How do you measure personal wealth? As a standardized way to measure the wealth of individuals as part of a nation, it is the average disposable personal income. Disposable personal income, is the total after-tax income received by persons, or the income available to persons for spending or saving. By using this, it is easy to say if the population of a country is richer or poorer overall. Disposable personal income, however, does not measure how that wealth is distributed (if I ate two loaves of bread and you ate none, it will still show that we each ate one loaf), but that is not the subject of this post.
The US has been in a worrisome trend for the past 30 years. Although disposable personal income has been growing (we are “richer” than our parents), the percentage at which disposable personal income grows year by year is smaller and smaller. To provide an example, it is like driving a bicycle uphill. You will still go higher, but the amount of energy needed to advance gets higher as you climb. This example should make it clear that, if we don’t change this trend, disposable personal income will stop growing and will start decreasing.
How steep is the hill that Americans are climbing up? Pretty steep indeed.
What this means to you, personally, is that, for instance, if your father was a factory worker in the 70s, and was able to put 3 or 4 kids through college, being the sole “earner” in the family, you may not be able to do the same even though you have a blue collar job.
Another way of understanding this trend is comparing it to the growth rate in humans. As you grow older, the growth rate decreases, then stales, and finally you enter a deterioration phase.
The data from 1930 to 2006 will help you see more clearly.
I do not believe there is any particular reason for the acceleration rate of disposable income growth to follow the same pattern as the human body. In other words, it is perfectly possible that we are able to change this trend.
The reasons of why this is going on are beyond the scope of this post, but the long term trend coincides with several societal trends. Whether it is because of the transformation from an industrial society to a financial/services society, or the increase in health care expenses after the health reform in the mid 1970s, or the retirement reform in the late 1970s, the truth is that between 1973 and 1982 the trend of the speed of wealth accumulation peaked.
By looking at the 10-year moving average, it could be argued that we may be at the bottom of a cycle, and that the acceleration of accumulation of wealth may be starting a new cycle.
Finally, another possible explanation is that the percent change from preceding period is only related to inflationary overheating of the economy, and it is not related to any social trends. If that is the case, the trend shows a neat 40-year inflationary cycle, which should peak somewhere around 2020. I personally never found a good explanation for inflationary cycles, so I do not have an opinion on the matter but these guys, interestingly enough, think the next peak may be in 2018.
Some times you don’t have an answer, but you can come up with a good question.
National Income and Product Accounts Table
Table 2.1. Personal Income and Its Disposition
[Billions of dollars]
Last Revised on November 29, 2007 Next Release Date December 20, 2007
See for yourself at http://www.bea.gov/national/nipaweb/TableView.asp#
This article is part of the series "Documenting The Hyperinflationary Genesis"
- Bernanke’s creative solution: Let’s do it again
- At a financial crossroads
- How to survive hyperinflation
- Let the party begin. We will be dead tomorrow
- I have $ 100,000,000,000 and yet I can’t retire
- Is the Dow Jones at a new high?
- Stagflation: This Time It Is Different
- The Myth Of Gold as Inflation Hedge
- Is Gold a Hedge Against Excess Liquidity?
- Disposable Personal Income Shows Disturbing Historical Trend
- Things That Go Bump in the Night
- Greenspan: Give Homeowners Financial Aid: Financial News – Yahoo! Finance
- Black Swans, Bell Curves and Stagflation
- The Gold Scam
- And Now They Tell US
- Some Historical Perspective on the Current Recession
- Gold Correction Seems Over
- Gold Chatter
Franklin @ December 13, 2007