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How U.S. Living Standards Have Fallen

Written By Brian Hicks

Posted June 27, 2013

This is going to be a troubling read, but it’s something you should work through just the same. Standards of living here in the U.S. have declined greatly, and it’s important you know what’s gone wrong and what, if anything, you might be able to do to safeguard your future.

standard fof livingToday, the average dual-income family is 15 percent poorer than the average single-income family of forty years ago, accounting for inflation and costs of living. Jeff Nielson presents a fine mathematical breakdown on The Street.

With the year 2000 as the base point, real wages would’ve been at their highest in 1970 at $20 per hour. Compare that to today’s average of $8.50 per hour. Also, average wage is related to the standard of living we enjoy. In short, our average standard of living has declined by more than 57 percent in just four decades.

Clearly, we’ve gone off-road somewhere and are nowhere close to finding our way back.

As Nielson’s analysis goes on to show, government calculation of inflation for the years 1975, 1985, 1995, and 2005 were each different, making it difficult to develop a consistent picture. It’s reasonable to assume that, if methodological improvements were made in the intervening decades, the previous calculations would have been readjusted using the newer methods to maintain consistency.

Why, then, did the government not attempt to do that? It would probably not require a complete, bottom-upward recalculation, since the raw data was already in place. The rapid advances in computing technology would also, probably, have meant that the earlier numbers could simply be crunched using the newer methodology. But this did not happen.

As a result, in graphs and charts commonly tossed around comparing inflation, costs of living, etc. over time, we end up linking together disparate pieces of information, which presents a distorted picture.

Adjusting in the manner described above, it turns out that hourly earnings have trended mostly flat since about 1980 but began declining since 1970 with a short upward spike noted in 1975 or so.

But here’s the more repulsive part: if the average American worker has seen his wage drop by more than 57 percent over the past four decades, the 400 wealthiest Americans have increased their incomes 700 percent over the past 15 years. That’s one and a half decades. It is well worth exploring Nielson’s detailed analysis.

To uncover and discuss all the possible factors that led to the creation of this farcical situation is well beyond the scope of this article. But we can consider the endlessly-convoluted taxation system in this country, we can consider the continued elimination of jobs by technological advances (jobs that are not being replaced in equal numbers), and we can consider the unending creation and nourishment of monopolies and oligopolies (quick quiz: how many competitors can you name for Google? Facebook?).

I need not mention the catastrophic implications of private banks that were deemed, by a nation’s government, to be “too big to fail” and thus granted a magical exception from the laws of theoretical capitalism.


Retirement Savings Well Below Threshold

But that’s not the end of this tale of woes. The National Institute on Retirement Security just came out with a report that reveals, by and large, we’re all running way short of how much we need to save to secure our retirements.

As much as 45 percent of working Americans do not have any retirement savings whatsoever. The total gap between what’s ideally needed, and what we’ve got? 14 trillion dollars. That’s if one considers savings isolated especially for retirement.

Being more lenient and considering total net worth including home equity, the deficit narrows somewhat to $6.8 trillion. As CBS notes, about a third of working members of the boomer generation do not have any retirement savings; another third have savings equivalent to less than a single year’s salary.

According to Fidelity Investments, you should amass about seven times your yearly salary by age 55. A big factor that’s adversely affecting retirement savings is that employer-based retirement plans are skimping heavily today—in fact, they haven’t been so low since 1979. Just 52 percent of American workers even have such plans.

The NIRS study recommends immediately strengthening Social Security (primarily by increasing revenues and minimum benefits), closing the gap in employer-offered retirement plans by developing automatic savings plans, and developing a credit system for low-income households.

Unfortunately, it’s hard to see how any of these sweeping changes can take place at a time when the dollar is reeling, domestic economic stability is a myth, and the world’s economy remains completely unstable. The present generation is going to have its work cut out for it, due to no real fault of its own.


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