Has the US economy improved in the last 20 years?
If you asked a politician or one of the dumb economists, they’d say it has improved. They would say our GDP has expanded at a near constant rate each year since then. They might compare employment rates. They would undoubtedly tout the stock market appreciation. They would probably talk about how we have had such amazing technology development and how we lead the world with such innovative global companies. They’d all miss the point. Because our economy has gotten much weaker.
The biggest thing you need to look at by far is this…
As you can see, median household income hasn’t really appreciated. That’s a bit shocking… in over 20 years, our economy has been stagnant in terms of what the typical household is earning. This would be fine if we had a non-manipulated economy. However, the Fed has stated repeatedly that they target about 2% annual inflation (and this is price inflation, not income inflation as the graph shows). So at 2% price growth every year, every single thing you buy (food, housing, clothing, discretionary items) is growing.
So to do a simple example, let’s say you were right in the middle of all earners in 1992.
You made $50k / year and let’s say after taxes that ended up being $40k.
Your weekly budget for all expenses in 1992 was $500. This means that in 1992, you spent $26k per year and made $40k/year for savings of $14k. Pretty good.
However, if our very own policymakers got their way with 2% inflation, we’d still be making the $40k after tax (as the graph above shows) but our expenses 24 years later would go from $500/week to $788/week. For a full year, our expenses would be $40,976. As you can see, we’re now spending more than we are earning.
This would be a pretty sad story. Our very own policymakers pursued this absurd inflation target and the average household has seen no income appreciation but a 57% cost appreciation over the 24 years.
What makes it even worse though is that medical costs, higher education costs, and housing costs have been increased by much more than 2% per year. And since every middle class family need these 3 things, they are likely spending much more than they are earning. Again, this is all due to horrendous policy.
Now I know what you may be thinking… why do we allow our own government to sell us out with policies like 2% inflation or all the nonsense things they do in the education, health, and financial sectors? The reason is that the vast majority of the country couldn’t do the simple economic analysis I showed you above. It’s not part of education curriculums. And people’s eyes glaze over when you start mentioning economics.
Politicians and the wealthy have figured this out. Inflation benefits them because stocks go up, business values go up, their property values go up. Their incomes have gone up substantially. So they distract the populace with silly issues instead. They talk about how taxes are so unfair (because it’s something easy for people to understand and get mad about). They talk about immigrants stealing our jobs. They talk about bad trade policies. They talk about other divisive issues.
That way nobody wakes up and realizes that by far the biggest culprits of our declining economy is… inflation, a lack of education, and debt. There are other things that influence it but if we fixed these things, the economy would look a lot better.
So going back to your original question, our economy hasn’t improved. Yes, it looks good for people that own assets (because inflation helps them a lot). However, it looks quite bad to the average household earning a middle class salary. And I’d expect similar trends for the next 20 years, as very few people talk about this and very few people understand it (despite it being as simple as I outlined above).
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