More Signs That America’s Economy Doesn’t Add Up

I’m not an economist, but I can do math and sense when something is out of whack. So can someone explain to me why housing values can go up as much as 20 percent a year while wages have fallen 2.3 percent from 2001 to 2004? Where does that money come from?

During the same time wages have fallen, personal net worth rose 6.3 percent to $448,200, reports the San Francisco Chronicle on a survey released by the Federal Reserve. Much of that wealth, of course, is generated by rising home values.

Another math question: if we’re amidst an economic boom, why are salaries in real terms going down? And why are we making less if our productivity levels from 2001 to 2004 have increased almost 12 percent?

Who are the biggest losers? Low-income families, of course. They’re making only $100 more a year, which adds up to less than nothing after inflation.

As I ask my wife repeatedly, how do families get by nowadays? It just doesn’t add up.

Comments

[Phil]

How do families get by these days? Smoke and mirrors. Hey, it works for our government!

[Pat]

It is fairly easy to see gloom and doom on the horizon(I've been seeing it for years now!). I thought this thing would crash years ago. My current best guess on how it continues runs something like this:

The Baby Boomers continue to shift more of their money to cash yielding investments and out of growth stocks. This drives up the demand for bonds, gov't securites, mortgage pools etc. thereby keeping interest rates artificially low. Thus, propelled by low monthly mortgage payments, real estate values remain inflated and, even continue to rise.

Declining salaries are offset by America's "ownership" society. More and more people are realizing income through their invstments, whether it's from retirement accounts or 529 plans or even taxable vehicles. Americans are collecting more dividend income and capital gains.

And at the end of the day, when the boomers are gone, to whom will they sell their real estate, bonds, stocks, etc.? It will be the foreignors, desparate for safe haven to put their cash.

Is this plausible? I have no way of knowing. My sense is that interest rates will remain low and that foreign capital will continue to flow heavily into America.

Regarding eroding wages, I think that's THE major problem facing America today. The "ownership society" thing is a bunch of bullhit because I think it pertains mostly to people who are already rich. Saw an article in the NYT business section this sunday where Caterpillar, paragon of American manufacturing, is now paying new workers 50% less (or lower) than what they are paying their seasoned workforce. Further, these new workers benefits have been slashed and the chances for advancement are next to nil. Of course Wall Street loves it.

So, where you once could live on one income off your line job at CAT, now both parents have to work to afford the mortgage, the child care etc.

Sorry to get up on my soap box but this stuff pisses me off.

[Phil]

Families have to be more creative with their incomes. We also do away with a lot of expenses that we used to take for granted just a few years ago, things like cable TV, newspaper subscriptions, eating out, going to the movie theater, etc. We become do-it-yourselfers to avoid plumbing and landscaping bills. We cut our own hair, then wear a hat to cover up the hack job. We don't buy new clothes very often.

People sometimes forget that so much of their income goes to frivolous things.

[brettdl]

Pat: Feel free to spout off. You offered some interesting perspective.

Phil: It's easy for me to agree considering I'm wearing a 10-year-old shirt as I write this, don't have cable and haven't been to a movie in more than a year.

[landismom]

I think the other element of this is the country's rising debt (not the government's debt, but the debt of individuals). While there are folks out there cutting spending on the kinds of things that Phil mentions, there are plenty of folks who are jacking up their credit cards, or taking out second mortgages, to make ends meet.

[brettdl]

Yeah, we're painfully aware of this. We know so many people who've improved their homes, bought boats and/or bought new cars every two years. I wonder if these folks will ever pay the price for living so high on the hog.

[Ontario Emperor]

Completely off topic, but you may want to explore the "virtual visitation" technology discussed in this article. I've already offered a few comments here.

[Mark]

A few weeks ago, there was an interview with an author on NPR a few weeks ago who wrote a book about how the countries 20 and 30 somethings are having to scrimp and struggle just to make it by, from a combination of unhelpful public policy and unforgiving credit card companies who are charging outrageous interest rates and offering no grace periods on payments even 24 hours late. The combination of all of these factors serve to grind down even the people who do live close to the vest, and absolutely bury those who have any period of youthful indiscretion financially.

The callers into the show (not surprisingly, this is NPR after all) tended towards the 45 and up crowd, who were basically of the opinion that kids today don't know how good they've got it -- back in their day they had to walk (uphill both ways, in 3 foot snowdrifts) to and from the bank to deposit their hard earned cash to save for a rainy day. They remained blissfully unaware of the irony that part of the reason they were able to get ahead was the fact that they were the beneficiaries of the extra help from public policy and more forgiving credit card issuers.

[brettdl]

Emperor: Thanks.

Mark: I just heard that same author last night on Marketplace. Even though I'm at the tail end of the Baby Boomers, I identify more with the Generation X crowd partly because of our age and partly because we had our children late in life.

The reaction of the 45+ set you mention is exactly why I'm beginning to think of the Baby Boomers as the most narcissistic, spoiled brats ever to walk the face of this earth.

Their legacy is going to be disastrous government policy, failed environmental efforts, destruction of the public schools, corporate greed on a scale never before witnessed and the bankrupting of later generations.

Other than that, they're doing just great.

[chip]

We're lucky, we adjusted to living on a single, not very high salary (mine) for quite a while, and bought our house based on that salary.

So when my wife went back to work it was like gravy, so we actually can eat out when we want, we built a laundry room, the kids can take lessons, etc. Childcare area also has been lucky, since my schedule is flexible and when the kids wer in elementary school there was an excellent after school program that cost about $7 per day. And we got used to buying our clothes at second hand stores and still do it even though we have more income now. (It is amazing the stuff you can find in those places!!)

We have very old cars (I can't ever see buying a new one...) and housing prices where I live are pretty low.

But I can't see how people can survive on even the median household income if they live in major metro areas where housing prices are crazy.

I think the answer to your question Brett is that the figures are aggregate, so the people at the top are getting richer, and doing better, basically taking all the gains in the economy for themselves, while everyone else is doing worse. Hey, that's what this Bush gang is all about!!

[brettdl]

We get by on one salary okay, but we bought our house closer to the bottom of the market than many people in this area. Ironically, eating out isn't much more expensive than the grocery stores out here. (But you have to live in the right parts of the city.)

As for Bush, yes, his administration definitely is in the business of enriching the already rich. Another factor I've noticed is that members of the middle class keep trying to live like the rich. So they overextend themselves by pulling equity out of their homes, further compounding the problems generated by the government of this nation.

[Mark]

So here's a question -- how much are the problems of the middle class a function of poor or uninformed decisionmaking, and how much is a function of getting their butts kicked by The Man?

[brettdl]

I think it's kind of like a mutual admiration society. Or self-destruction society. The man takes advantage of certain attitudes and preys on them, reinforcing those original viewpoints.