Yesterday, we looked at what the US republic has become: a vast swamp of idlers, chisellers, cronies, and insiders…all angling for the meat in someone else’s burger.
Politicians and public servants no longer retire to their hamlets and farms once their tour of duty is over. Instead, they sign up for a post-career money-grab as consultants and lobbyists…scheming with the feds to get favours for their clients.
But how come? Aren’t the insiders always eager to take advantage of the outsiders? What’s new?
Seeping into the groundwater
Politics is usually best ignored. But there are times when, like a rusty gas tank at an abandoned garage, it seeps into the groundwater and poisons the earth.
One of those times, we believe, is at hand. Because, the Swamp has become so deep…so wide…and so toxic…that it endangers everything.
How this came to be is our subject today.
We begin with staggering news from our fellow kibitzer, David Stockman: The average working person in America has made zero wage gains in the entire 47-year period since the new money was introduced in 1971.
It is well known that real hourly wages are no higher than they were in the mid-’70s.
But now, the figures show that the stretch of zero growth reaches back to 1971…and — in the fraudulently precise figures of the Bureau of Labor Statistics (BLS) — annual real wage gains of 0.01%.
That’s not 1%. That’s not even one-tenth of a percent. It’s one-hundredth of a percent! Nothing, in other words.
And that overstates progress. Most people have only one real asset — their time. They sell it by the hour or by the week. The figures show that their time is worth no more today than it was nearly half a century ago.
We stop in our tracks. We hold our breath. How could that possibly be?
How could eight centuries of progress, from the depths of the Dark Ages to the end of the Johnson administration, suddenly come to an end…just when it seemed most promising?
Today, there are far more people with PhDs, more engineers, more patents, more technology, and more people all over the world striving, straining, and stressing out over how to make their time more valuable.
How could they fail so spectacularly?
But it’s worse than the numbers suggest. First, these are averages. So high wages for a few pull up the average for the low-wage many.
Second, instead of looking at the money, with the phony-baloney BLS adjustments, let’s look at the time.
In 1971, you could buy a new Ford F-150 for $2,500. At $4 an hour, it took 625 hours to buy the truck.
Today’s model costs $30,000, and the average hourly wage is $26. So the wage earner has to work for 1,154 hours to get a standard F-150. Put another way, he has to sell almost twice as much of his time to get a set of wheels.
But wait, say the feds. The truck today is not the same as the one from 1971. Technology has improved. This new one has GPS, Bluetooth, and seat warmers. Therefore, you’re getting twice as much truck.
Yes, we agree, technology has improved. But the truck is not twice as good as it was back then. And the fundamental task of the truck is the same. It still moves stuff from here to there.
It doesn’t matter anyway. The guy needs a truck. It now costs $30,000.
Third, since the feds have discouraged saving with artificially low interest rates, he’s not likely to have $30,000 on hand.
So he’s forced to borrow. His loan, with interest, then becomes part of the financialised economy, to be sliced and diced, leveraged, and hypothecated, until the money shufflers earn more on the loan than Ford did on the truck.
And now…the poor working man is not only forced to sell twice as much time to buy a truck…his time is now the asset ‘underlying’ not only Motor City, but Wall Street, too.
And there’s the weak link in the whole claptrap system: It rests on a limited asset of declining value.
The finance industry loans to the working man at 5.5%. On a loan for a $30,000 F-150, this gives the lender a gross profit of $5,290.
And it leaves the poor man paying $490 a month — equal to 19 hours of work — for six years. Altogether, the fellow works 1,356 hours over a six-year term to get, more or less, the same pickup he would have had for 625 hours of his time in 1971.
You can do the same calculation for housing. An average man paid about $24,000 for the average house in 1971. Today, he pays $371,000. Priced in time, the house cost 6,000 hours in 1971 and 14,269 hours today.
Is that progress? Not in our book. Time is life. It’s all we have. It takes more than seven years of work for the average guy to buy the average house today — four years more than it took in 1971.
So what happened?
The simple answer: A huge supply of time flooded the market.
Approximately one billion people from China, India, and Southeast Asia — willing to work for $1 to $5 a day — entered the world economy. Naturally, the competition sank the raw cost of time.
And it set the stage for Donald J Trump, who argues that we need to ‘build a wall’ and set up tariffs to keep these people and their products out.
But wait. It’s not that simple. You don’t get richer by shutting out people who can produce goods faster, cheaper, or better than you can.
You get richer by doing what you do better…and trading for what you don’t do.
Also, cheap foreign labour should have dragged down the cost of goods and services imported from overseas.
Even if his own wages went nowhere, the average American working man should have seen an increase in his real standard of living. Adjusted for negative inflation (deflation)…his real wages should have gone up.
But they didn’t…because something else was going on…
The Swamp was growing. The US economy was becoming less productive and more ‘financialised’…and chock-a-block with cronies, zombies, and win-lose hustlers.
The insiders and the rich navigated through the Swamp and continued to make money. But the typical working stiff in the Main Street economy sank.
More on how that happened…tomorrow.