#1 Government Is Destroying our Standard of Living
07-30-2014, 12:20 PM
- Join Date
- Jun 2008
Government Is Destroying our Standard of Living
By Monty Pelerin
Finally, the change in net worth has made the mainstream media. The statistics, as reported in the NY Times, are horrific, as are the implications for the future of the country.
Net worth may be the best single measure of a country's well-being. Median net worth is a reasonable marker for the standard of living. Medians (or averages) are not good measures to capture what is happening at the lowest or highest ends. (More about that below.)
In the simplest terms, net worth is the value of a person's assets minus his liabilities. If this measure is growing, a person is becoming better off. If it is shrinking then that person is becoming worse off, at least in terms of wealth.
Shocking Drop in Net Worth
Conditions economically (and politically) may be getting so indefensible that even the NY Times feels compelled to report them, in this article by Anna Bernasek, which reported:
The inflation-adjusted net worth for the typical household was $87,992 in 2003. Ten years later, it was only $56,335, or a 36 percent decline, according to a study financed by the Russell Sage Foundation. Those are the figures for a household at the median point in the wealth distribution -- the level at which there are an equal number of households whose worth is higher and lower. But during the same period, the net worth of wealthy households increased substantially.
She does not go out of her way to shield the Obama Administration:
...much of the damage has occurred since the start of the last recession in 2007. Until then, net worth had been rising for the typical household, although at a slower pace than for households in higher wealth brackets. But much of the gain for many typical households came from the rising value of their homes. Exclude that housing wealth and the picture is worse: Median net worth began to decline even earlier.
She also noted:
“The housing bubble basically hid a trend of declining financial wealth at the median that began in 2001,” said Fabian T. Pfeffer, the University of Michigan professor who is lead author of the Russell Sage Foundation study.
This report is damaging to any notion that there has been an economic recovery or that economic matters are back to normal. ...
...Matters Are Actually Worse Than They Appear
Were the economy and its components growing at a real rate of 2 - 3%, then median net worth presumably would be growing at a similar rate. Let's do some quick arithmetic based on the graph above. According to the report, median net worth in 2003 was $88,000. From the graph, it is approximately 25% higher than it was in 1984. That would mean that median net worth in 1984 was approximately 88,000/1.25 or $70,400. Compounding that forward 29 years would produce what one might expect the median net worth to be at the end of 2013. At 2% that number would be $137,500; at 3%, $182,400. Instead, it is only $56,300.
Based on these quick calculations, American's median net worth has been reduced by 60% to 70% from what might have been expected. How is this possible?
There are several reasons. I would argue that most of the blame goes to government:
Government is taking a much bigger share of the economy.
Government understates inflation which results in an overstatement of real GDP.
Taxes are higher, especially on capital gains which are unadjusted for inflation and taxed as if they were true gains.
Government interventions have destroyed the economy's ability to grow.
Government transfer payments have reduced the workforce, spreading a reduced output over more people.
Government's encouragement of the use of debt has created behavior not in the best interests of unsophisticated citizens.
There are other reasons, some that are not related to government although I suspect they have minimal effect. Regardless, the fact is that the U.S. is becoming poorer by the day. For much of this period, people maintained their spending levels by borrowing or consuming capital. The good times of the last twenty years were nowhere near as good as we pretended they were. Now we must pay the piper and hope that government can be reduced back to an affordable level of spending and regulation.....
(More at the link)
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