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Message 410235 - Posted: 29 Aug 2006, 19:52:06 UTC

Why Are We Worse Off?

By Llewellyn H. Rockwell, Jr.

Posted on 8/28/2006

New wage data indicate what you might have suspected. Average wages are not keeping up with the cost of living. This has given rise to claims that we live in the first sustained period of economic growth that has failed to offer a similarly sustained increase in real wages. Indeed, wages have declined in real terms by 2 percent in the last three years.

The first concern is political. The Democrats, despite their moderating image, carry with them the intellectual baggage of a Marxist morality play in which business skims the excess productivity of labor's value. This new data is framed in a way that plays right into this model. Productivity is up, the rich are richer, but the workers are losing out.

Meanwhile, the Republicans have a very strange response, as typified by the comments of pollster Frank Luntz. The bad economic news would not do serious damage to Republicans, he said, because voters will blame corporate America and not government for their problems.

Now, there is a lot buried in these comments. The Republicans have dined out on the mistaken impression that they are the anti-government party. Here we see a change. The pollster just assumes that anti-government feeling will redound against the Republicans, since this is the party that controls government, after all.

I have my doubts that he is right. Republicans have controlled the White House — Carter and Clinton excepted — for the better part of forty years, and yet somehow they are always able to get away with blaming government for their problems. I can easily imagine that the Republicans will again trot out their anti-government rhetoric this time around. But we shall see.

In the meantime, this data needs unpacking. The reason for the fall in income has nothing to do with corporate profits. The culprit is our old friend inflation. But more than ever, inflation data does not reflect the underlying reality we experience every day. As we all know, there is no such thing as a price level as such. There are only prices, some of which rise and some of which fall. There is no way that the government can collect enough information to make sense of it all.

Take a trip to Wal-Mart, for example. You don't see price increases here. You can buy shirts, jackets, and shoes for a fraction of what you would have paid ten years ago. This is even true for electronics and most other goods you find in so-called department stores. How can we even talk of inflation with astounding realities like this?

Indeed, this is reflected in the broad data collected by the Bureau of Labor Statistics.



Roughly the same pattern is seen in apparel markets generally.



How can we account for this? Two factors: entrepreneurship and international trade. In the first category, we have to include Wal-Mart but also Target, as well as hundreds of other shops that carry discounted items. We love these stores, and their cost-cutting ways have been a boon for the American consumer. Imagine what would have happened to the overall CPI were it not for them.

And yet the people who are currently wailing about the declines in real income give these retailers no credit for keeping our living standards from falling lower than they otherwise would have. These stores are a major source of American prosperity, and we need ever more of them.

Their access to international markets for producer and consumer goods is another reason. Markets around the world are opening by the day. The division of labor is globalized as never before. This too has been great for the American consumer. Meanwhile, however, those who want to draw attention to the decline in real wages are apt to blame trade for part of the problem, rather than giving credit where it is due.

How, then, can we account for the price data that is eating away at our living standards? Consider:



Now, here we have the exact opposite pattern, and from a sector of the economy that is heavily regulated, taxed, and beaten to death by interventionist regulations. There is far less supply flexibility in oil and gas because of trade restrictions, stupid wars, and insane and counterproductive environmental controls. When shocks hit, the only market response is to increase rationing via price increases.

Let us draw attention to a sector that is even more heavily controlled by government. Indeed, this is a sector that is directly administered by public agencies that enjoy a complete monopoly on service provision:



Here again we see big increases, as felt by American consumers across the board, all summer long. The same story can be told about other government-controlled sectors such as education and health care.

There is a final underlying source of our troubles. Despite the Fed's continued interest-rate increases, the money supply continues to grow. The largest increases date especially from 2001 through 2004, pausing for a brief period in 2005. This year, the monetary increases have begun again. The United States benefits by being the host to the world's reserve currency, but eventually there is a price to be paid.

In other words, the increases in prices are due to both Fed policy and to sectors that are not responsive to market supply and technological change. The sectors in which prices are falling show the trends that they do despite Fed policy and precisely because they are responsive to market supply pressure.

The answer to our standard-of-living woes is a radical restructuring that would make education, health care, and energy look and behave much more like retail discount stores and apparel. What the American worker needs is more of what Wal-Mart offers and less of what the government offers. If we could then fix the Fed so that it would no longer water down the value of our money, we'd never have to worry about declining real wages again.
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Message 411690 - Posted: 31 Aug 2006, 4:20:01 UTC - in response to Message 410235.
Last modified: 31 Aug 2006, 4:30:00 UTC

Average wages are not keeping up with the cost of living.

How about houses and automobiles?

Who really cares about all the nickel and dime stuff when our two greatest necessities have become so OVERPRICED... To put it mildly... ;)
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Message 411699 - Posted: 31 Aug 2006, 4:29:58 UTC - in response to Message 411690.

Average wages are not keeping up with the cost of living.

How about houses and automobiles?

Who really cares about all the nickel and dime stuff when our two greatest necessities are so OVERPRICED... To put it mildly... ;)

What's your baseline of what 'overpriced' means?

I mean, you've got a catchy slogan befitting a political party at election time but what's your benchmark for such a conclusion?
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Message 411708 - Posted: 31 Aug 2006, 4:39:22 UTC - in response to Message 411699.
Last modified: 31 Aug 2006, 4:44:35 UTC

What's your baseline of what 'overpriced' means?

25 years ago an acre of land was $500...
25 years ago a brand new car was $2,500...
25 years ago one could build a new house for $25,000...
25 years ago one could rent an apartment for $100 per month...

How much has minimum wage gone up since then? $1.00 per hour?

You do the math...

This issue has been known throughout my entire life... If the greedy actually wanted to fix the problem they would have stopped TALKING about it and started DOING something about it a long time ago... ;)
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Message 411824 - Posted: 31 Aug 2006, 12:24:04 UTC - in response to Message 411708.

What's your baseline of what 'overpriced' means?

25 years ago an acre of land was $500...
25 years ago a brand new car was $2,500...
25 years ago one could build a new house for $25,000...
25 years ago one could rent an apartment for $100 per month...

How much has minimum wage gone up since then? $1.00 per hour?

You do the math...
This issue has been known throughout my entire life... If the greedy actually wanted to fix the problem they would have stopped TALKING about it and started DOING something about it a long time ago... ;)


I think the problem Jeffrey is the 'law of supply and demand'. If you are willing to pay more than the next guy, the price will go up. It will continue to go up until people stop paying for it. Look at all the the infomercials on tv. You see something one month priced at $29.99 each, 3 months later the same item is priced 2 for $19.99. They either lower the price or keep a warehouse full of them.
I think another part of the equation is that there are many, many more 2 income households than 25 years ago. That effictively means a $2.00 an hour raise, not just a $1.00 an hour. That then gives each household twice as much money, from the second income, and a double hourly raise on top of that.
The people that end up paying for all this expensive stuff, in the way of lifestyle changes, are the older folks. They do not have the increasing incomes and therefore have to make choices, sometimes painfull ones, in order to afford the things we need in life.

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Message 411973 - Posted: 31 Aug 2006, 17:01:39 UTC
Last modified: 31 Aug 2006, 17:10:02 UTC

Jeffrey, the issue here is the amount of purchasing power in question not the numerals associated with prices.
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edit---You won't get away with this load of BS. I reread your post and wonder what country you were referring to. I lived in the United States back then and fully recall that your figures and supposed facts are not 'facts' at all............
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25 years ago an acre of land was $500...
25 years ago a brand new car was $2,500...
25 years ago one could build a new house for $25,000...
25 years ago one could rent an apartment for $100 per month...


An acre of land where? Manhatten? Alaska? South Georgia prime farm land? Whaaaa~??
Build a new house where for 25k ? Was it a tool shed?

$100 for a flat? You couldn't buy that in a crack house.

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Message 412051 - Posted: 31 Aug 2006, 19:01:31 UTC - in response to Message 411973.
Last modified: 31 Aug 2006, 19:10:22 UTC

I lived in the United States back then and fully recall that your figures and supposed facts are not 'facts' at all............

Next you're gonna be telling me that gas wasn't 20 cents a gallon and that postage stamps weren't a penny a piece, right?

As far as the two income families go... The only reason that both parents had to start working in the first place was because salaries had declined so much, and continue to do so... Not to mention, the ever rising cost of living... ;)
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Message 412085 - Posted: 31 Aug 2006, 19:44:19 UTC - in response to Message 412051.

I lived in the United States back then and fully recall that your figures and supposed facts are not 'facts' at all............

Next you're gonna be telling me that gas wasn't 20 cents a gallon and that postage stamps weren't a penny a piece, right?

As far as the two income families go... The only reason that both parents had to start working in the first place was because salaries had declined so much, and continue to do so... Not to mention, the ever rising cost of living... ;)

I agree with you on some points, JEFFREY. Women have believed or been inclined to take work where they otherwise may not have. That, of course, is up to her and her husband but those pressures have in many ways been brought about by the influences of government intrusions into people's lives.

As to your comment about the price of postage stamps: They haven't been that cheaply priced since the war between the states. You still won't be a man enough to proclaim that "RB was right and I was wrong" which is something I am willing to proffer when I am shown an error concerning facts or reasoning.

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Message 412098 - Posted: 31 Aug 2006, 19:58:32 UTC - in response to Message 411708.

You do the math...

This issue has been known throughout my entire life... If the greedy actually wanted to fix the problem they would have stopped TALKING about it and started DOING something about it a long time ago... ;)

The issues you should have spent that entire life learning about are inflation and improvement.

30 years ago, the average cost of a car was about $5K, now that's about $20K. That doesn't mean a car costs four times more. First you could compare the CPI over the years (what is a dollar now worth in 30 year old dollars?). Second you compare the options--a car 30 years ago was destined to be a rustbucket, had no air conditioning, no power steering, windows, locks or trunk release. It's milage was appalling and it's weight approached that of an APC. There were no heated (or cooled) seats, a terrible radio, and an accident in them would likely result in your death.

So while it's true that a car is probably slightly more expensive today, that's because they have improved significantly and the costs of those improvements continually fall.

As another example, just imagine what you computer today would have cost 30 years ago.

As far as "the greedy" a) that generalization is so large as to be meaningless, and b) you would have to make an argument that said greedy could even affect the changes you feel you are entitled to.
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Message 412307 - Posted: 31 Aug 2006, 23:53:58 UTC

40 years ago my parents bought 3.5 acres of land, and built a 3500 sq ft house on it for $33K. My father earned $9K / year. That property was appraised at 500K about 5 years ago, and his income at retirement 5 years ago is 90K / year. The house is worth more than 15 times as much, but the labor rate with 35 years of experience is worth only 10 times as much.
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Message 412350 - Posted: 1 Sep 2006, 0:43:23 UTC - in response to Message 412307.

40 years ago

That's the generation I'm talking about...

Nobody will EVER have it as good as they had it... ;)
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Message 412357 - Posted: 1 Sep 2006, 0:51:10 UTC - in response to Message 412098.

As far as "the greedy"

Who do you think is pocketing all the cash?
Who do you think is paying the low salaries?

The GREEDY... ;)
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Message 412362 - Posted: 1 Sep 2006, 0:57:01 UTC - in response to Message 412357.

As far as "the greedy"

Who do you think is pocketing all the cash?
Who do you think is paying the low salaries?

The GREEDY... ;)

It's simply not worth it.

You have a lot to learn.
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Message 412365 - Posted: 1 Sep 2006, 1:00:12 UTC

I recently heard the results of a study whose results indicate that the political party in power (if in power long enough) does affect changes toward their philosophy. When the party in power believes in raising the standard of living for the low income workers, that is what happens. When the party in power believes in raising the income of the top executives, that is what happens.
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Message 412431 - Posted: 1 Sep 2006, 2:27:32 UTC - in response to Message 412362.
Last modified: 1 Sep 2006, 2:38:51 UTC

You have a lot to learn.

I know all about 'inflation'... It's the reason why we can't just print more money...

Problem:

The rich have more than enough money...
The poor have less than enough money...
The middle class is gone...

Solution:

The ONLY solution to the problem would be to take from the rich and give to the poor... And, well, we all know that will NEVER happen because of GREED...

All the rest of the 'complex economics' are just wasted efforts in an attempt to find a way to help the poor without actually removing anything from the pocket books of the rich... And, well, that is an IMPOSSIBLE solution that can NEVER happen because we can't just print more money...

Quite simple isn't it? ;)
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Message 412434 - Posted: 1 Sep 2006, 2:29:55 UTC - in response to Message 412307.

40 years ago my parents bought 3.5 acres of land, and built a 3500 sq ft house on it for $33K. My father earned $9K / year. That property was appraised at 500K about 5 years ago, and his income at retirement 5 years ago is 90K / year. The house is worth more than 15 times as much, but the labor rate with 35 years of experience is worth only 10 times as much.


You must be oppressing the poor to have achieved such a profit.
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Message 434045 - Posted: 10 Oct 2006, 3:59:55 UTC - in response to Message 412362.

It's simply not worth it.

You have a lot to learn.

Oh, you meant that I had a lot to learn about 'respect'...

I forgot... The rich don't have to EARN that either... ;)
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Message 434048 - Posted: 10 Oct 2006, 4:12:54 UTC - in response to Message 434045.

Oh, you meant that I had a lot to learn about 'respect'...

I forgot... The rich don't have to EARN that either... ;)

I win.

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Message 434071 - Posted: 10 Oct 2006, 6:38:10 UTC - in response to Message 412431.

I know all about 'inflation'... It's the reason why we can't just print more money...

Simplistic and wrong. This misstatement has been a canard for decades. You must check an economics text out of the library and study the subject. Money can, does and must get added to (and deleted from) the total money supply on an ongoing basis.

Inflation only occurs when the total value of the currency in circulation does not match the total productivity of the economy. When worker productivity rises (please note that the US has the most productive workforce in the world) the money supply is expanded to prevent deflation and, of course, the reverse condition applies. The current view is that a small amount of inflation is healthy, but I am not sure I buy that.

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Message 434128 - Posted: 10 Oct 2006, 11:38:32 UTC - in response to Message 434045.

It's simply not worth it.

You have a lot to learn.

Oh, you meant that I had a lot to learn about 'respect'...
I forgot... The rich don't have to EARN that either... ;)

Jeffrey, the rich people in this World are just out of our league! They are rich and there is just nothing you and I can do about it! Paris Hilton is rich and is an obvious example of what happens to people that have waaaay to much money. They do things that the rest of us would not even think of doing, and get paid for it. She makes a complete and utter fool of herself and the tv shows she is on, and laughs all the way to the bank. She makes a complete and utter fool of herself on clandestine videos, and laughs all the way to the bank. Rich people just have a different set of values than you and I. Get over it, get past it, nothing you or I can do about it. Your life is yours, my life is mine. Do you honestly think Paris Hilton or Brittany Spears will ever crunch for Seti? More importantly do you honestly think they even have a clue what it is? Jeffrey move on about the rich, they are a class unto themselves, and all they do is pay people to run their businesses so you and I can make a living doing whatever it is we do. As long as the money keeps coming in to them, and their managers think you and I do a good job at our jobs, hopefully we will keep working.

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