You Are Living on 41% of an American Wage--the USSA* Steals 59%

There are several ways that Washington taxes and expropriates the majority of your earnings. Before 1970 the real hourly wage increased by approximately 2% per year. Some years it increased more and others less, but between 1800 and 1970 there were roughly 2% annual increases. The reasons for these increases were productivity growth and monetary stability. In turn, productivity growth depends on innovation while monetary stability depends on a stable money supply over the long term (in the 19th century there were fluctuations in prices due to fractional reserve banking among state banks, but in the long run prices were stable). Entrepreneurs will be loath to take risks if there is monetary instability that threatens potential returns.

There are additional sources of innovation, and government has assaulted all of them. For example, education in the sciences and technology might contribute to innovation. But the education system in the United States is poor and does not produce graduates who on the whole are capable of learning science and math. Moreover, education creates an entitlement mentality that deters risk taking and entrepreneurship.

Innovation depends on capital formation. But the income tax inhibits saving. This is reinforced by other forms of taxation such as Social Security, gasoline tax, sales tax, property tax and inheritance tax. Each of these taxes subtracts from income and therefore reduces the capacity of entrepreneurs to save. Banks are unlikely to lend to entrepreneurs who invent radically new technology. Private investors or "angels" may, but the solicitation of investment angels is difficult and not every inventor will be talented at doing so. Moreover, there has been a bias among private capital investors for computer and other electronic technology, and while there has been innovation in that very limited arena, there are wide areas in manufacturing, services and products outside of the "high tech" space where there has been an innovation drought. In these fields existing firms have been able to obtain financing to facilitate overseas plant investment to procure lower wage foreign labor but not radically new ideas. Pharmaceuticals seemed to have reached a dead end even before the health care act, and in the health care act the Democrats have taken a sledge hammer to pharmaceutical companies and to the economy at large, ensuring ever worsening stagnation in real hourly wage growth.

Most importantly, the freeing of the Federal Reserve Bank from constraints on monetary expansion and its freedom to subsidize Wall Street firms, real estate developers, hedge funds and commercial banks, has accelerated the transfer of wealth from wage earners to stock and other asset investors. The freeing occurred in 1971.

As a result of these government policies, the real hourly wage stopped increasing around 1971 and since then has not increased. The difference between the future value of one dollar that does not increase and the future value of one dollar that increases by 2% over 40 years is 220%. That means that without the Fed and without the dislocation to innovation and productivity increases due to it and to tax policies, your income would be approximately 220% higher than it currently is. For example, if you are earning $40,000 per year now, without the US government tax and Federal Reserve Bank system you would be earning $88,000. In other words, your income is 45% of what it would be without the Federal Reserve Bank.

That is on a before tax basis. If you pay 10% of your total income in federal income tax, 4% in state income tax, 5% in property tax, 7.65% in Medicare and Social Security tax (I'll exclude the 7.65% that the employer pays for you and then deducts from your wages) and say 2% in other taxes such as sales tax, premium tax, gasoline tax, inheritance tax and the like then the total is 23.65%. For many people that is an understatement. Rounding down to 23% gives you a reduction to your measly $40,000 of $9,200. Therefore, you aren't even earning what you would have earned in 1970, when taxes were lower. Instead of $40,000 you earn $30,800. Compared to what you would be earning in a free America where you might pay in state and federal tax what you would have paid in 1950, 15%, you are earning $30,800 / (.85 x $88,000) = 41.2%.

Aren't you grateful about all the government "services" that you receive, in exchange for which you pay 58.8% of your livelihood?

*United Socialist States of America

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