What Happened To Our Great Nation

[twoapplesplease]

Yea the whole system is corupt and broken.The only thing that can save us now is some kind of major revolution.Some people will think this is crazy talk but hey I like history and History can and will repeat itself.You can mark this down the u.s. unemployment rate will hit 20% in the next few years.This is all due to the trade deficit untill we export as much as we import this country will go down the crapper.I think there needs to be trade tarrifis inforced on imported goods to make them competitive with american made products.Because other countries keep there money value atificialy low or take complete advantige over there work force.
Unless americans are willing to live like there in a 3rd world country we cannot expect to compete in global market.

[kudomonster]

<br />the real problem is that theres just to many people in the world.And the current financial issues are just the begining.Don't expect this thing to turn around anytime soon or ever.We are reaching a fundimental tipping point in human existance.Get ready for some big changes.In 5-10 more years the $hiznt is gonna really start hitting the fan.<br /><br />As for our american economy it all comes down to consumable goods.No matter how much the boss makes or saves by producing things in china or elsewhere or using cheaper labor ,if the consumable goods are made elsewhere than thats where all the money ends up eventually.<br />

<br /><br /><br />
The financial crisis has absolutely nothing to do with the amount of people in the world.
You're right, our economy is driven a large part by consumer consumption. But saying "Who makes the goods gets the money" isn't perfect. We have many American companies creating goods in China, and the point I'm the country that originates the good isn't the one getting the money. Company X creates Awesome Pants™ hookahs, in America, for 50 bucks a piece. Let's say they're making a 20 dollar profit on each hookah, 10 bucks for transportation and what not, and 20 dollars to employees and what not. All the money goes right back into American hands.
Now let's say they're making the hookahs in China, and paying 5 bucks for labor. That's now 5 for labor, 10 for transportation (Realistically higher but whatever) 35 dollars profit. Right now, you're thinking "Where the fuck is this going..?"

What would drive company X to produce the hookahs elsewhere at a lower price? For the most part, competition. Simply moving to a different country to produce isn't something you're going to do to get 5% more profit. You have to establish a factory, (perhaps use a company in China) and disrupt supply lines (perhaps). So lets say, to stay competitive company X cuts ten bucks off their price.
America: 20 profit, 20 labor, 10 other: 50 dollar hookah
China: 25 profit, 5 labor, 10 other: 40 dollar hookah
So 5 dollars go to China, and American consumers save 10 dollars, and profits for the company go up 5.

Everyone benefits :3

That is of course, false.

By that logic, if nobody in the United States had a job, if we shipped over every job to China (although not possible) we'd be doing really well; better than we are now. The fallacy is that a man (and a woman) needs a job to provide for themselves. The more jobs that leave this country for other countries put more people out of work. Those people spend less money for goods and services. I think twoapplesplease is closer to correct on "Who produces the goods gets the money". Service sectored economies are fine, when they are shadowed by a vigorous manufacturing sector domestically. When they are the only thing, they create poverty. The money keeps flooding out of the country in your scenario, people save money, but the money leaves the country. This is not say "support American Companies"" This is also a fallacy. Toyota, Honda and Nissan produce cars in the United States of America. They employ American workers. Good job and value-added production is what spurs the economy. When people have jobs, the economy booms. When those jobs leave, the economy sags and flags.

Examples: Boom: Japan 1960s. Bust: Japan 1990s.
Boom: China (current)
Why is it that booming countries are associated with lots of production, jobs and high employment percentages, by your theory then? Why wouldn't China be failing because of all those nasty domestic Chinese jobs and using domestic manufacturing for their needs? China imports little. They are the world's largest manufacturer of tobacco, for instance...and export none of it. So, by your logic, they should be doing quite badly...instead of sending their plants over to New Guinea or Sampam.

The fallacy goes deeper. One company doing it has an advantage to their profitability. One company doing it impacts the economy little. The implicit assumption is that "All other things remaining equal". If the other 20 companies in that industry do it...and lay-off workers, what do those workers do for money? They spend less and all the companies make less money. If there are more jobs than people, all is well. If there aren't, if there are more people than jobs, it just reduces the number with jobs and less spending. The final prong of the fallacy is really hard to fathom. Each company, now has no more advantage than it did...since all the companies are doing it. There are more unemployed and sales will drop accordingly...if companies were tethered to a particular country, and they could only sell goods in their own country...then they would suffer. Globalism is an excuse to be able to remove responsibility for the workers that work for the global corporation. It was a not uncommon that companies 50 years ago went global to bring more money into their own country. They had, at least on a superficial level, a dedication to their country.

So no, I don't agree with your overly-simplistic freshman-economics explanation. If it were true, the United States would be doing better now than it was 20 years ago. That isn't the case. The cost of basic goods in relation to average income continues to grow, people have less money to spend and the economy is stagnating. What Americans need are real jobs, jobs that give them a purpose, jobs that earn them a paycheck for an honest day's work. A good amount of money, not starvation wages for a job that people are over-qualified for. More people are employed now than they were 40 years ago...yet average income continues to plummet in relation to the CPI. That must mean more people are doing bullshit jobs, more Walmart cashiers and less machinists. More McDonald's fry cooks and less electronics assemblers. More poverty, more misery.

If your explanation was correct...why has the CPI been increasing? Why hasn't the CPI been going down in the last 10 years as more and more goods are being produced overseas? Why hasn't it even slowed down a little? Why isn't income in relation to CPI increasing? Your explanation works fine...for the companies that make the decision...for the workers, they have to make due with less money.

You're absolutely right, without jobs we cannot buy things. But... that's obvious and I believe you just took an example past logical reasoning to make a moot point. I'll be honest, what I posted was extremely simplistic and slightly off, and I'm sure I wasn't sober. Nonetheless, I still don't completely believe "he who makes the goods gets the money." Sure, a strong manufacturing economy is always good, don't get me wrong.

You're taking a very simplistic example of one company in a niche market and applying it to things at a macroeconomic level. Durh, what I said will appear absurd at that level. The point I was making is that the consumers in America are saving more per hookah than before, by giving 5 dollars to China. Sure, American workers will lose jobs but let's just say the rise in demand, and thus profits to the company, covers that problem. Don't make this more complex or take this as anything past the simplest level. Your right though, in the end money is leaving America to go to China. What if the American company exports hookahs globally though?

I guess what I'm really trying to say is I don't agree with the saying "The country with the labor gets the money" 100%. Also, do you have anything to back up your comment that our turning to "bullshit" service sector jobs is the reason for our income VS CPI woes? I'd be really interested in hearing about this, do you happen to have a book or article?

You say a lot about China, but the reason they're doing so well is their currency is undervalued. I'm going to go out on a limb and say that eventually China is going to realize they cannot rely on undervalued currency and exports as a steady model of growth, and you'll see a dramatic change from an export driven economy to a more domestic one. They do not currently have an sustainable economic model.

Either way, I have to say this forum has many more intelligent posters versus the DJ forums I frequent.

[kudomonster]

We lost sight of what really matters.

once this nation was great we could rely on our neighbors to be there to give us a hand up when we fell on hard times just as we were there to raise them up when they fell. now we lock our doors and put up fences to keep them out because we fear that they will steal our TVs, kill our wives, and molest our daughters.

the media has played a big part in this. turning us into a nation of fear instead of a nation of neighbors and friends.

"big brother" has thus used this fear to limit our freedoms and brainwash our people into believing that we need billions of dollars to fight wars against other countries that we really have very little to fear from.

they have used this fear to take away things we have the natural right to do such as smoking in our favorite bar or on the sidewalk or even in our own homes(and yes in parts of this country smoking has been banned in all of these places)

when we as individuals wake up and notice this making our voices herd we are called unpatriotic.
But remember this every single one of our founding fathers were unpatriotic. in fact they were criminals and traitors. fortunately for us otherwise we would be saying god bless the queen instead of god bless America.
and thanks to them we can voice our opinions and even work for change in this country now without having to become criminals and traitors ourselves.

our government has become bloated and corrupt. this country was founded by the people for the people but now is ran by the politician for the politician.

we need to get back to our roots. unfortunately they have rotted in the ground and the tree of liberty has fallen we are mearlly living on the branches that have yet to die. there is hope tho even the branch of a fallen tree may take root and grow to continue life.

we need more good honest people to fight for there rights in the arena of the corrupt.

if there is something you dont like about this country make your voice heard. contact your representatives voice your opinions in the streets take a stand and get it changed.

as it stands right now it is not the majority that makes the laws simply the pawns of those who cry the loudest.

I say do not ask where this country went wrong. I say ask what can I do to make this country right again.

A little on the extreme side, but I really like what you're saying. I really want to know what the source of our individualism is, I know you peg the media but I'm not so sure. Of course fear sells, and I agree that the media has the power to make us all scared of each other. I also think a large part is our over all capitalistic mindset: "I have the chance to be rich!" ...It's a very isolating thought. I think it's sad that our society has turned out the way it has. One thing that always brings a tear to my eye is Halloween. I remember Halloween as a kid, every house had candy, some houses went seriously overboard and everyone had a good time. All the local kids were around and the sidewalk was full of adults enjoying the night and kids high on receiving candy. I've noticed that over the years, Halloween has died. We had one trick or treater this year. One. I live around many schools, so I know the kids are still here. The largest dip came after 9/11, and since then it's just died.

There's a book called "Supercapitalism" and it describes the money/government thing in a way which won't cause you to punch the wall, but to understand exactly how shit's going down. We're not on a good path, but the book kinda explain how we got on that path and the implications. Good read.

Damn straight on your "Stranding up for our ideas" comment. Damn straight.

[russianwizard]

The government spends money on so much stupid shit. 1st off the useless NHT war, we spend billions of police budget just to catch those "dangerous" people. If you legalize less harmful substances it makes it easier for regular people to sell them, instead of leaving the business up to a bunch of mafia and gang leaders. Thus reducing crime and money needed to do these pointless busts.

I have also seen a lot of people abusing the welfare system. A woman who was moving out of the house we were going to rent was on disability for a bad back, yet she helped us moved our freaking sectional couch down 3 flights of stairs. People should only get "disability" welfare if they really cannot work a desk job, ie quadriplegic, metaly unfit, etc. Not just because they have a bad back or their knees are shot >.<

Honestly politicians are just a bunch of clowns in suits. I'm never going to vote, just because no politician is better than the other. Our retarded society made it so the majority doesn't know who the fuck their voting for, so when it comes time to elect a primary they elect them based on BS such as religion and retarded promises that will usually never be fulfilled. Edited July 31, 2009 by delSol_si
NHT reference

[ryno]

We lost sight of what really matters.

once this nation was great we could rely on our neighbors to be there to give us a hand up when we fell on hard times just as we were there to raise them up when they fell. now we lock our doors and put up fences to keep them out because we fear that they will steal our TVs, kill our wives, and molest our daughters.

the media has played a big part in this. turning us into a nation of fear instead of a nation of neighbors and friends.

"big brother" has thus used this fear to limit our freedoms and brainwash our people into believing that we need billions of dollars to fight wars against other countries that we really have very little to fear from.

they have used this fear to take away things we have the natural right to do such as smoking in our favorite bar or on the sidewalk or even in our own homes(and yes in parts of this country smoking has been banned in all of these places)

when we as individuals wake up and notice this making our voices herd we are called unpatriotic.
But remember this every single one of our founding fathers were unpatriotic. in fact they were criminals and traitors. fortunately for us otherwise we would be saying god bless the queen instead of god bless America.
and thanks to them we can voice our opinions and even work for change in this country now without having to become criminals and traitors ourselves.

our government has become bloated and corrupt. this country was founded by the people for the people but now is ran by the politician for the politician.

we need to get back to our roots. unfortunately they have rotted in the ground and the tree of liberty has fallen we are mearlly living on the branches that have yet to die. there is hope tho even the branch of a fallen tree may take root and grow to continue life.

we need more good honest people to fight for there rights in the arena of the corrupt.

if there is something you dont like about this country make your voice heard. contact your representatives voice your opinions in the streets take a stand and get it changed.

as it stands right now it is not the majority that makes the laws simply the pawns of those who cry the loudest.

I say do not ask where this country went wrong. I say ask what can I do to make this country right again.

I agree with you Charley, esp the bolded part. I really think this country is in need of a revolution.

[Barnaby]

Well, there is a reason that all media channels are owned by 5 companies, and the CIA has liaison agents in each of them. This is not conspiracy, this is fact, in public records. If you don't think our media is managed in a way to make us fearful all the time, then you are ignorant. The make us think we'll be murdered if you leave your house, but truthfully, violent crimes are at some of the lowest levels in decades.

This country was taken from us a long time ago, back when they made the Federal Reserve. The biggest non violent coup in history probably, and hardly anyone even knows about it. Poor Woodrow Wilson, delivered this country on a fucking silver platter, and only afterwards when he realized what he did, did he speak of his regret. Too bad it was too late.

Instead of the land of the free, we are all born into being debt slaves. We are kept stupid, and ignorant. We are given multiple distractions, our sense of family all but destroyed. As we advance in technology, their control over us stands to become more and more binding.

This is the shit that trully fears me. That instead of resisting one day, everyone will welcome it with open arms.

Truthfully though, while there are a log of big brother factors, A Brave New World holds much more truth in the way we are controlled today.. Check out this comic I stumbled across the other day.. Good shit.. http://www.recombinantrecords.net/docs/200...s-to-Death.html

[Barnaby]

There really is one way out of this short of a no holds bar, revolution.. Too bad they are prepared for this. The military often performs mock urban pacification drills, where they have students say things like, I"m an American citizen, I've done nothing wrong. These drills now also include civilian police as well, as the ties between the military and local police force are almost blurring the line between them now. Go search for home vids that show these drills sometimes.. Shit will disturb you..

There is a reason why the constitution has the right for us to bear arms. To protect ourselves from a corrupt government. Question is, will you be "patriotic" and stand with them? Or will you fight for what is right and true one day.


I really would like to think that its my own rampant paranoia that makes me thinks these things, but to be honest there is ALOT out there to make me think otherwise.

Ah fuck it. We'll all get plugged into the Singularity before then anyways.. Here's to the transhumanist movement!!!! Edited August 1, 2009 by Barnaby

[Charley]

Ok I think ppl slightly misunderstood my post.

I am not calling for a revaluation. well actually in a way I am but rather a mental revaluation instead of a physical one.
don't just accept the things you don't like about the government but rather do all you can within the law to change it. get involved with political organizations that have the same views as you.
if not start them. find others who feel the same way. start a petition to get things on the ballot in your state call, write, email your representatives till they get so sick of dealing with you they block your phone number and return your letters unopened.

just stay inside the law.

[Sonthert]

Charley: I think I agree with most of your post, but I would say your loss of trust and faith in your neighbor is on you. People are the same now as they ever have been. The media might like to convince you that you should be worried, but it is not the case. The average American is good, decent and honest. I believe that.

I am sitting here. It is 2AM, on a now Sunday morning. The door is open, I am in a "bad" neighborhood, by myself. Nothing happened. Nothing has happened in five years. Nothing has ever happened. Me, with the door open, by myself. Oh, I'm taking a chance! Not at all. Fear is the only thing we have to fear. Something like what Franklin Delano Roosevelt said.

I do believe we need to change things rather than have a revolution. Most of us have been convinced that we have no power and that the government won't change when we demand it. Why? The same BS like "Obama's going to get assassinated before he gets inaugurated." Whats the harm of trying it? The American people need to get wise and take ownership of our democracy back. They can only take it away if we let them. If we find that the game is rigged and the point spread is locked, then we can address stronger measures. I also have faith in the inherent goodness of the American Political system, and we can run it well...if we want to.

You're taking a very simplistic example of one company in a niche market and applying it to things at a macroeconomic level. Durh, what I said will appear absurd at that level. The point I was making is that the consumers in America are saving more per hookah than before, by giving 5 dollars to China. Sure, American workers will lose jobs but let's just say the rise in demand, and thus profits to the company, covers that problem. Don't make this more complex or take this as anything past the simplest level. Your right though, in the end money is leaving America to go to China. What if the American company exports hookahs globally though?

I guess what I'm really trying to say is I don't agree with the saying "The country with the labor gets the money" 100%. Also, do you have anything to back up your comment that our turning to "bullshit" service sector jobs is the reason for our income VS CPI woes? I'd be really interested in hearing about this, do you happen to have a book or article?

I don't see my point as moot at all. What point did you think was moot? The more jobs and the more money that Americans have/make, the more money we will be able to spend in our domestic economy. Your perspective is that we send $x to China saves us money...I don't think so. You are looking at a simple microeconomics linear functionality. Each dollar in our domestic economy buoys up the economy more than just that $x...that x gets spent several times. If the x leaves the economy, its not just x, its effect is multiplied. I remember it to be the accelerator effect or the multiplier effect. Putting it a different way: If that item was produced in the US, all $50 would continue to move around the economy. Repeatedly (several times...I remember the factor to be 6 or 7 times???). In your model, sending $5 over to China, only $45 is moving around the economy. Each person saves more money on a hookah, which they spend on other things. Of course, this irrelevant, because the workers that had jobs would have spent their money, too. The difference is $50 in the US economy vs. $45 in the economy. What if the US exported? What if? I don't see that as the basis for an economics argument. However, same problem. If the United States was exporting 100% US made products, more money would be retained in the economy than if the products were made in China. I will go you one better. I would guess that if the company takes a smaller profit (at the outset) to use American workers but match the price of Chinese-made goods, the long-term effect would be better because more people had jobs, even though the amount of money in the economy was the same. That is, all other things being equal, a higher employment rate makes for better profits than a lower employment rate.

Also, there is another effect to consider. From simple supply and demand, the lower the employment rate, the less people get paid, all other things remaining equal. Increased supply...lower equilibrium price.


#2 As for your service centered economy question. I'm just going to ram the ideas out of my head, in no particular order:

Manufacturing takes starting materials, A,B and C to make X, using labor. Services use labor only. The manufacturing process uses more companies and provides more jobs.

Service economies can't export their services. Manufactured goods can be exported. If you move the services, they no longer service the domestic economy.

Services are comprised of human labor which are, for the most part, able to be done by anybody. It doesn't take much effort for the market to be flooded with similar or duplicate services that erode the profit basis of service companies.

Manufacturing involves a larger capital investment which limits entry into the sector. It also allows for the development of intellectual property. The manufacturing processes are much more difficult to reproduce and selective or technological advantages can be implemented. Service industries don't encourage much technological development. If they do, it makes their services generally more reproducible and less competitive in their own fields. The service centered economy still requires manufactured goods which represents a trade imbalance.

Manufactured goods are more likely (though not universally) to be necessities than services are...since a person could do the service themselves to save money. So economic fluctuations are more likely in a service centered economy...since a reduction in the economy will be more likely to reduce the amount of services people buy.

Manufactured goods create real growth in the economy. A purely service-centered economy would be entirely inflation driven...and since money leaves the country for the manufactured goods (more trade imbalance the more service-centered the economy is), the economy will be contracting as money leaves the economy for goods from other countries.

Service jobs tend to be lower skilled jobs, meaning that employees are more fungible; the employees can be replaced easier since less skill is required to do the job. This makes for worker competition for jobs. Companies can pay less money or give fewer pay raises, letting inflation gobble up real wages. Complaints? we can get somebody else in here to do your job. It would be easy to replace you. On the other hand, a manufacturing job that requires three months of on-the-job training to be able to perform makes the company a little more generous...they don't want to have to retrain somebody. Since manufacturing jobs tend to be more job-specific, the very nature of the increased capital investments of the companies mean more specific job training is often required, making wages more stable.

All this being said, part of the economy being service economy is necessary. I am separating out the traditional roles of each. Newer business models now sell services which were traditionally given for free or at a greatly reduced price by the manufacturer to facilitate the sales of their products. In illustration of the fallacy of this modern trend:

I have a soda fountain in my lounge. 20 years ago, Coca-Cola, Pepsi, or 7-Up/RC would have put a soda fountain in my establishment, an Ice Machine on top of it and conducted necessary repairs on the equipment....for free as I understand it. Provided you sign a product purchase agreement with them. No mas. Now, you have to sign service agreements with the companies to come out and fix the machine, buy your own ice machine, pay for separate repairs on that, and still sign a product purchase agreement with them. So what's the net effect? To the economy? Nothing. Why would this arrangement be more profitable for Coke and Pepsi (Alas, 7-Up/RC has been bought out by Scweppes)? Companies rejected vertical diversification 50 years ago as less profitable. Why the vertical diversification? Simple. Now they can gouge you on repairs and maintenance, CO2 supplies. Lock you in to product pricing that they determine and can raise your costs whenever they feel like it. Pepsico sold off KFC, Pizza Hut and Taco Bell years ago (1996?). They did however, require that the companies buying the restaurant chains buy only Pepsi from them. They determined they would make more money by selling the restaurants, but sign multi-year contracts to provide them with Pepsi products, which they were selling anyways since Pepsi owned them at the time. So they sold them. Why would Pepsi make more money by selling the restaurants? If the restaurants weren't profitable but the selling of soda was, then Yum! (The owners of the three chains) should go bankrupt. They haven't. It would be reasonable that Pepsi would be making more money by marking up certain items (either product or service) to Yum!. This creates a giant paradox, obviously. What's happening would seem to be that the price of Pepsi products is disproportionately high, if Pepsi is sticking it to Yum!. Of course, then it would follow that either Yum! is going/gone bankrupt. If the the restaurants are less profitable than the sale of soda, then obviously the competitors to the Yum! chains would be killing them. This is not apparently the case. Any case where Pepsi makes more money by selling the restaurants for long-term product agreements make absolutely no sense...unless Pepsi is sticking it to Yum! in some fashion (or everybody else but Yum! ?). In any case, its the customers that are paying the increased prices that must exist. If the restaurants are more or less the same, for money to be made by both companies in the deal, it has to be the customers that are footing the bill. These types of agreements lock out competition (whether its soda sales, or soda machine service or the scale of competing with a giant like Yum!) and lock in high prices. We are paying the bill. Sure, we could go to another restaurant. True. You're a sucker for doing it to yourself. True. Its crappy, unhealthy food anyways. True. The model of the proprietary service-product relationship in industry is locking out competition and everyone has to pay for it. Small independent restaurants are making up an increasingly smaller percentage of the restaurant industry (in terms of percent of number of sales)...the big dogs are killing price competition and locking in larger profits for themselves. We all have to pay the price. The modern globalization/corporate climate is one of locking out competition and then raising prices. In response to your question about CPI and average income, my opinion is thats why its declining partly. Also, same for the increases in service-centered economy.

Let me just smack the ball back over to your side of the net...why are we less prosperous now than we were 40 years ago? Which trends in the United States are harming our prosperity and which trends are helping our prosperity? Since the trend seems to be downward, the factors harming our prosperity must be larger or more numerous than the ones helping the economy. What's your take on it?

If the economy is becoming in a macro-perspective less oriented around manufacturing and more oriented around services and people are making less and less money...wouldn't that imply that moving away from manufacturing base to service base is making the country poorer if this is a large macrotrend? Every indicator shows the move away from manufacturing to service. If the economy continues to do worse...wouldn't that imply the major trends are causing it? Refer back to China and Japan. As they manufacture(d) more and more the economy blossomed and standards of living increased. When Japan's manufacturing sector went down, their standard of living followed and their economy continues to stagnate. I don't have a specific citation for you. If you insist, I could find some...but so could you. I would wager that the current move in the economy means more prosperity for the companies and less for the citizens...paid for by the citizens standard of living and lower income levels.

[kudomonster]

The more and more I'm looking into this, the more and more I'm starting to realize it's making no sense. We're getting poorer as Americans? That graph doesn't make much sense at all, since from 1967 to 2006 the real median household income rose from $36,847 to $48,201.
The CPI isn't the best way to look at this, since it takes a basket of goods. If one item spikes, CPI is unfairly raised because it doesn't take into account that people will buy an alternative item. There's more issues with it.

I decided to instead look at commodity food and beverage prices, and they don't follow a trend of getting more expensive (like the graph you posted earlier would suggest) at all over the period of '86-'08. Sure, it's just one aspect, but still. We can both agree that things like technology are cheaper today than they were even a year ago.



http://www.indexmundi.com/commodities/?com...&months=300

After reading the whole wiki article regarding median household income and household income I'm going to have to flat out disagree with your "we're getting poorer" assessment. Also, what the hell is the "Gross wealth function"? Are you talking about American wealth? Because that has no doubt been going up year by year.

[Sonthert]

Its the real income, inflation adjusted divided by the CPI, inflation adjusted, as a whole. Why do you disagree with it? If the average income adjusted for inflation is say 1000 times the CPI, wouldn't it be reasonable that we have more money to spend and are wealthier than if our average income is 200 times the CPI? How is that not reasonable?

Here's the average income data from my sheet. It matches perfectly. The scale is different since the data goes back to 1913 and it makes the curve look more curvy, but the numbers match...


[attachment=3942:Income_v...il_curve.doc]

You are correct. In one sense. Average income, adjusted to 2006$, since 1949, average income has gone up 136% (from $20810 to $49248. Thats good. Unfortunately, the CPI, adjusted for inflation, has gone from 23.8 (1949) to 201.6 (2006). Thats an increase of 747%. So the cost of things is going up much faster than peoples incomes are. Thats why we're getting poorer. A lot faster. The Gross Wealth Function is that average income divided by the CPI. So the gross wealth function for 1949 is ~874 (20810/23.8). For 2006, its ~244 (49248/201.6). 874 is better than 244. The CPI is the statistic that measures the price of basic goods (necessities) in the economy. 1949 is not the optimal year, by the way, it just happens to be a round number....60 years, If I wanted to pick an optimal year to really prove my point, I would pick 1916 (1346), 1943 (1273), or even 1966 (1094). 1943 is a little silly since it was during WWII. The Gross Wealth Function shows we've been getting steadily poorer since 1968.

Its a perfectly reasonable relationship. The average income divided by the standard index of how much things cost. How much does what you earn buy? Thats what the relationship demonstrates. This is a gross function. Most of the economists talking in the background of this data would criticize me for using average income. The income for most Americans has been going down when adjusted for inflation. The richest segment of the United States is making a lot more which makes the average go up. The standard person, either poor or middle class is making LESS than they were 20 years ago. I don't want to get into that end of the argument, the averages work fine to show the relationship without attaching opinions and theories to it.

Our graphs more or less agree in terms of scale of income though, so thats fine. We'll reduce it to your simple case economics example. Lets say I make $50,000 one year. The CPI is 500, so my Gross wealth function is 100, that is my income is 100 times the indicator of prices in the economy. The next year, I make $100,000, but the CPI goes up to 2000. I doubled my income, but the cost of goods went up by a factor of four. My Gross Wealth Function is now 50. If you simply look at income (which will always go up due to inflation), you miss most of the picture...how much does it cost to buy things? If you look at the incomes in Argentina in the late 80s, Brazil in the mid-80s or in Germany is the early 30s, you'd be ecstatic to live there...incomes skyrocketed...but they were accompanied by enormous increases in the prices of goods...moreso than the increases in income.

So, I don't know why you disagree with this, please elucidate me. My college degree in economics is quite meager, really, I'm not an economist with a PhD by any means.

Does anybody else have any input on this? Is it easy enough to understand or is it a little abstract?

[kudomonster]

Its the real income, inflation adjusted divided by the CPI, inflation adjusted, as a whole. Why do you disagree with it? If the average income adjusted for inflation is say 1000 times the CPI, wouldn't it be reasonable that we have more money to spend and are wealthier than if our average income is 200 times the CPI? How is that not reasonable?

Here's the average income data from my sheet. It matches perfectly. The scale is different since the data goes back to 1913 and it makes the curve look more curvy, but the numbers match...


[attachment=3942:Income_v...il_curve.doc]

You are correct. In one sense. Average income, adjusted to 2006$, since 1949, average income has gone up 136% (from $20810 to $49248. Thats good. Unfortunately, the CPI, adjusted for inflation, has gone from 23.8 (1949) to 201.6 (2006). Thats an increase of 747%. So the cost of things is going up much faster than peoples incomes are. Thats why we're getting poorer. A lot faster. The Gross Wealth Function is that average income divided by the CPI. So the gross wealth function for 1949 is ~874 (20810/23.8). For 2006, its ~244 (49248/201.6). 874 is better than 244. The CPI is the statistic that measures the price of basic goods (necessities) in the economy. 1949 is not the optimal year, by the way, it just happens to be a round number....60 years, If I wanted to pick an optimal year to really prove my point, I would pick 1916 (1346), 1943 (1273), or even 1966 (1094). 1943 is a little silly since it was during WWII. The Gross Wealth Function shows we've been getting steadily poorer since 1968.

Its a perfectly reasonable relationship. The average income divided by the standard index of how much things cost. How much does what you earn buy? Thats what the relationship demonstrates. This is a gross function. Most of the economists talking in the background of this data would criticize me for using average income. The income for most Americans has been going down when adjusted for inflation. The richest segment of the United States is making a lot more which makes the average go up. The standard person, either poor or middle class is making LESS than they were 20 years ago. I don't want to get into that end of the argument, the averages work fine to show the relationship without attaching opinions and theories to it.

Our graphs more or less agree in terms of scale of income though, so thats fine. We'll reduce it to your simple case economics example. Lets say I make $50,000 one year. The CPI is 500, so my Gross wealth function is 100, that is my income is 100 times the indicator of prices in the economy. The next year, I make $100,000, but the CPI goes up to 2000. I doubled my income, but the cost of goods went up by a factor of four. My Gross Wealth Function is now 50. If you simply look at income (which will always go up due to inflation), you miss most of the picture...how much does it cost to buy things? If you look at the incomes in Argentina in the late 80s, Brazil in the mid-80s or in Germany is the early 30s, you'd be ecstatic to live there...incomes skyrocketed...but they were accompanied by enormous increases in the prices of goods...moreso than the increases in income.

So, I don't know why you disagree with this, please elucidate me. My college degree in economics is quite meager, really, I'm not an economist with a PhD by any means.

Does anybody else have any input on this? Is it easy enough to understand or is it a little abstract?

Hey! I'm trying to major in economics, but unfortunately most of what I know so far is self taught. I'm finally transferring to a decent college though (Hint, it's near you!) and finally getting the chance to take classes which will help my understanding

Anyways... I get what you're saying. I'm not arguing you because it's abstract and I'm sitting here with the "Hurr-durr" face, but because I don't agree.

Looking at median household income using http://www.census.gov/hhes/www/income/histinc/h05.html, in 1970 our median household income, in 1970 dollars, was $8,734. In 2007 the median household income was $50,233. That means there was a 475% increase, unadjusted for inflation of course, from 1970-2007 in median household income.
Now let's look at CPI (http://inflationdata.com/inflation/Consumer_Price_Index/HistoricalCPI.aspx?rsCPI_currentPage=0), in 1970 it was 38.8, 2006 it was 201. A 418% increase.

Furthermore, when I throw the median household income in 1970 of $8,734 into the CPI calculator (http://www.bls.gov/data/inflation_calculator.htm) and click to see how much it can buy in 2006, I get $45,381. A 419% increase, which matches the CPI data above. Since median household income in 2006 is $50,233, it suggests that with these numbers, we're actually doing better today than we were in the 70's.

[Scalliwag]

there were a lot more single income families in 1970 than today

[Sonthert]

Thats cute, but you need to adjust for inflation in your income statistics. You're mixing inflation adjusted and inflation non-adjusted numbers...which is nonsense. Additionally, median income may be a bad statistic to lean on. It will be higher than the average, since there are few people on the high end, but lots on the low end...the median being in between the two. If you throw your income from 1970 in the inflation calculator, you get a much higher number...so why are you quoting the difference between inflation unadjusted 1970 and 2006 (needing no inflation adjustment, for the most part). Comparing a 1970 $ and a 2006$ is comparing apples and oranges. Thats why they are adjusted for inflation. That increase is the increase because of inflation. Of course it matches, because CPI was what was used to make the calculator, because CPI is used to determine inflation...the amount that prices of goods and services change represents inflation.

In other words, your statistics are highly compromised in the form they have been presented. Why not compare income in 1778 vs. income today? We must be far wealthier. We make a lot more money, but the question is, how much your income can buy. If a loaf of bread costs $50,000, making $50,000 in a year sucks. If loaves of bread are $.01/each its much better. We adjust the incomes for inflation to equalize a dollar today's buying power to what a dollar's buying power was in the past. Then we ask, how many loaves of bread, etc. (what is comprised in the CPI) will that money buy?

Why don't you compare the inflation adjusted 1970 median income (median income is still a bad statistic to rely on) with the 2006 median income? $45,381 vs. $50,233. So...that means income hasn't moved much...which only proves my point. Well done! Thanks for verifying what I've been saying.

[Sonthert]

there were a lot more single income families in 1970 than today

I thought about that, too. I wondered if it would be reflected somehow. In fact, the percentage of the population employed has been going up pretty steadily, but seemingly independent of the large-scale change from single earner families to double earner families. Why? I have no idea. It seemed strange to me, too. So far, I can't find out why there was no change. There are dips and peaks, but until 2000, it was all pretty much up, up, up. No change in the slope of the line (an increase or a decrease in the rate of change). Do note, that the employment rate topped out in 2000 and has been more or less declining since then. Is it a new trend (from out sourcing, etc.) or just a temporary fluctuation? We'll have to wait and see.

This is why when the year 2000 rolled around, the economy started to threaten deflation, in my opinion. This recession we're in has been brewing for 9 years. Will it correct itself? I'm inclined to say no from the big picture, I think its more of medium-term trend. Indicators may be showing upward travel...but the stability of the economy will be threatened if the employment rate keeps declining....there were three recessions in the 1920s leading up to the great depression. I would conjecture that basic instability in the economy led to these recessions and set the stage for the Great Depression. The 20s were marked by growth, however. Growth punctuated by recessions. Is that what we're in now? I guess we shall wait and see. I might be overly pessimistic, but I think the loss of jobs from this country (good jobs...not crummy jobs) are setting the same sort of stage as in the 20s...leading up to 1929. This isn't the end of the world...its just a new phase in economics. It might be grim for the average American, but lets hope not. Do remember, the Great Depression only lasted four years. There was another recession (kind of an aftershock?) in the late 30s...the ultimate question is what was the living conditions for the average person? Still pretty bad during the mid-30s...the economy was growing, but still sucked. Thats why many people think of the Great Depression lasting until the US entry into WWII...because so many people were out of work.

In a fashion, Obama is reacting well to the recession...he's not running around like Chicken Little (if he were listening to me) overreacting to a lot of structural problems in the economy.

[Sonthert]

As I think about it, maybe I'm slightly off in my idea about unemployment being caused by technological advances shortly after the advent of the technology. Maybe the technology spurred large growth, which was medium term and temporary. The Great Depression marking the decline to give back the temporary bubble. Maybe we have already seen the technology bubble breaking give-back (the stock market decline)...maybe its yet to come. The Great Depression could be anywhere between 10 and 25 years after the switch to mechanized labor. The information technology growth starting in about 1985 or so, could be on the same track...maybe not.

Just thinking aloud.

[kudomonster]

Thats cute, but you need to adjust for inflation in your income statistics. You're mixing inflation adjusted and inflation non-adjusted numbers...which is nonsense. Additionally, median income may be a bad statistic to lean on. It will be higher than the average, since there are few people on the high end, but lots on the low end...the median being in between the two. If you throw your income from 1970 in the inflation calculator, you get a much higher number...so why are you quoting the difference between inflation unadjusted 1970 and 2006 (needing no inflation adjustment, for the most part). Comparing a 1970 $ and a 2006$ is comparing apples and oranges. Thats why they are adjusted for inflation. That increase is the increase because of inflation. Of course it matches, because CPI was what was used to make the calculator, because CPI is used to determine inflation...the amount that prices of goods and services change represents inflation.

In other words, your statistics are highly compromised in the form they have been presented. Why not compare income in 1778 vs. income today? We must be far wealthier. We make a lot more money, but the question is, how much your income can buy. If a loaf of bread costs $50,000, making $50,000 in a year sucks. If loaves of bread are $.01/each its much better. We adjust the incomes for inflation to equalize a dollar today's buying power to what a dollar's buying power was in the past. Then we ask, how many loaves of bread, etc. (what is comprised in the CPI) will that money buy?

Why don't you compare the inflation adjusted 1970 median income (median income is still a bad statistic to rely on) with the 2006 median income? $45,381 vs. $50,233. So...that means income hasn't moved much...which only proves my point. Well done! Thanks for verifying what I've been saying.

Err... you're right, median household income is a bad indicator. But you used it in your graph which you seem to base all your arguments on, so I used it as well. There's an obvious reason as to why I used unadjusted dollars from the '70's to '06. CPI measures inflation, imperfectly, correct? So if we held all things equal, like number of households, blah blah blah, if you compare the wages from '70's to '06 you would a figure of inflation using the figures from the median household income. Why would you compare CPI, a measure of inflation to INFLATION ADJUSTED household income? It's more accurate to compare it to the unadjusted median household. The whole point I'm trying to make is even if we say the American household hasn't gotten a penny more or less more in median income (shit to assumption), and we just look at the rise in median household income as an indicator of inflation it's growing faster than CPI, by percentages.

You can call my silly little arguments cute, but you've still failed to back up your original "We're getting poorer" assessment.
American's real net worth is higher now than it was.
Median household income increased more an CPI.
Every single article I've read says we're better off now than we used to be.

[Sonthert]

Actually, no my data is average income.

Average income corrects for the number of households.

The Consumer Price Index is used to measure inflation. It is also scaled linearly to represent average price of the market basket. Whether I use average price data or the CPI (scaled based on the average prices) it does not matter, the numbers will have the same magnitude. That is, if the CPI is 100 and that represents a $4219 cost of the market basket, then a CPI of 200 will represent a $8438 cost of the market basket.

Well, let me break it down more simply still. If the average cost of basic goods ("The Market Basket") goes up by a larger percentage than average income, people are going to have less money to spend outside of the basic goods. If we were to hold our own, the Average Price of the Market Basket (Represented by the CPI) would increase by the same amount as average income. If the average income went up by a larger percentage than the average price of goods, then we would be getting richer. The fact that the most common adjustment for inflation is the CPI has no bearing on the relationship. A proportional number thats easier to calculate with than average price of basic goods is also the CPI...so why not. The actual scale of the number isn't important, just the relationship between them. Would it be better if I used some other calculation of inflation? Or perhaps use the average prices of the market basket? I think the result would be the same. At least the percent change would be. The question is has the prices of goods
been going up faster than income? I'll look it up when I get more time.

I did think about your point before I posted this...Using the CPI twice. Perhaps in the next couple days I'll compare raw average income data with the raw average prices for basic goods.

This also doesn't even begin to scratch income inequity. Average incomes are bad, not as bad as median incomes, because more people lie below the average or the median, by a large amount, than above the average/median. A few people getting much richer will cause the average and the median to go up, even though most people might be making less money. So, America might have a larger Gross Domestic Product, but that doesn't mean that America is doing better, in terms of the average person. I don't think Joe the plumber cares if the GDP went up, he's more concerned with if his income is going up faster than prices are.