Authored by Charles Hugh Smith via OfTwoMinds blog,
Our entire economy is characterized by cartel rentier skims, central-bank goosed asset bubbles and stagnating earned income for the bottom 90%.
Despite the rah-rah about the “ownership society” and the best economy ever, the sobering reality is very few Americans are able to get ahead, i.e. build real financial security via meaningful, secure assets which can be passed on to their children.
As I’ve often discussed here, only the top 10% of American households are getting ahead in both income and wealth, and most of the gains of these 12 million households are concentrated in the top 1% (1.2 million households). (see wealth chart below).
Why are so few Americans able to get ahead? there are three core reasons:
1. Earnings (wages and salaries) have not kept up with the rising cost of living.
2. The gains have flowed to capital, which is mostly owned by the top 10%, rather than to labor ((wages and salaries).
3. Our financialized economy incentivizes cartels and other rentier skims, i.e. structures that raise costs but don’t provide any additional value for the additional costs.
It’s instructive to compare today’s household with households a few generations ago. As recently as the early 1970s, 45 years ago, it was still possible for a single fulltime-earner to support the household and buy a home, which in 1973 cost around $30,000 (median house price, as per the St. Louis FRED database).
As recently as 20 years ago, in 1998, the median house price in the U.S. was about $150,000— still within reach of many two-earner households, even those with average jobs.
As the chart below shows, real median household income has only recently exceeded the 1998 level— and only by a meager $1,000 annually. If we use real-world inflation rather than the under-estimated official inflation, real income has plummeted by 10% or more in the past 20 years.
This reality is reflected in a new study of wages in Silicon Valley, which we might assume would keep up due to the higher value of the region’s output.The study found the wages of the bottom 90% declined when adjusted for inflation by as much as 14% over the past 20 years:
“The just-released report showed that wages for 90 percent of Silicon Valley workers (all levels of workers except for the top 10 percent) are lower now than they were 20 years ago, after adjusting for inflation. That’s in stark contrast to the 74 percent increase in overall per capita economic output in the Valley from 2001 to 2017.”
source: Why Silicon Valley Income Inequality Is Just a Preview of What’s to Come for the Rest of the U.S.
Meanwhile, the median house price has more than doubled to $325,000 while median household income has stagnated. Please note this price is not adjusted for inflation, like the median income chart. But if we take nominal household income in 1998 (around $40,000 annually) and compare it to nominal household income now in 2018 (around $60,000), that’s a 50% increase–far below the more than doubling of house prices.
To raise stagnant incomes, the Federal Reserve and other central banks have attempted to generate a wealth effect by boosting the valuations of risk-on assets such as stocks, bonds and commercial real estate. But the Fed et al. overlooked the fact that the vast majority of these assets are owned by the top 10%–and as noted above, the ownership of the top 10% is concentrated in the top 1% and .1%.
As a result, the vast majority of the wealth effect capital gains have flowed to the top 1%:
Lastly, the cartel structure of the U.S. economy has raised costs while providing no additional value. One example is higher education, a cartel that issues diplomas with diminishing economic value that now cost a fortune, a reality reflected in this chart of student loan debt, which simply didn’t exist a generation ago:
Our entire economy is characterized by cartel rentier skims, central-bank goosed asset bubbles and stagnating earned income for the bottom 90%. Given these realities, the bottom 90% are left with few pathways to get ahead in terms of financial security and building secure family wealth.
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My 1992 Honda Accord was All mine from day one…..runs like new 77000 miles.
You drive 6 miles to work?
Why? Because very few Americans start their own business, and/or save any considerable amount of money. ‘Getting ahead’ is something that can take decades, if not an entire generation of hard work. Instead, by and large we have everyone spending every-fuckin-dollar they earn on chinese shit that makes them mentally/physically sick while expecting the golden ladder to just appear for them to climb and be successful. I pity my son’s/nephew’s/niece’s generation.
I have heard that the costs of having a smart phone – ownership, replacing phones, apps, monthly usage charges = $75,000 in your lifetime.
Dutchbag ehr douchebag, I heard living in Minnesota detracts 10 years from your life. Go investigate and report back.
https://en.wikipedia.org/wiki/List_of_U.S._states_and_territories_by_life_expectancy
Hawaii is better, but you’d have to be able to tolerate living in paradise.
Save that money for too long and inflation taxes the shit outta it!
Don’t save money, invest in something: R.E, stocks, your own business and save gold and silver.
I’d rather get head than get ahead.
This is just ME, I’m sure …. but, I have an exceedingly hard time reading/enjoying Charles Hugh Smith … to me, it’s about as exciting as reading a text book.
Fed policy and bankster fraud is the root cause of almost all of our ills.
Every problem traces back to the failed purchasing power of fiat fractional reserve banking, engineered by a small group, to control and enslave the masses.
In a word, costs.
While all of that maybe true, I know a number of very smart and very talented people (in the area of expertise) that simply make stupid financial decisions. They buy a new car every couple of years instead of buying a 2-3 year old car with low mileage or they just to have an $800 smartphone. The stupid people are always screwed but the smarter ones do it to themselves.
Yeah, that too.
Needs vs. wants.
No discipline by most who R struggling.
The disciplined ones who try saving what’s been earned after all required expenses…they’re getting creamed by stealth inflation, the banksters thievery.
When you do the math on a new vehicle payment with 0-1% interest rate versus a slighly used car at 5+% rate, you generally find that the total amount paid is really close to the same, without having to worry about a previous owner that bag drove it. Yet another example of smoke and mirrors to confuse the average Joe into forking over more sheckels. Unless you have the cash to pay for it out right, you are still going to be paying more interest on a credit line or a vehicle loan from the bank. I certainly don’t agree with the clowns that buy a new vehicle every two years and roll negative equity into every new purchase, but avoiding purchasing a vehicle simply because it’s new isn’t exactly a silver bullet for financial security, and often isn’t even sound advise at all. Of course it becomes a different story if the dealer is trying to peddle NEW cars at high interest rates.
A good way to significantly cut the purchase cost on a vehicle is to pass on most of the fancy gadgets that often double the original price of the ride, and inevitably break later down the road.
Another possible way to save big money on vehicles is to buy them from an auction but that can easily become a crap shoot. Like buying any used vehicle, it certainly pays dividends to have some mechanical aptitude to fix some of the previous owner’s stupidity. And then of course oodles of money will be saved if one simply prioritizes vehicles needs over vehicle wants when deciding what type of vehicle to purchase.
Lastly, take it easy on smart phone owners; how else could I spend my life on “The Platform” while getting paid at work if not for a smartphone?
I bought a 2005 Lexus in 2010 for $15k that had 35k miles on it. At 105k miles on it now, it runs and tracks like new with hardly any repairs other than the timing belt, which has to be replaced at around 80k miles. Considering a residual value of $5k, that comes out to less than $1500 a year for a great car at least for someone who doesn’t travel to work. And at 200k miles in 2028, the car will have outlasted me.
And this year’s Consumer Reports has come out with Lexus at the number one position in terms of reliability. So there’s that to plug into one’s cost of ownership calculations.
I just got the costs for next years medical plan, 25% increase in premium and 25% increase in max out of pocket costs. I now have a permanent small car payment that I did not plan for.
Why? Because it’s a combination of an oligarchy and plutocracy in which the masses are brainwashed into blaming the victims. The economy is rigged in favor of the fat cats on Wall Street, which BTW is the real Free Shit Army. QE was welfare for the rich, now their whining like a bunch of spoiled crybabies because the party is over. And that’s after the pussies got their 40% tax cut. They’re still singing the blues anyway. Time to end the corporate welfare for the Free Shit Army plutocrats.
Very astute observations and valid points! Hard to argue with that logic.
Except that the “40% tax cut” was for corporations, not the rich.
DEBT JUBILEE in 3…2…1
With strings attached…
Chip anyone?
Mm-mm-Mmm.
Them storm clouds getting darker out there on the horizon.
There’s gonna be weeping, and gnashing of the teeth.
Hard to avoid it.
Didn’t have to be this way.
Vengeance is His, but the mere mortals with integrity long for the evil to suffer disproportionately, as judgement day cometh.
AmeriKa is a dictatorship of elitists. It’s the donor class vs. the voter class. America Is One-Dollar-One-Vote, Not Really One-Person-One Vote. If you are not the 1%, you have NO control in the direction that your country takes.
Why Are So Few Americans Able To Get Ahead?
If the supply of doctors remains the same while the supply of patients doubles, what happens to the price?
If you are a renter, and your next door neighbor makes half your salary but has 6 other amigos move in with him,. what happens to your rent?
Fuck Libertardians.
And who do you think is responsible for keeping the supply of doctors constant? And what does your rent have to do with what your next door neighbor does? And who do you think prevents your landlord from discriminating against whomever he/she wishes when they rent out apartments? And what the hell are you smoking and what is the point you are trying to make? Because libertarians support medical freedom and private property rights. Both of which would address both of the issues you seem to want to rant about.
We obviously need to import another 100 million brown people to find the answer.
If thing stay as they are that 100,000,000 are coming. If we have a reset, they won’t because USA will be just as bad as the uncivilized world.
The simple answer: parasites. Health care, education, finance, asset price inflation are all giant blood-sucking leeches on the U.S. economy. No business can succeed when the overhead expenses are greater than the income earned. Debt, debt, debt, ad infinitum for unproductive purposes. Only a very small part of the population benefits from the rent-seeking, while the rest of us are on the plantation. Serf’s up!
Gail Tverberg at “Our Finite Earth has a more depressing reason. We’ve reached the maximum level of production the planet can provide. Its why oil prices have ( paradoxically ) been falling since 2008. The world cannot afford to pay more than $75-80 per barrel without a collapse in demand/recession. Wages cannot increase without additional cheap energy and there is no more ‘cheap energy’.
Economists have been flummoxed by business not investing in new plant and equipment but that too is related to falling wages/demand. People simply do not have the disposable income anymore to buy ‘stuff’ beyond the bare necessities. This has been somewhat hidden by using low interest rates to bring demand forward through debt but that option has been used up. Now we are going to have to pay the piper.
Using oil again as the magic indicator, capital investment has cratered and we are living off rapidly depleting existing oil fields. Oil companies cannot justify exploiting new reserves where the cost of production approaches $100 per barrel because if the price were to reach that level demand for oil would collapse and with it the price. Both oil prices and production are going to fall and with it most of our economy is going to collapse as well.
I’m glad I’m just turned 67 as I was lucky enough to live in an economic ‘golden age’. Anyone much younger is going to see a catastrophic end to our ‘way of life’.
Ding, ding, ding.. we have a winner. Nothing “economic” exists outside the realm of physics, biology, and thermodynamics, in which realms things are not looking good going forward. Morons like GWB (as well as cornucopians on the left) think we can “grow the pie higher”, but that is simply not the case.
Not really sure how either of you can ignore the fact that the US government ALONE siphons off $3+Trillion a year in wealth to waste, spends another couple of trillion more, and that every other government on earth is doing the same. The banking sector is siphoning off even more and has been since the advent of central banking…especially the Fed. That “pie” you say simply cannot grow, already has grown, but the fucking government sector and banking sector have taken it all before anyone else could get a piece. As for oil…it is about energy, not just oil. True innovation cannot happen in the face of this much wealth transfer, this much regulatory burden, this much debt burden, etc. How can you possibly look at what we have and say that more is not possible, when simply eliminating the government would put trillions in wealth back into the hands of millions? I will more than agree that nothing can grow in the environment THEY have created, but the limits are not being imposed by biology, geology, chemistry, thermodynamics, or anything else in the physical realm. Its all about economics and criminal government.
This article ignores the fact that people migrate from one segment of income to another frequently. 73% of people will be in the top 20% of income levels for at least one year of their lives. So what is the real issue then? There is clearly significant opportunity to improve one’s conditions.
The issue is people take no responsibility for their long-term circumstances. Saving is not part of their plan.
https://www.aei.org/publication/evidence-shows-significant-income-mobility-in-the-us-73-of-americans-were-in-the-top-20-for-at-least-a-year/print/
Missed one, progressive taxation, for the working poor it costs money to make money, roughly 20% at 30k, so we are to live off 24k in this day and age ? maybe… but you will live in a hovel, if our leaders wanted to help the struggling working family there should be no income tax under 50k, would be a incentive to climb out of poverty then…
Monger – what a load of shit. People on $30k pay nowhere near 20%, or $6k in tax. People on $30k on average pay net negative tax. Almost all the fucking tax is paid by the top 20%. And all of it is paid by the top 50%.
Get a damn clue, will you.
Further, 73% of earners are in the top 20% of earners at some point in their careers. That means that people do indeed get out of poverty, for the most part. They just do not do a good job managing their incomes.
The answer is blowing in the wind. All you gotta do is stop working for someone else. Then you can write off a ton of expenses and as your business grows you can become wealthy or at least very well off.
A cash business can be really good.
I was held down all my life because I had White skin and a dick.
Even Millennial Congresswoman Alexandria Ocasio Cortez, that we all know as a modern Democratic Socialist and Economics graduate can’t afford an apartment in DC.
https://www.zerohedge.com/news/2018-11-09/democratic-socialist-alexandria-ocasio-cortez-says-she-cant-afford-washington