Note: this current post was inspired by a fine piece written by that notorious web feline whom I call: El Catto Baddo (the “el gato malo” substack — the one with the allergy to CAPITAL LETTERS).
A new economic concept — which I’ll call “adult earnings potential” (AEP) — refers to what a random person off the street can afford. Some random people have a job, and some don’t, but the AEP accounts for that by spreading all earned wages out among all US adults.
Both wages and hours worked can change across time, but the AEP accounts for that. A drawback to the AEP is that, in its current form, it presumes that every employed person in the USA is a blue collar worker, which means it underestimates income.
Back in 1970, the random US adult earned enough to purchase over 11% of a median-priced home:
But after 1970, the USA closed the “Gold Window” — no longer allowing held US dollars (USD) to be converted into gold, even by foreign nationals. It made US currency “pure fiat” and removed all procedural safeguards against inflation.
This let government grow unchecked, because it was no longer necessary to go out to the public and ask for tax increases to fund lavish government programs: the government programs could get funded “undemocratically” (whether the public was willing to pay for them or not).
Check out the results of severing the public approval process from the public spending process:
The random US adult now only earns enough to buy 5% of a home (less than half of the home-buying power of random US adults in 1970).
Critics and Detractors
Critics and detractors may note that, besides assuming everyone is blue collar, the AEP estimate also appears to “double-dip” regarding downward estimation of earnings power — because of using the metric of “full-time equivalent workers” along with a second metric that also tracks average weekly hours worked.
It makes “full-time equivalent” into a sliding scale, where “full time” just happens to be the average weekly hours worked, instead of being something constant like:
“the total number of 40-hour work-weeks”
We’re talking about an error of about 10% in predictions here (because the average weekly hours moved around about that much). Future versions of AEP may try to address this supposed drawback, but a crude estimate is still useful enough to show downward trend in US home purchasing power.
Part of the Great Reset is to “de-home” people so that they must pay steep rental prices to entrenched landlords — a return to Medieval-style feudalism. Evidence suggests that that process has been operating, at least ostensibly, for 5 decades now.
It shows the harm caused by unchecked government growth.
Reference
U.S. Bureau of Labor Statistics, Average Hourly Earnings of Production and Nonsupervisory Employees, Total Private [CEU0500000008], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CEU0500000008
U.S. Bureau of Labor Statistics, Average Weekly Hours of Production and Nonsupervisory Employees, Total Private [CEU0500000007], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CEU0500000007
U.S. Bureau of Economic Analysis, Full-time equivalent employees: Domestic private industries [A4303C0A173NBEA], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/A4303C0A173NBEA
U.S. Bureau of Labor Statistics, Population Level [CNP16OV], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CNP16OV
U.S. Census Bureau and U.S. Department of Housing and Urban Development, Median Sales Price of Houses Sold for the United States [MSPUS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MSPUS
Since MV = PQ, P declines as Q rises, assuming that M is the gold stock and V is stable. This was the problem in 1930: the perceived gold drain led the Fed to raise interest rates, which reduced P. Hence the New Deal.
Can an economy grow with a stable M? It did in the 19th century, but it was very painful for the working class which had to endure both unemployment and falling wages. Politically, there is no way that the voter will accept high unemployment and/or falling wages. So a stable M is impractical politically. The only society on earth that has successfully managed deflation is HK, but that was in part because it is not a democracy.