is their god, their ultimate justification for anything and everything. And they worship it with a passion - not even a thought of being satisfied with a reasonable salary and giving the employees the same consideration ever passes through their minds.
This isn't rocket science, class. It's economics 101. Even a blind man could see this coming - and we're not at the bottom yet, class. Not even close.
Comment by Dave on 1 June 2007:
If the average American knew as much about politics, history, global events and economics as he knows about fantasy football, NASCAR, American Idol and SURVIVOR......he might be making a little more financial headway in this slowly collapsing, fiat-currency-based and dysfunctional American society.
In the end, I predict an American bloodbath along the lines of class, water rights, energy, religion, access to health care, food, race, sexual preference and geographical origins.....
Maybe not tomorrow...but give it 5 to 20 years and it will most certainly happen as the U.S. Federal Reserve loses the ability to paper-over America's inability to maintain her commitments with confetti.
Comment by TJ on 1 June 2007:
Amen Realist. Amen.
Comment by anonymous on 2 June 2007:
Bonner. What you don't understand is that the house has two incomes now. The wife works, or the significant other, or whatever. That's the more important thing that has happened in the last 30 years. A flood of women entered the workforce. And now they wonder why they are so unhappy.
Comment by Simon Whelan on 3 June 2007:
As Dr. Nick of the Simpsons sez :
Hi Everybody !
In my opinion, Bill Bonner is a sanctimonious, arrogant, ignorant, condescending and cowardly hypocrite.
Or, if you find that assertion unpalatable then how about this :
On the continuum from being an ‘Utter Ignoramus’ to being an ‘Absolute Expert’ Bill Bonner is somewhere between a ‘Creepily Unctuous Know It All’ to an ‘Oleaginously Hypocritical Wise Acre’.
You are perhaps now wondering why I say this ?
Well, here’s my explanation :
1st off I do accept Bonner’s facts at face value; i.e. :
According to data from the Pew Charitable Trust’s Economic Mobility project, a generation ago, American men in their 30s had median annual incomes of about US$40,000. Today, men of the same age, make about US$35,000 a year, adjusted for inflation. That’s a 12.5% drop over the last 30 years.
This is a sad, but true state of affairs.
Actually, if John Williams the owner and operator of ‘Shadow Government Statistics (http://www.shadowstats.com/cgi-bin/sgs?) is correct, and he very likely is, then the real decline in income has probably been far, far, greater.
But, did you notice that Bonner fails to mention that there is a difference between the median annual income of American men in their 30’s and Household income ?
One of the differences between the early 70’s and the middle ‘Naughties’ is that the percentage of women who are working outside the home has increased enormously. I don’t have the actual figures at my fingertips for this tirade and this polemic but I’m sure that they can be easily gotten from the web site of the Department of Labor of the American Federal (or is it ‘Feral’ ?) government.
I do readily agree that forcing women to work outside the home in order to maintain household income as opposed to giving them the opportunity to work outside the home at their discretion is hardly an optimal solution to this problem. It also serves to mask the truly staggering real drop in American household incomes since the early 70’s.
But, still, this massive demographic shift in the sources of household income has helped to attenuate the effect on household income of the drop in income over the last 30 years of American men in their 30’s (and, presumably, of men of all ages more generally).
Bonner then goes on to pontificate :
And the average working stiff? He seems not to have even noticed. He’s living on borrowed time and borrowed money. He sees the new house his family lives in…he looks out in the driveway and sees his new, foreign-made car…and he goes on the Internet and finds new ways to get more credit. What me worry?
Well, that’s most certainly true of a quite large number of American households.
But, Bonner fails to acknowledge there also a very large number of American households who have tried to manage their incomes and expenses more prudently and more wisely. Those people, of whom I consider myself to be one, are still suffering. We are truly like rats caught in a trap that is really not of our own making nor within our capacity of changing.
I have a very modest, uncertain and quite variable income as I scramble around to try and make sure all my monthly financial obligations are met.
And, you know what ?
I have no real debt. None … nada … zilch.
Every month I pay off my 2 credit cards in full. Every month all my other fixed bills; i.e. : gas, electricity, phone, cable Internet connection and the rent are paid.
I don’t own a car. In fact, I’ve never owned a car.
I should mention here that I’m lucky enough to live in New York City, which has an imperfect but truly excellent mass transit system. One of the reasons why I consider myself to be very lucky indeed is that my total monthly travel expenses are usually about $76, which is the cost of an unlimited access card to all the buses and subways in New York City.
Unfortunately, most Americans don’t live in large urban areas with excellent mass transit systems. As such, they have no choice, they must drive cars, and, more significantly, they have to spend increasingly larger amounts of money to fill the gas tanks of those cars, light trucks and SUV’s.
I’m told that after adjusting for inflation, the average price of gas in the United States is higher than it’s ever been in the history of this country. That’s right, even higher than it was in the Spring of 1981 when we were still reeling from the effects of the Iranian Hostage Crisis and the shutting down of Iranian oil exports (which, if my memory serves me correctly, pulled about 4 MBD of crude off the international oil markets at a time when global daily consumption of crude was only about 50 MBD).
And this is all unfolding without any discernable exterior reason for why gas prices should be so high. I’m no admirer of the multinational oil companies but I really don’t think that price gouging can account for more than a rather small percentage of the ongoing and relentless march towards higher and higher gas prices.
And … I’ve managed to accumulate modest savings.
And … finally … about 80% of those modest savings are in the form of gold and silver bullion that I have physical control and possession of.
The rest is in cash and some modest stock holdings in American based green energy companies.
I keep only enough in the bank to meet my monthly monetary needs.
But, even after all that, it is a struggle to make ends meet every month and avoiding falling into debt.
Now here’s the thing that really bothers me about Bonner. He sez :
The leftists will have their silly prognoses and their quack remedies…the rightists will have their claptrap excuses and their pass-the-blame apologia.
OK, Bill, if you’re so goddamned smart, and, more importantly oh so much smarter than both the people on the left and the folks on the right then what’s your solution ?
It’s oh so very easy, and I might add, cowardly and hypocritical, to make empty boasts about how stupid every one is and by implication how so very much smarter you are than both the dopes on the left and the doofuses on the right.
But if Bonner is too ignorant and too cowardly to propose his own solutions to the admittedly very serious and very real economic problems of the Average American wage earner then why should we have any feeling other than one of contempt towards his pathetic, pretentious and empty sanctimonious blathering ?
What a cowardly, hypocritical, sanctimonious, bilious blowhard !
So, Bonner, you pathetic, sanctimonious, arrogant, ignorant & condescending anal aperture, if you’re so much smarter than everybody on both the left and the right, then why don’t you illuminate all of us average, pathetic, workaday schlubs with your prophetic, brilliant insights, advice and, more importantly, give us a coherent program that will show us everyday, American Working Stiffs how we can organize ourselves to extricate ourselves out of the very real and very serious financial predicament and economic mess we are mired in ?
Bonner, I eagerly await your illuminating insights and truly awe-inspiring analysis.
All the best & talk to you soon … Simon.
Comment by Chris. Fulker on 5 June 2007:
Simon, you're just being noisy. Bill Bonner is not responsible for solving this mess ny more than you or me. Can't someone point out the true nature of a problem without being called on to solve the world's troubles?
It seems to me that if a whole household has to work now just to produce the same lifestyle that a single working father could fund in my Dad's lifetime, then THAT is a drop in standard of living.
Comment by Jack Lacton on 8 June 2007:
Heh. What a crock.
Why not try calculating after tax and benefits pay from the adjusted 70s to today's figure? You might be a bit startled at how much better off people are.
Comment by Eric Torres on 20 June 2007:
This survey probably is very accurate when I compare my income to my fathers. However my mother worked at home. My wife earns as much as I do. But now I have to help around the house. Boohoo. The world is change. Adapt, die, or get out of the way.
Comment by novice on 6 December 2007:
I am somewhat puzzled by this phrase of the immovable object of deflation being crashed into by unstoppable inflation. It strikes me as an oxymoron at the very best, and if taken literally, it is a self-contradiction, and hence impossible. Overall, prices either go up, or they go down. They cannot do both, and hence we either have inflation or deflation at any one point in time. You cannot have both, all things considered. Therefore, it needs to be clarified what things or categories of things inflate, while other things deflate, and why this particular combination of some things inflating while other things deflating poses a problem. Any others on this?
Pingback by And around and around we go: How the RBA and the government are refusing to create new solutions for housing affordability - One Man’s Ramblings | Personal Development at Work | Personal Development Strategies on 31 March 2010:
[...] will leave you with this link to remind you of what happens when we don’t take a proactive approach towards our problems. I would also recommend that all Australians read the Subprime Solution by Robert Shiller. [...]