How much does the working stiff earn today? How much did he earn 10, 20…50 years ago? Is he really making progress? And if not now — with the genius of the Fed and Wall Street at his back, enlightened politicians and activists to lead him forward, and the bright sun of US capitalism overhead — when?
I have looked at ‘time prices’ purporting to show that the average fellow now earns five times as much per hour as he did before 1980.
Simple enough. You take a basket of key commodities — wheat, corn, iron ore — and you track the prices alongside wages.
The conclusion, however, leaves us unsettled. It is out-of-tune with what we think we know…and what we think we see.
Capitalism’s finest hour
Adjusting for inflation is not as easy as it sounds, but according to a 2018 Pew Research Centre report, ‘today’s real average wage [that is, the wage after accounting for inflation] has about the same purchasing power it did 40 years ago.’
And yesterday came a new accounting, showing that ‘real wages have not risen since 1965’. Uh oh. That’s almost 60 years without a raise, during the period we thought was US capitalism’s finest hour.
Which is it? Is the 40-year-old worker five times richer than his dad? Or dead even with him?
Or worse?
One of the problems with the ‘time price’ theory is that it is pure theory. It is just an idea. In practice, people don’t buy baskets of their favourite commodities. They buy dinner, a house…a car. So, how much does it cost to buy these things?
According to the Bureau of Labor Statistics, the cost of food has risen by more than 3,000% over the last 100 years. And wages? The average hourly wage in 1923 was about 40 US cents an hour. Today, it is US$11 an hour, or about 2,600% more than it was. By this measure, the working man is poorer. What used to take him an hour to buy now takes about an hour and 10 minutes.
And his wheels? The Ford F series has served as the working man’s workhorse since it was first introduced in 1948. Brand, spanking new, the truck sold for US$1,279 back then, which the Bureau of Labor Statistics tells us is the equivalent of US$13,836 today.
But where can you buy a new F-series Ford truck for US$14,000 today? Nowhere. According to Edmonds, the base price is now over US$47,000. In terms of hours worked, it will take the buyer three times as long to afford the new truck.
Time and money
In practice, the average man can only afford it by going into debt. Trucks are scarce; but thanks to the aforementioned genius, credit is abundant. Now, the working man may never actually own a pickup truck. He merely rents it from Wall Street.
Here’s Autoweek from 2020:
‘…an increasing percentage of trucks are being purchased by buyers taking advantage of loans as long as 84 months; incentives like deferred payments and 0% financing, meant to keep sales from completely collapsing, seem to be working even as unemployment skyrockets. Meanwhile, monthly payments and amounts financed for new vehicle purchases are increasing.’
The ‘time-price’ economists would say, ‘yes…but it’s a better truck.’ And so it is. Technology advances. The components improve. ‘Extras’ become necessities. But it is still just a truck. And the same tech improvements that make it a better truck, logically, ought to have made it cheaper to produce.
Instead, it is more expensive. In time as well as money.
And now, let’s look at housing. Here, the picture is less fogged by technological improvements. Today, you can buy a house built in 2023…or one built in 1923.
100 years ago, a house would have cost you US$3,200, according to US News. Statista puts the average house price today at US$392,000. But what about the 1923 house with few of the tech advances of the last 100 years? Progress continued. Wages advanced. The house remained more or less the same. It should be much cheaper, right?
John Q Guarantor
New materials and new tools — plastic pipes, nail guns, fake wood — should have made new houses cheaper to build, too. But both — old and new — are much more expensive.
Let’s see. We go to a website listing ‘old houses for sale’. We check the listings for Maryland, which we know fairly well. We eliminate any historic mansions or other outliers. We add up all those available…we divide by the number of those for sale to get an average, and we get US$571,000. Hmmm. More expensive, not less.
Old houses are supposed to be generally cheaper. They are out of style. And they usually have problems that need to be fixed. Faulty water heaters. Rotten fascia board. Bad wiring. Whatever. But with upgrades — new granite countertops, remodelled kitchen and bathrooms, refinished woodwork — let us assume that the cost of an old house is about the same as a new one. How do they compare to a house bought 100 years ago?
At 40 US cents an hour, a house in 1923 would have taken 8,000 hours of labour to acquire. The house today — assuming it is around US$390,000, updates included — will cost 35,000 hours of work, or nearly five times as much.
By these measures, labour had nothing to celebrate this year…nor almost any year since 1923. Real wages have not even begun to keep up with real costs.
What kind of economy is this…that presses a crown of inflation down on the working man’s head…and crucifies him on a cross of claptrap? What kind of government is it that leaves him poorer…year after year…and runs up a US$33 trillion debt with his name as the guarantor?
There must be more to the story. But what?
Regards,
 |
Bill Bonner,
For The Daily Reckoning Australia
