Purchasing Power and Personal Debt

Cultural, Economics, Premium POM13 Comments

Observations on Wage Increases, Inflation and Quality of Life

One of the biggest fallacies which is spread around the internet from alternative financial and investment sources is that the US dollar has lost somewhere around 95% of its value since the creation of the Federal Reserve in 1913.  Though this is somewhat true, there is much more which needs to be considered.

Most of us have seen some chart or another which shows the steep climb of dollar inflation, or the steep decline of dollar devaluation, depending on which perspective you want to view the data from.  But missing from such charts are other data sets which, when added, present a different version of events.

Presenting one-sided data while ignoring complimenting data which provides inconvenient conclusions works great for those selling financial services and pumping fear based buy-now precious metal scripts.  The truth is that when a full picture is considered and all data is correlated we begin to understand that things are not as bad as some are stating.

Along with dollar devaluation we need to also consider wage increases over the same time period. The Consumer Price Index, which ironically enough started being tracked in 1913, requires the additional data set of wage increases to determine the actual loss or gain of dollar purchasing power over the last 104 years.

Sure, the dollar value has decreased by 95% over that time period, but wages have increased anywhere from the same percentage to 250% greater than the actual inflation which took place.  The data, and interpretation of that data, are as various and fluctuating as one would imagine.

Economics is like that.  Ten people could analyze the exact same data and come to ten different and equally defendable conclusions.  Online forums and commentaries are full of such debates between those who think they know and those who really think know.

So how do we determine which is right and which is wrong?  Perhaps that is not even the question to be asking.  Observation is one of the most fundamental and informative of the human tools which we have been naturally gifted with.  Should we be asking – what am I observing?

The quality of life in the western world is dramatically better than it was a century ago. Most would agree with this observation.  We have more conveniences today.  Centralized heating in our homes, air conditioning, fridges, washers and dryers, cars, phones, computers, huge availability of all sorts of food, both good and bad, and access to more information than at any other time in human history.

It should be obvious to most that outside of minor fluctuations the standard of living has improved based on the fact that wage increases have kept pace with inflation as measured by the Consumer Price Index.

Energy costs have been the most volatile over the last century for sure, with large spikes, but there have also been drops in energy, as well as other staples of everyday life, such as food products and the availability of opportunity.

Outside of energy costs, education costs have been one of the outriggers which have increased at a faster rate than other CPI measured products and services.  This is definitely a problem but one that might make it irrelevant as costs continue to increase while access to alternative forms of education and information provide people with free entrance through the gates of education and knowledge.

There is one detrimental area where the relative stable purchasing power of the dollar meets with the increase in quality of life.  That area is debt based consumerism.

All of the conveniences of the modern world have come with a price.  Comforts aren’t free and we all want to make our lives easier.  As such, the availability of personal credit has expanded at an exponential rate since the end of World War Two.  Credit cards and home mortgages have both contributed to an increase in quality of life while also contributing to an increase in socioeconomic stress and cultural simulations as everyone leverages as far out as possible to have the dreamy existence sold through the television.

This expansion of personal debt has caused a massive decrease in disposable income.  But what is our personal responsibility in this outcome?  It’s easy to remain in a red frame and blame the world for our own problems.  It’s harder to shift to a green frame and take personal responsibility for our actions and habits.  The world wants to keep us in the red frame because it keeps us unaccountable.  Unaccountable people require systems and structures to hold the accountability for them.

Do you see how the gears of the world machine move against us? It keeps you focused on the external while you should be focused on the internal.

The complex nature of our confusion and reliance on questionable sources and erroneousness information has contributed to whole generations of people who are easily led down the path of falsification.   Simple statements and headlines such as the dollar losing 95% of its value in 1913 are used to suck even more from us, and we never take the time to dig deeper or look through the information to better understand the structure and purpose of the information being provided. – JC

This article is copyrighted by POM Media©2017. As Premium content permission is not given to be copied and re-posted.

JC Collins can be contacted at jcollins@philosophyofmetrics.com

13 Comments on “Purchasing Power and Personal Debt”

  1. I appreciate your post JC. Most discussions around inflation are overly generalized and fail to illuminate the wide-ranging inflation disparity in the categories affecting the average consumer. The BLS recently published an outstanding chart that shows that non-discretionary necessities (such as healthcare, housing, and food) have all risen between 55% and 100% over the last 20 yrs, while the prices of technology and manufactured goods have actually fallen. I concur with you that there are substitutions available to offset higher-education costs (which have risen by 200% over the same period).

    The BLS inflation/price changes chart (from 1996-2016) can be viewed here:
    https://twitter.com/wef/status/799900525537988608

    In summary, the critical things the average human really needs are getting way more expensive (by a factor much greater than the rise in real wages) and discretionary consumables are getting cheaper.

    Another valuable perspective on inflation that I’d like to share here that also references the above BLS chart is a recent post by blogger Charles Hugh Smith:
    http://charleshughsmith.blogspot.com/2017/05/inflation-isnt-evenly-distributed.html

    Cheers, -JT

  2. I agree with personal responsibility, inward observations and personal accountability, rather than placing blame outwardly.

    In the morass of economic data and inflation/devaluation/CPI etc… I reflect on a most simple observation, however, comparing the standard of living of my parents generation/my generation/my adult children (now mid 20’s to early 30’s) while holding constant the geographical area of living:

    – my parents could afford a 30 year mortgage with four children on one income (civil service) with no college degree. No home equity loans or credit card debt. Rare car loans.

    – I (and my sibling) could afford a 30 year mortgage with three children each, but it took two incomes in the technology sector, with college degrees. No home equity loans/no student loans nor credit card debt. Rare car loans.

    – My adult children, college educated and income in the technology sector comparable to mine, no student loan or credit card debt, a car loan debt, can only afford to rent a room in a shared house, and as yet have no children to support.

    These comparisons are also not only in the same geographical area, but at the same time in life for each generation – mid 20’s to early 30’s.

    My simple observation – standard of living is declining but is only noticeable generation over generation. Personal responsibility is a key component in life. One can’t help, also, being a part of the environment in which they live. If the ‘environment’ is drawn to leverage (debt) such that the ‘prices’ go up out of proportion to inflation (think housing, education, medicine in the US), one is subject to those prices even as he/she personally choose to avoid debt to obtain them.

    This is my first time on a post, please forgive my clumsiness. I have been a reader for quite a while now, and have truly gained so much from you and your readers who post regularly — thank you. This article really hit home for me on a topic I’ve been conversing with my kids for a while now. Luckily, they have the energy and enthusiasm of youth, and so haven’t taken to heart my discouragement over my perception on a standard of living decline.

  3. Regarding CMinor’s observations and comparison of generational ability to buy houses. Today’s houses are HUGE compared to prior generations, and the “extras” are no longer considered luxuries. I’d posit that the generational difference is minor – today’s 850 soft apartment has more in common with your grandparent’s house than any houses you might buy today. Drop the extra car, the mobile phone plan, cable/internet and eating out and your single wage earner with a parent at home today could probably raise a family in a small house, just as they did in the 40’s, 50′ and 60’s. Oh, you want a bigger house, second car, mobile phones for everyone, cable, internet and restaurants? Well then, someone’s gotta get a second job!

    1. I agree. The pain is in the expectations. Our current “standards” are a form of greed. Think of all the baby boomers, even the wealthy, who grew up with four tv channels and one landline.

  4. There’s a reasonable argument to be made that once some people have their needs met, there’s no limit to how much they want. Maybe they’re frightened to take a good look inside.

    1. Greed is a form of avoidance scheme. Avoiding death to be precise and in its extreme cases, it is a mental illness, which is a sign of spiritual loss. The afflicted person tries very hard to compensate this void internally by acquiring “stuff” externally. There are several TV shows in US and UK about these people and many of them admit that they are scared of loneliness which in truth means a fear of dying. The more society becomes affluent, the more it becomes detached from reality and “nature”. I have come across an old sage a negro gentleman (he prefers to be called than black) by the name of Dick Gregory. This series of interviews made me realize that the term “sage” is absolutely real which we call and interchangeably so as “enlightened soul”.

      When we forget about how fragile and yet how powerful we are as a human being in this infinite space that is born with the gift of the free will, we go to the dark side. When we forget that ‘this’ lifetime we are in is a section of our infinite time, we become afflicted with collecting stuff, tangible or otherwise, that is money in the bank. Some cultures, celebrate the passing (transitioning) of a person, and I think they may have a better attitude to the idea of death.

      I have deep respect for this old sage and I can recommend it.

      https://www.youtube.com/watch?v=UXJqf32F7q0

  5. The deflationary factor in terms of consumables and manufactured goods is offset by in built obsolescence. Whereas a radio, TV, washing machine etc may have had a useable life of 10, 15, 20 or more years, nowadays a lot of these products have a short ‘shelf’ life and therefore have to be replaced more frequently. Often it’s not economical to repair them either.

    There is the ‘I have to have the latest model’ factor, but sooner or later you have no choice but to replace your ‘time saving, make my life easier’ gadget. For example, with a PC and the operating system no longer being supported etc. Just look at how vulnerable Windows XP is now to see how we are pushed into updating, upgrading, consuming…..

    Cars are another big ‘money pit’. Much more sophisticated nowadays in terms of electronics but also no longer repairable by either yourself or a local mechanic. Have to take them to the specialist who can plug them in to the diagnostic computer just to see which little sensor has gone wrong and then has to be replaced for a couple of hundred pounds plus labour and VAT (just happened to me for a NO sensor in the catalytic converter). Don’t see so many ‘classic’ cars around any more. After 15 years most modern cars are basically worthless as the cost of keeping them on the road is too high.

    As an aside, my father was able to buy a 7 year old Aston Martin DB5 (James Bond model) in 1972 that he ran for 8 years and sold for the same price he paid for it. Ok, not the cheapest car to run (needed an oil change every 2,000 miles) but was actually cheaper to buy, as a secondhand car, than the latest model of the Vauxhall (GM) Ventura car he had before. £3,500 in those days……to buy today as a 52 year old classic car would be £400,000. The exception rather than the rule.

      1. Hello orendareview,

        Thank you for this fascinating documentary which I watched the first half almost. A General Electric registered trademark in US patent office was named “Mazda” in 1909. Mazda is associated with Ahura Mazda the Iranian (Indo-European) revered supreme- being of Wisdom and Light. What’s fascinating is the respect and knowledge the Americans of the era before 1913 had for their own heritage. a few years later i.e. 1913, when the Federal Reserve was enforced in the American people and a cultural domination by the ancient cut of infiltration took hold. …the spooky Wikipedia mentions no connection of the awareness of the Americans of an ancient relationship!!

        Cyrus was a very popular name of the same era for boys, for the most part through the strong belief in the bible. The Church seems to have been heavily infiltrated at the same time that we now have Zionist Christians!

        https://en.wikipedia.org/wiki/Mazda_(light_bulb)

  6. The whole model of credit has become a joke. It’s sad. I understand the premise, but this seems no longer the case. I got a credit card to increase my score, since I could use it for business. So I figured why not. I charged 1055 while the limit was 2000. Before the 30 day limit they subtracted 59 points. I paid the balance off before 30 days as intended, but still the knock down. It’s crazy. You get knocked down with no revolving credit. You get knocked for using it. Remember my balance was paid in full before 30 day. It’s a damn fools game. Terrible, horrible creature’s. I wonder what will become of them? I have no clue, for I don’t play where they live and was never able too.

  7. Regarding JNottingham’s comment that houses are HUGE now, and all the other ancillary luxuries we have today to consume our $$ — true enough about all the phone and data plans/eating out, and all the other choices today for allocating one’s dollar. True enough about many of the newer homes.

    But back to my point on standard of living – the ‘same’ house which was purchased for less than 30K in my parents generation (which still has the parent living there) is now going for just under 1M now — completely out of reach to the generation below me. Not so huge a house, it was built over 60 years ago. But bigger than 850SQ ft apartment which would be difficult to accommodate a family of six. More importantly, the idea that the 850SQ ft soft apartment has more in common with the home of the generation before me — key differences include:

    a) a home that is owned after mortgage paid down (i.e. No leverage over the years called home equity loans) vs. an apartment which ensures forever monthly payments and

    b) more room than 850SQ ft for a family.

    To the point of it being possible to ditch all the ‘luxuries’ including second car (big money pit) and raise a family on a single income, with a stay at home parent… one sibling in my generation attempted that very thing in the same geographic region with same education level as the generation before me and were unable to make it. Eventually, left the state for another location, and eventually needed financial help from the generation before us. All the while ‘gainfully employed’.

    I stand by my point regarding decline in overall standard of living, for the major ‘needs’ in life – food/shelter. Consolation prize is discretionary spending on creature comforts, or ‘wants’.

  8. Sorry for my post above doesn’t make sense or didn’t express what I was trying to say. I was very tired as I am now.. My balance was half of my total credit but it hadn’t even been 30 days old and was paid in full before that time. I think it ludicrous to take 59 points off before at least one cycle has passed . The credit score used to make sense to me but in the last 10 years the whole system seems to have gone in the shitter..

  9. Planned obsolescence was, and is, a very bad idea for most things. If we are serious about planet clean up we would do well to start right at this gem . But I don’t see that happening anytime soon because the twits who pushed this have many convinced it would topple the economy. I am stunned at the waste and the landfill space used for the infinite throw aways. As someone who is very fond of salvaging this is painful to me.

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