Is America Better Off than 40 Years Ago?

Nov 11, 2015

- By Bill Bonner

Bill Bonner
Normandy, France

Dear Diary,

Stocks showed little interest in moving either up or down yesterday. So they just sat tight.

As we keep saying, you can get any opinion you want. You can also get any fact you want. Yesterday, our friend, economist Pierre Lemieux challenged our numbers:

    You write, "In real terms, the typical man of working age in the U.S. earns less today than he did in 1975 - 40 years ago." Where did you get this data?

    Even the notably unreliable data of the Census Bureau on median family income are not that dark. On their unreliable character, see.

    All data I know show that, in America, real incomes have grown over the last 40 years. I am sure it is the same in Europe. Some prices have increased, like home prices, relative to other prices, and it is quite certainly more difficult to buy a house now than back then. Most other things are easier to afford, including for the typical worker. This is confirmed by casual observation: look at their cars, their TV sets, their boats, their vacations, their appliances, their restaurants (not to speak of computers)... Look at their children's cars, iPhones, shoes, etc.  Indeed, look at their hunting or hiking boots with Tinsulate and Gor-Tex!

We have little confidence in numbers or statistics. Except in the world of science, where they mean something precise, they are mostly lies and misunderstandings. Many of them are wrong. Many are pure inventions. We don't trust them, especially one of our own.

You'd think it would be a fairly simple matter to tell whether earnings have gone up. But it's not. You can begin with the raw data. Then, you need to adjust it for inflation...which is where the trouble comes in. How much is a 1975 dollar worth today?

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We don't want to mislead readers with faulty statistics, so we put the issue to our research team.

"The data supports us," says Nick Rokke. "Real income [for men] was higher in 1967."

The data from the Census Bureau has a man's income, in 2012 dollars, at about $37,000 in 1967. Today, it is close to $34,000.

We also have the news of lower incomes reported as a 'fact' in the New York Times on October 22, 2012:

    "...the real earnings of the median male have actually declined by 19 percent since 1970. This means that the median man in 2010 earned as much as the median man did in 1964 - nearly a half century ago. Men with less education face an even bleaker picture; earnings for the median man with a high school diploma and no further schooling fell by 41 percent from 1970 to 2010."
But wait. It's not that simple. Pierre comes back with this:
    The data makes (a bit) more sense for males. But, as I suspected, the figures come from unreliable Census Bureau data.

    The Census Bureau gets it from its Current Population Survey, which amounts to asking to people what they earn. This data is inconsistent with NIPA (National Income and Product Accounts) data, which contains multiple cross checks (total income must be equal to total expenditure and to total value added).

    Note also that the Census data do not include in-kind transfers (like food-stamps or Medicaid or employee benefits)...

Right. Add in the free company T-shirts and welfare state handouts and you seem to have a man who is better off. But he can't be much better off.

Just taking the unvarnished numbers, the working stiff in 1975 earned $8,853 (in 2014 dollars). Now, he earns $36,302. Ford introduced its F-150 in 1975. We weren't able to find an exact price, but it appears to have been sold at about $5,000. Today, a SuperCab F-150 sells for about $28,000. The average new house sold for $39,000 in 1975. Today, it is $364,100. In very raw terms, if a man wanted to buy a house and a car in 1975 he had to work just 5 years and one day to pay for them. If he wants a house and a car today, he has to work more than 10 years.

Whoa...this makes it sound like his real income has been cut in half.

Of course, it's never that simple. He gets more house and more car for his money today. Still, the remarkable thing is that we are doing this calculation at all. We shouldn't be wondering about it. It should be obvious that we are all far better off today than we were a half century ago. This should have been the easiest period in human history in which to make financial progress. Never before had there been so many inventors and entrepreneurs. Never before had they so much accumulated science and capital to work with. Never before had there been so many people making things...and so many consumers with money in their pockets to buy them. And never before were there so many earnest lawmakers, Ph.D. economists, curious researchers, diligent policymakers, and non-profit employed do-gooders...millions of people all doing their level best to make us happier, healthier and richer!

Something seems to have gone wrong.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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1 Responses to "Is America Better Off than 40 Years Ago?"

Rupaal Singh

Nov 12, 2015

A fascinating article indeed. I think the man years needed to purchase a house primarily puts the picture in perspective for me. So no matter how forward looking nominal incomes are to my mind, Real estate prices make all the other numbers look humble :(.

Sir, on the same count please also elaborate what is the per capita income of US excluding the income of the American billionaires that will give a truer picture of what the working class citizen in US earns.

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