American Workers Are Worse Off--But Why the Baloney?

The table below lists government data on savings rates, the prime interest rate, inflation and real wages since 1972. It is evident from the real wage data in the last column, which states average hourly earnings in 1982 dollars for all private sector US employees, that wages have fallen over the past 35 years from $9.07 per hour in 1972 (in 1982 dollars) to $8.27. This is an unprecedented decline in US workers' welfare. As can be seen in the table as well, in any year since 1972 inflation has not fallen below 1.0 percent. In six of ten years in the 1980s inflation exceeded 4.0 percent. In five of ten years in the 1990s inflation equaled or exceeded 3.0 percent. In three of eight years in the 2000s inflation exceeded 3.0 percent.

In recent weeks there have been several articles in the New York Sun and Newsweek that argue that Americans' lives have grown more prosperous. No serious data is offered to support this claim. Robert J. Samuelson's Newsweek article offers the following: there are more two-car families; more Americans have cable television; and more students go to college.

However, greater consumption evidences little if indebtedness has increased along with the consumption. More Americans likely have two cars because more women are forced to work because their husbands' salaries are dismal. The second car soaks up a good part of the second income. This is not evidence of prosperity. House prices, which the Bureau of Labor Statistics excluded from the Consumer Price Index in the early 1980s, have escalated until this year and have posed an enormous burden on two-income families. In the book Two Income Trap: Why Middle Class Mothers and Fathers Are Going Broke Elizabeth Warren and Amelia Warren Tyagi show that the economic burden of house payments coupled with two wage earners has been the single greatest source of personal bankruptcy. The reason for the inflated house prices is the same as the flat real wages: inflation that Keynesian economic policies have caused.

Samuelson claims that there is greater risk for workers than before so that workers' sense that they are worse off is but a psychological illusion. It is true that workers face more risk than before 1972. But in most contexts higher returns accompany higher risk, while the American economy has produced both higher risk and lower wages for workers. There is only one meaningful measure of workers' welfare, and that is their real hourly wage adjusted for benefits and risk. But benefits have declined as have real hourly wages and, according to Samuelson, risk has increased. In his attempt to put a positive spin on workers' sad fate Samuelson makes things sound worse.

Why is there so much nonsensical news coverage claiming that Americans are better off when a casual glance at real wage data shows that Americans are in fact worse off? This is not rocket science. Real hourly wages were $9.07 in 1972 and $8.27 in 2007. Americans are worse off, and they have been so since 1972 when Richard M. Nixon declared "We are all Keynesians now".

I ask: why do news media like Newsweek, normally eager to criticize the Bush administration, stack baloney when it comes to Fed policy and inflation? One answer has occurred to me: the media are owned by conglomerates that take on a large amount of debt. Inflationary Fed policies keep interest rates low and so subsidize the debt burden of the same media corporations whose units, like Newsweek, report on the news. As well, low interest rates inflate the stock market, helping media stocks to remain unnaturally high so that executives earn high bonuses. My guess is that the volume of pro-Fed propaganda will increase in media outlets whose owners have greater indebtedness. In other words, my hypothesis is that there is an inverse correlation between support for the current economic situation by newspapers, television stations and magazines and the debt to asset ratio of the corporate parents of the media conglomerates that own them.

Perhaps we should view the opinions of the MSM to have the same value as the dollar. As the dollar declines, our faith in the MSM can decline along with it. In the end, we can haul wheel barrows of Newsweek Magazines along with worthless $100 bills.

Personal Saving as a Percentage of Disposable Personal Income

Year....Saving Rate(1)..Prime Rate(2).CPI(3).Real Hr. Wages(4)

1972........8.9................5.25....................3.2..........9.07
1973.......10.5................6.00....................6.2..........8.85
1974.......10.6................9.75...................11.0..........8.55
1975.......10.6...............10.50....................9.1..........8.44
1976........9.4................7.25....................5.8..........8.63
1977........8.7................6.25....................6.5..........8.68
1978........8.9................7.75....................7.6..........8.65
1979........8.9...............11.75...................11.3..........8.23
1980.......10.0...............15.25...................13.5..........7.94
1981.......10.9...............21.50...................10.3..........7.84
1982.......11.2...............15.75....................6.2..........7.92
1983........9.0...............11.50....................3.2..........7.97
1984.......10.8...............11.00....................4.3..........7.95
1985........9.0...............10.75....................3.6..........7.91
1986........8.2................9.50....................1.9..........7.97
1987........7.0................7.50....................3.6..........7.86
1988........7.3................8.75....................4.1..........7.80
1989........7.1...............10.50....................4.8..........7.74
1990........7.0...............10.50....................5.4..........7.57
1991........7.3...............10.00....................4.2..........7.57
1992........7.7................6.50....................3.0..........7.53
1993........5.8................6.00....................3.0..........7.54
1994........4.8................6.00....................2.6..........7.54
1995........4.6................8.50....................2.8..........7.57
1996........4.0................8.50....................3.0..........7.59
1997........3.6................8.25....................2.3..........7.79
1998........4.3................8.50....................1.6..........7.95
1999........2.4................7.75....................2.2..........8.02
2000........2.3................9.50....................3.4..........8.08
2001........1.8................9.50....................2.8..........8.24
2002........2.4................4.75....................1.6..........8.29
2003........2.1................4.25....................2.3..........8.29
2004........2.1................4.00....................2.7..........8.21
2005........0.5................5.25....................3.4..........8.18
2006........0.4................7.25....................3.2..........8.33
2007........0.4................8.25....................2.8..........8.27



(1) Source: http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=58&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Year&FirstYear=1971&LastYear=2008&3Place=N&Update=Update&JavaBox=no
(2) Source: http://mortgage-x.com/general/indexes/prime.asp
(3) Source: Department of Labor, BLS, CPI increases
(4) Source, Department of Labor, BLS, Average Hourly Earnings http://data.bls.gov/PDQ/servlet/SurveyOutputServlet