The Census Bureau announced that for the most part, we are getting poorer since the Crash. That shouldn’t be news, right? The point being is that because of these business cycles we keep experiencing, we are going backwards. Look at this chart:
Not a great result for the last 43 years, as adjusted for inflation. In fact it is a poor result. You can see from the crossover point at 1996. So, on the median, we are back to 1996. Actually if you look at the chart you could say we are back at the 1988 level if you ignore the real estate debacle that started in 1989.
There is more. The poverty rate has increased since 1967. The poverty rate is at $22,113, and we are now at 15.1% vs. 14.2%.
I find this shocking and disturbing. Like many of you, in the back of my mind I like to think this country is progressing forward. I understand that the poverty statistic is a controversial thing. For example, because of a rising divorce rate there are many single women raising families. Also there has been a huge influx of immigrants from Mexico and points south. So demographics have changed since 1967, and there are other tangibles about the quality of life that are better, such as better products and better food and the like, which makes an apples to apples comparison difficult. But … to have the median income slide back to 1996 levels is rather dispiriting.
Now I am going to show you the next chart in the Census Bureau’s study:
The 90th percentile is doing quite well. I am sure the 95th and 99th percentile are doing even better.
A trite way to put this is that the rich are getting richer and the poor, poorer. Some of this can be explained by the skills required to function in a technologically advanced economy. The computer/information sector of the economy was almost nonexistent in 1967, and the skill level requirements are high. Thus smart people are in demand and earn more. Even manufacturing jobs require a high skill set for many workers as manufactuting employers are having a difficult time filling skilled labor jobs. Another factor is the failure of our state run education system churning out undereducated children. It’s funny that I don’t hear anyone complaining about private schools turning out kids who lack basic skills.
Another explanation is that these recurring boom-bust cycles are destroying our economy. With each successive cycle, things seem to get worse. All of these cycles have been created, sustained, and busted by the Fed and our banking system. Each cycle leads to a destruction of what in Austrian theory economics is called “real” capital/savings. By pumping the system full of fiat money to escape the ravages of the last business cycle, the Fed further harmsthe economy and the signals that interest rates send business people are distorted and capital (real and fiat) is destroyed because they are funneled into the production of goods that people eventually find that they don’t want.
As a result, most of us are getting poorer or at best are standing still. Our economy is stagnating because we have destroyed real capital and because of government policies, we have yet to clean up all the debris from the bust, and formed additional real capital to create new growth.
But, then why are the rich getting richer? It is clear that the result of the Fed’s quantitative easing has benefited the financial class. New Fed money gets pumped directly into the primary dealers which are twenty of the biggest banks and investment companies in the world. All this liquidity has found its home in financial assets which have benefitted the financial class. Yet while Wall Street propers, Main Street lies in the doldrums.
Even if you disagree with the Austrian Business Cycle Theory, you must ask the question of why Main Street suffers. You might wish to challenge your premises which, if they are based on the conventional wisdom, are neo-Keynesian econometrics. You might wish to ask why hasn’t fiscal and monetary stimulus has not worked as promised. You might question why prominent Keynesians always say the spending program was not enough. You may think this country is going Greecian or Japanese. Why? Perhaps the Keynesians are wrong. Perhaps they are destroying our economy.
I say, we have given the Keynesians their chance and they have failed. We need to do something different because we are going backward. Perhaps free market economics offers a solution. And don’t tell me that what just happened was because of laissez-faire capitalism. Far, far from it. I say that free markets work and they always have, and everything you thought you knew about free markets was a carefully constructed revision of history by Fabian Socialists like Keynes and his followers. Today, history is still being revised by neo-Keynesians and they are wrong. And we will suffer.
Question: Who or what system is behind the Financial[s] of both yesterday & today? Failure seems to be the norm as far as the common man is concerned in the present scheme of things, would Austrian Theory have produced different results? Or does it require a totally different mindset, one that might prove beneficial to humankind as a whole, not just the few, as has been the history down through the ages?
Repeal legal tender laws, allow the private production of money, and free banking. That would take care of most of these problems within a decade or two :-)
Great article Jeff. I stumbled upon Austrian theory a couple of years ago by accident in my research to seek higher market returns for my IRA investments after the 2008 crash, and to educate myself on how economics works. Reading Mises’ theories was like taking the red-pill from ‘The Matrix’.
I have had to unlearn all the garbage that I was taught on the subject of economics in public school, and college. We need get back to US founding roots of individual liberties, and respect for private property, free markets, and minimal government intervention, and sound money (ie gold and silver), and personal responsibility. The founders had seen the perils of authoritarian government (King George) and fiat currencies (Bank Of England) and the problems of inflation of fiat currencies. This is why Article-I Section 10 of the US constitution states that the US is to pay debts in gold or silver only. Oh how far we have drifted from the bedrock founding principles that allowed the early United States to prosper.
Indeed, Keynes is absolutely wrong… but governments love to borrow and spend, and Keynes with his veneer of credibility told governments that it was beneficial to borrow and spend, and governments (or politicians) embraced this advice with open arms. Here we stand to observe wreckage of the Keynesian path today.
David, that is an inspiring comment. I very much appreciate your journey. Thank you very much for reading this blog. Jeff
I definitely agree that Keynesian policies as applied over the past 20 years or so, have been a disaster. The point I want to make here, that Keynesian practices have only been applied during downturns and not during upturns, because that was supposed to be the time when governments should have cut spending and decrease overall debt.
Linus, the problem of applying Keynesian practices during upturns is that it would require politicians to withdraw the cookie jar. Central planning whether it be boom or bust is the problem. Only the solution advocated by dietwald above is the correct policy.
I was looking at this same data yesterday, and was trying to find more info on the demographics. I found the census bureau does have data on per capita income with varying demographics, but in my short search I was unable to come up with good data across this time frame.
I agree that this is far from an apple to apples comparison. My view of the 60’s – 80’s is that more nuclear family households were single earner, they more likely had an 8th grade – high school education, and worked a respectable blue collar job, and for the 90’s thru today, my point of view again, is that the typical nuclear family household is two earner (or more), they have bachelor degrees and more often work jobs that demand higher knowledge / specific acquired skills. My point is that I believe this represents the 50th percentile not the 90th.
So household income has barely increased for the 50th percentile and per household you have more earners, who are higher educated, with jobs demanding specific skills and knowledge. So that leads me to think that engineers and computer programmers of today are not earning much more than factory laborers and janitors were earning in 1967.
This is more than just depressing, especially since it is only one small segment of the picture.
See this article from Steve Horowitz which takes the rosy look: http://www.thefreemanonline.org/headline/no-great-stagnation/ My response to him:
“All that is true up to a point. But while as an ardent free market Austrian theory capitalist I think capitalism is a wonderful thing, I don’t think you are focusing on the the harm and destruction that the boom-bust cycle has done to us. Critics of capitalism point to these statistics as capitalism’s failure and while I appreciate you are trying to point out the benefits, I think you are off the mark. We ARE going backward. Even if you say we are materially better off because goods are better values, that is not enough to offset the harm. If inflation adjusted income is back to the 1996 level, you have to admit that something is wrong. We can argue whether the measures of inflation are proper or not, but under the government’s own measure (probably the most benign) we are doing worse than just a few years ago. I appreciate the cheer leading, but the proper focus is on the failures of Keynesian boom-bust cycles.”