It is a wonderful chart, but the accompanying article focused only on the triviality that median family incomes now are lower than ten years ago and completely ignored the obvious major inflection point, 38 years ago, in the mid 1970's, at which point the long term compound growth rate in median family incomes dropped from about 3.3% to about 0.33%. The 3.3% growth rate came in the post WWII years when the US was the undisputed economic leader of the world, oil was cheap, imports were scarce, and positive attitudes prevailed. Then we had the Vietnam War, Watergate, an expensive and doomed War on Poverty, globalization, and the 1974 oil crunch which increased the cost of everything and just about put Detroit out of business as Toyotas, Hondas, and Datsuns began flooding into the US market. The only reason the current number is lower than ten years ago, the major focus of Times writer David Leonhardt, is that the dot com boom artificially inflated incomes at the end of the 1990's. So, thanks and compliments to The Times for the chart, apologies to them for marking it up, and shame on them for ignoring the major trends and focusing on the noise.
In an atmosphere of healthy GDP growth, positive mental attitudes, and growing real incomes, most people are pretty happy. When incomes stop growing on average, obviously lots of incomes begin decreasing while others increase, and that diversion causes a lot of unhappiness. And this in spite of the fact that we have clear Biblical warnings against both greed and covetousness. Oh well.
I did a posting earlier, Exit Blocked, No Way Out about the impact of 1974 on our national debt. I highlighted it also, in a longer term view, in History of Federal Debt in the USA. Many people don't really understand or care about our national debt, but most people care very much about their incomes, especially if they seem to be falling behind their neighbors or failing to earn comfortably more than the new folks entering the workforce. I would argue that both national debt and family income are dependent variables, both going the wrong way because of government errors on its three major independent economic variables, tax policy, government spending, and regulatory environment. It may well be that our days of true prosperity and contribution to the economic well being of the world are over and that the next step is to just divide up and spread around the wealth and hope that China and India look favorably on us. But, with courageous leadership in Washington on those three independent government variables, that outcome can be avoided.
I developed a model of the actual data just to illustrate what might have been. In a time when "Are you better off now than you were four years ago?" passes as a sophisticated and important question about ones financial situation, the power of compounding is often misunderstood or ignored. The chart below illustrates the power of continued compounding at a 3.3% rate which would have resulted in median family incomes in 2011 of $180,000, about three times the actual. Had we been able to continue that, greed and envy and wealth spreading would be on the back burner today rather than in the headlines. A rising tide really does lift all ships, and productive and meaningful work is a lot more satisfying than class warfare.
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