Friday, September 14, 2012

How Do You Hide a Quarter Century of Stagflation?

Between the late 1980s and today median household income has virtually remained the same, only fluctuating a couple thousand dollars when adjusted for inflation.  At the same time, if you asked the average person they would say they are better off today then they were in 1990, after all, Americans now have 50% larger homes, multiple vehicles, flat screen TVs, and phones that can access the Internet and make telephone calls no matter where they are.  So, why do Americans feel richer even though their incomes remain stagnant?  The answer is a simple one.

The stagnation of the last two plus decades is buried under a mountain of debt.  Below is a chart that depicts household debt as a percentage of GDP.  You'll notice the stark rise in debt occurs at roughly the same time wages began to stagnate.

Forget what you've heard about the inequality of wealth.  The truth is Americans aren't getting ahead because they can't get out from under their debt while at the same time globalization and technology are reducing the need for low skilled labor.  Until the US adopts trade policies designed to balance the impact of globalization on low skilled labor, these trends are bound to continue.

Unfortunately, future generations will face the added burden of not just their own debt, but that of their parents and grandparents who have refused to deal with the national debt that has exponentially spiraled out of control under the past two administrations.

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