Blog Archives

No Matter How Much Money the Fed Prints, We Still Can’t Afford Nice Things

You’d think that with the Federal Reserve printing trillions of dollars since 2008, we’d all be able to afford nice things. But you’d be wrong: after 11 years of Fed money-printing, nice things are even more out of reach for all but the favored few who’ve received the Fed’s bounty of freshly created currency.

The Fed’s trillions were supposed to trickle down into the real economy, but they never did. All those trillions boosted asset prices and the wealth of the $100 million yachts and private jets elite.

Instead costs have soared while wages have stagnated. If this widening gap between wages and costs were accurately presented, there would a political revolt against the Fed and those few who have benefited so immensely from Fed money-printing: the banks, financiers, corporations buying back their own shares, the owners of high-frequency trading computers, etc.

Despite the best efforts of the government’s “suppress all evidence of runaway cost inflation” functionaries, a few facts have slipped through. Let’s start with income from 1980 to the present, as per the Congressional Budget Office (CBO). Note that this is all pre-government-transfer (Social Security, food stamps, etc.) income, both earned (wages) and unearned (investment income).

The top households have done very, very well in the past 20 years of Fed largesse, while the incomes of the bottom 80% have gone nowhere.

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The Unraveling Quickens

The central thesis of my new book Will You Be Richer or Poorer? is the financial “wealth” we’ve supposedly gained (or at least a few of us have gained) in the past 20 years has masked the unraveling of our intangible capital: the resilience of our economy, our social capital, i.e. our ability to find common ground and solve real-world problems, our sense that the playing field, while not entirely level, is not two-tiered, and our sense of economic security–have all been shredded.

The unraveling of everything that actually matters is quickening. While every “news” outlet cheerleads the stock market (“The Dow soared today as investor optimism rose… blah blah blah”), our “leadership” and our media don’t even attempt to measure what’s unraveling, much less address the underlying causes.

The hope is that if we ignore what’s unraveling, it will magically go away. But that’s not how reality works.

The unraveling is gathering momentum because prices have been pushing higher while wages lag, feeding the rising precariousness and inequality of our economy. The connection between people losing ground and social disorder/disunity has been well established by historians such as Peter Turchin Ages of Discord and David Hackett Fischer The Great Wave: Price Revolutions and the Rhythm of History.

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So You Want to Get Rich: Focus on Human Capital

So you want to get rich: OK, what’s the plan? If you ask youngsters how to get rich, many will respond by listing the professions the media focuses on: entertainment, actors/actresses, pro athletes, and maybe a few lionized inventors or CEOs.

The media’s glorification of the few at the top of these sectors masks the statistical reality that those who attain wealth in these pursuits number in the hundreds or perhaps thousands, not in the millions. As in a lottery, the odds of joining such a limited group are extremely low.

There are 330 million Americans and 150 million people reporting income, so statistically, the odds of getting rich improve significantly if we focus on joining the ranks of the 11 million people who are getting rich from their human capital rather than on the few thousand people earning big bucks in music, film, sports, etc.

As I noted yesterday in The “Working Rich” Are Not Like You and Me, the nature of work and capital is changing. Markers that were once scarce–college degrees, for example– are now abundant, and have lost their scarcity value. What’s scarce isn’t credentials–what’s scarce are skills that generate productive problem-solving: human capital.

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The 21st Century Misery Index: Labor’s Share of the Economy and Real-World Inflation

In the late 1970s and early 1980s, an era of stagflation, the Misery Index was the unemployment rate plus inflation, both of which were running hot.

Now those numbers are at 50-year lows: both the unemployment rate and inflation are about as low as they can go, reaching levels not seen since the mid-1960s. (See chart below)

By these measures, the U.S. economy’s Misery Index has never been lower and hence prosperity has never been higher or more widespread.

But this simply isn’t true: the top 5% are indeed doing better than ever but the bottom 80% are losing ground and the middle 15% are only appearing to do well because asset bubbles have temporarily created illusory wealth.

I propose a 21st century Misery Index: Labor’s Share of the Economy and Real-World Inflation. Headlines about labor shortages and rising wages are popping up, suggesting the long-awaited boost in labor’s share of the economy’s growth is finally starting.

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The Rowboat (Wages) and the Yacht (Assets)

The reason why the status quo has failed and is fragmenting is displayed in these three charts of wages, employment and assets: wage earners (labor) are in a rowboat trying to catch the yacht of those who own assets (capital).

Here is a chart of weekly wages of those employed fulltime: up a gargantuan $4/week in the 18 years since 2000. Let’s see, $4 times 52 week a year–by golly, that’s a whole $208 a year. Brand new Ford F-150, here we come!

If we go back 38 years to 1980–an entire lifetime of work–we find real (adjusted for official inflation, which seriously understates big-ticket expenses such as rent, healthcare and college tuition/fees) wages have notched higher by $10/week–a gain of $500 annually.

If we adjusted wages by real-world income, we’d find wages have declined since 1980 and 2000.

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Why We’re Doomed: Stagnant Wages

Despite all the happy talk about “recovery” and higher growth, wages have gone nowhere since 2000–and for the bottom 20% of workers, they’ve gone nowhere since the 1970s.

Gross domestic product (GDP) has risen smartly since 2000, but the share of GDP going to wages and salaries has plummeted: this is simply an extension of a 47-year downtrend.

Last month I posted one reason Why We’re Doomed: Our Economy’s Toxic Inequality (August 16, 2017). The second half of why we’re doomed is stagnant wages. Why do stagnating wages for the bottom 95% doom our status quo? As I noted yesterday in Why Wages Have Lost Ground in the 21st Centuryour system requires ever-higher household incomes to function–not just in the top 5%, but in the top 80%.

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A Tale of Two Housing Markets: Hot and Not So Hot

Though housing statistics such as average sales price are typically lumped into one national number, this is extremely misleading: there are two completely different housing markets in the U.S. One is hot, one is not so hot.

Just as importantly, one may stay relatively hot while the other may stagnate or decline.

All real estate is local, of course; there are thousands of housing markets if we consider neighborhoods, hundreds if we look at counties, cities and towns and dozens if we look at multi-city metro regions.

But consider what happens to average sales prices when million-dollar home sales are lumped in with $100,000 home sales. The average price comes in around $500,000– a gross distortion of both markets.

Here’s a real-world example of what has happened in hot markets over the past 20 years. The house in question is located in a bedroom community suburb in the San Francisco Bay Area metro area. The home was built in 1916 and has 914 square feet, no garage and a small lot.

It sold in 1996 for $135,000. This was a bit under neighborhood prices due to the lack of garage and small size, but nearby larger homes sold in the $145,000 to $160,000 range.

The house was sold in 2004 for $542,000, and again in 2008 for $575,000. It is currently valued at $720,000. The neighborhood average is $900,000.

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Here’s Why Wages Have Stagnated–and Will Continue to Stagnate

Mainstream economists are mystified why wages/salaries are still stagnant after 7+ years of growth / “recovery.” The conventional view is that wages should be rising as the labor market tightens (i.e. the unemployment rate is low) and demand for workers increases in an expanding economy.

But wages are only rising significantly for the top 5%, while workers between the bottom 81% who have seen their household incomes decline and the top 5% are experiencing stagnant earnings.

We can see how the top 5% have pulled away from the bottom 95% by examining household budgets: spending by the top 5% has soared compared to the stagnant spending of the bottom 95%.

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No Wonder We’re Poorer: Wages’ Share of GDP Has Fallen for 46 Years

The majority of American households feel poorer because they are poorer. Real (i.e. adjusted for inflation) median household income has declined for decades, and income gains are concentrated in the top 5%:

Even more devastating, wages’ share of GDP has been declining (with brief interruptions during asset bubbles) for 46 years. That means that as gross domestic product (GDP) has expanded, the gains have flowed to corporate and owners’ profits and to the state, which is delighted to collect higher taxes at every level of government, from property taxes to income taxes.

Here’s a look at GDP per capita (per person) and median household income.Typically, if GDP per capita is rising, some of that flows to household incomes. In the 1990s boom, both GDP per capita and household income rose together. (more…)

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How Can Older Workers Compete in an Economy That Values Youth?

Workers of all ages are caught in a vise. Older workers need to keep working longer in an economy which values younger workers (and their cheaper healthcare premiums). Younger workers are caught in the vice of “you don’t have enough experience” and “how do I get experience if nobody will hire me?”

Middle-aged workers are caught between the enormous Millennial generation seeking better jobs and the equally numerous baby Boom generation seeking to work a few more years to offset their interest-starved retirement funds. (Thank you, predatory and rapacious Federal Reserve for siphoning all our retirement fund interest to your cronies the Too Big to Fail Banks.)

Workers 55 and older are undeniably working longer. Here is the labor participation rate for 55+ workers:

And here’s why so many workers has to work longer–earned income’s share of the GDP has been in a free-fall for decades as Fed-funded financiers and corporations skim an ever greater share of the nation’s GDP. (Thanks again, Federal Reserve, for hollowing out our economy to benefit the few at the expense of the many.)

Correspondent Kurt S. recently asked for advice tailored to the older worker who must re-invent or repackage themselves to find a job. Kurt reported that he found my book Get a Job, Build a Real Career and Defy a Bewildering Economyhelpful, but felt that it spoke more to the younger worker than the older worker seeking to re-enter a work force bursting at the seams with workers of all ages.

To remedy that, here are some 55+-oriented suggestions that are based on the analysis of the emerging economy in my book. The reality is every sector of the economy is changing as digital technologies and automation expand–but some sectors are changing at a slower pace, which opens opportunities for older workers.

I am 62, very much an older worker with a startling 46 years in the work force (first formal paycheck, 1970 from Dole Pineapple). (Thanks to the Fed’s zero-interest rate policy, I should be able to retire at 93 or so–unless the Fed imposes a negative-rate policy on me and the other serfs.)

But I recall with painful clarity the great hardships and difficulties I experienced in the recessions of 1973-74, 1981-82 and 1990-91 when I was in younger demographics. My sympathies are if anything more with younger workers, as it is increasingly difficult to get useful on-the-job experience if you’re starting out.

That said, here are some suggestions for 55+ workers seeking to find work in a very competitive job/paid work market.

1. Target sectors that haven’t changed much. There’s a reason so many older guys find a niche in Home Depot and Lowe’s–power saws, lumber, appliances, etc. haven’t changed that much (except their quality has declined) for 40 years.

The same can be said of many areas of retail sales, house-cleaning, caring for children, etc.

Everyone knows the young have an advantage in sectors dominated by fast-changing technology, so avoid those sectors and stick to sectors where your knowledge and experience is still applicable and valued by employers.

2. If at all possible, get your healthcare coverage covered by a spouse or plan you pay. Those $2,000/month premiums for older workers are a big reason why employers would rather hire a $200/month premium younger worker, or limit the hours of older workers to part-time so no healthcare coverage is required.

Telling an employer you already have healthcare coverage may have a huge impact on your chances of getting hired.

3. If you have any computer-network-social media skills, you can get paid to help everyone 55+ with fewer skills. Your computer skills may not be up to the same level as a younger person’s, but they are probably far more advanced than other 55+ folks. Many older people are paying somebody $35/hour or more to help them set up email, fix their buggy PCs and Macs, get them started on Facebook, etc. It might as well be you.

4. Focus on fields where managerial experience and moxie is decisive. Even highly educated young people have a tough time managing people effectively because they’re lacking experience. Applying biz-school case studies to the real world isn’t as easy as it looks. (I found apologizing to my older employees necessary and helpful. Do they teach this in biz school? I doubt it.)

The ability to work with (and mentor) a variety of people is an essential skill, and it’s one that tends to come with age and experience.

5. Reliability matters. The ability to roll with the punches, show up on time, do what’s needed to get the job done, and focus on outcomes rather than process are still core assets in a work force.

Being 55+ doesn’t automatically mean someone has those skills, but they tend to come with decades of work.

6. If nobody will hire you, start your own enterprise to fill scarcities and create value in your community. The classic example is a handyperson, as it’s very difficult for a young person to acquire the spectrum of experience needed to efficiently assess a wide array of problems and go about fixing them.

#3 above is another example of identifying one’s strengths and then seeking a scarcity to fill. Value, profits and high wages flow to scarcity. Don’t try to compete in supplying what’s abundant; seek out scarcities and work on addressing those in a reliable fashion.

Every age group has its strengths and weaknesses, and the task facing all of us is to 1) identify scarcities we can fill and 2) seek ways to play to our strengths.

If you don’t feel you have any strengths, focus on the eight essential skills I outline in the book Get a Job, Build a Real Career. Anyone can learn or improve these eight essential skills with some effort.

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Income, Education and Inequality in the “Recovery”: Prepare to be Surprised

Note to the higher education industry: issuing diplomas doesn’t magically create new jobs in the real world.

By virtually any standard, wealth inequality has soared to historic levels in the six years of “recovery” since the Great Recession of 2008-09. Economist Emmanuel Saez, who has long collaborated with Thomas Piketty, described the recent extremes of wealth inequality in a recent paper Striking it Richer: The Evolution of Top Incomes in the United States, which provides an in-depth look at the widening gulf between the top 1% and the bottom 90% from 2009 to 2012.

Here is a chart of the top 10% share of income, based on their research (the note in red marking the beginning of financialization in 1982 is my own):

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Here’s Why Wages Might Rise Despite Millions of Unemployed Being Available for Work

Tragically, the inability of our institutions to impart the skills required by the emerging economy hobble not just the unemployed but employers.

A reader recently offered a compelling reason why total compensation costs (wages plus benefits/payroll taxes) could rise even in a stagnant economy with millions available for work: many of those who have been out of work for a long time (or have yet to hold a formal job) are unqualified by experience and professionalism to perform the work that is available.

This is a complex topic, so let’s separate the key issues.

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