Today, every gas and electric meter in Baltimore is spinning. It’s a winter wonderland here. Which means, it’s damned cold.
Our thoughts turn to heat… and then to the expense of it… and
then we begin to wonder how ordinary families keep up with it all.
Heat… food… cable. It adds up.
But we have advice. In a few words: Don’t play that game.
We’ll explain that later. First, let’s review America’s middle-class
families. Everyone seems to be worried about them. President Obama
thinks they’re getting a bad deal. So did presidential challenger
Willard Mitt Romney. Some think the middle class are disappearing. How
are they really doing?
Real, hourly wages have not gone up since 1964. Nearly half a century of flat earnings. We’ve been saying that for years now.
But wait. How come people seem richer?
Because they are richer. At least in a way. They have bigger houses, more marble countertops, more cars, wide-screen TVs.
They’ve got a lot more stuff. Even better stuff.
Better Off Than in 1964?
That is the point of an article in yesterday’s Wall Street Journal. The authors argue that America’s middle class is actually much better off today than it was in 1964.
For one thing, they say, families have more members working (wives
went to work in the 1970s and 1980) so that family income is higher.
OK. Whether that is good or bad… we don’t know.
They also get the benefit of more health benefits.
Hmmm… We don’t know about that either. Families didn’t seem to need
healthcare benefits back in the 1960s. Because healthcare was
reasonably cheap and simple back then. Now, it’s complicated and
expensive.
Yes, say the authors, but it’s also a lot better. Which would you
rather have, they ask, 1960s healthcare at 1960s prices or 2013
healthcare at 2013 prices?
Hmmm… Again, we’re not sure. They say people live longer today. But
that may have nothing to do with healthcare. They live longer in other
countries too – places where people spend a fraction of what we spend on
healthcare.
And many of those tests that are included in our healthcare plans –
mammogram, PSI, colonoscopy – might be useless. That’s what the latest
research shows.
Oh… And now we all have access to jet airplane travel, iPhones and big TVs with options out the wazoo.
Electronic Voodoo
As to this last point, we offer a little personal anecdote. We didn’t have a TV
for a long time. Not from about 1982 to 2012. We bought our first one
this Christmas. A gift to the family. We watched a few movies over the
holidays. After the children left, we forgot about it.
Until last night…
Wife Elizabeth was away so we decided to turn it on for company.
Trouble was, we couldn’t figure out how. There were four remote control
devices. Which controlled what? It was far from obvious. We clicked
every button we could find. Nothing. Then we picked up the phone and
clicked a few buttons on that too. Perhaps there was some sympathetic
communication going on… some electronic voodoo.
In 1964, we turned one knob to turn the machine on. Another changed the channel. There was no doubt about it.
But come the miracle of electronics, and it took us a good 15 minutes
to figure out how to get the thing to work. Then we spent another 15
minutes riffling through dozens of programs before we realized that
there was not a single one that we wanted to watch.
Time lost: 30 minutes. Gain: negative.
So as to the wonders of modern gadgetry, we are less than impressed.
An Awkward Situation
But there is no doubt that the middle class is better equipped in
stuff than its hourly wages suggest. This is partly because the price of
the important stuff – food, shelter, clothing and utilities – has
actually gone down as a percentage of household income, from 52% of
disposable income in 1950 to only 32% today.
But the piece in the Journal doesn’t pay any attention to
the other side of the ledger: debt. In 1964, total public and private
debt in the U.S. was 140% of GDP. Today, it is 375% of GDP.
Hmmm… That’s about two and a half times as much debt per family.
The figures show NET WORTH per household at about the same level it
was 50 years ago: about five times disposable income. But those figures
do not include government debt – a huge and largely uncharted iceberg.
With so much debt to reckon with, the typical family is much more exposed to interest rate increases and other setbacks.
Right now, the cost of carrying debt is low. Because interest rates
are at their lowest point in more than half a century. But they were low
in 1964 too. And if they go up from here – as they did then – we’ll
have quite a hoopty-do. How many families could afford a 10% mortgage
interest rate?
And, of course, this calculation doesn’t include the trillions of
dollars in unfunded liabilities that the feds choose to ignore. Those
liabilities barely existed in 1964. Today, they come to (according to
professor Lawrence Kotlikoff at Boston University) more than $200
trillion – or about $150 trillion more than net assets. Now, how’s the
middle class doing?
But families don’t yet feel the weight of those unfunded liabilities
because they don’t have to pay them. In fact, they hope to be on the
receiving end… to be collecting Social Security… disability… and
health benefits, not paying for them.
Which just goes to show how corrupt and awkward the whole thing is.
Middle-class families work as hard as they can to keep up with expenses
now… and everyone hopes to live at everyone else’s expense in the
future.
It ain’t going to work.
A better approach… on Monday…
Regards,
Bill
The Next “Flash Crash” Could Happen Tomorrow…
Computers have taken over the stock market. One of every two trades
is done automatically by a computer.
These “high-frequency traders” — as they’re called — caused a 9% loss
in five minutes during the “Flash Crash” of May 6, 2010. And they’ve
only gotten more powerful since.
This report will show you how to protect yourself from catastrophe right away.
Other Related Articles:
- Dont’ Fall for This Washinton Insider B.S.
- Honey, I Zombified the Kids
- Caution: Central Bankers at Work!
