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.