WealthCycles is all about measuring stuff with stuff, and taking the effects of the devaluing fiat currencies out of the equation. In an effort to paint a true picture of the well being of the average American worker, we took a look at real annual earnings to judge the extent to which the Main Street American family budget has come under pressure since the financial crisis began.
The results are startling (chart below).
From before the financial crisis began, the cost of what families need to buy has risen significantly, while nominal wages are rising at their slowest rate in recorded history. In other words, the rate at which wages are rising is far slower than the rate at which the purchasing power of the dollar wages are paid in is falling.
In fact, when measured in real money—gold—the real average annual private-sector wage has fallen from 66 ounces of gold in 2006 to just 28 ounces today.
Then, just for fun, we threw in by comparison the annual profit each full-time banker at the Bank of International Settlements (BIS) “earned.” Of course, the profit figures are not banker take-home pay, but can be viewed as a rough measure of the value of work performed, just as wages are. Before we comment more on that last statement, one item we note is that coordinated action and inter-organizational communications made front-running the stimulus quite the bonus opportunity at banks.
Although we do not seek to deprive the 1% of their profits, we do suggest that there is something wrong with earnings extracted from a system that taxes the poorest the most as a percentage of income. There is no means by which the Main Street middle class, the poor worldwide, or even the rich and ignorant can save to better their standard of living unless they understand the persistent loss of purchasing power inherent to an ever-increasing pool of dollars.
The way a capitalist system is supposed to work, if we could simply give it a shot, is that money increases in value and purchasing power over time as goods and services persistently fall in price on average over time. This happens as the supply of goods and services becomes more abundant, competitive and efficient. Under a properly functioning capitalist system, a fixed amount saved grows in value naturally, and even the poor can afford to improve their standard of living because their savings are not secretly stolen, as they are under our modern economic system. Inflation, or printing in order to expand the supply of currency and credit, is simply taxation without representation… making the so-called “war on poverty” an ongoing joke at best.