Monday, February 10, 2020

Economic Stagnation and Decline in US

A Twitter reader asked, “What exactly are you referring to when you say “the stagnation and decline of our economic system in recent decades”? What data points or concretes are you referring to? Thanks.”

The primary basis of my statement is the claim constantly repeated in the press, and, to my knowledge, never disputed, that real wages have been stagnant for several decades and that it is increasingly necessary for married women to work to earn as much as 1 breadwinner used to.

This claim seems reasonable to me because we now have a Federal Register with over 2.5 million pages, almost all of which describe regulations that either prohibit actions that individuals would benefit from or compel actions that they judge would harm them.

We have also had currency depreciation to the point where a paper dollar is now worth only 1.3 gold cents, in the process creating repeated increases in paper profits and capital gains, both of which are subject to substantial taxation.

This has resulted in substantial additional taxes on funds that would otherwise have been saved and invested. The absence of this saving and investment results in stagnation in the productivity of labor and thus in real wages.

I know better than most people that today’s media are profoundly ignorant and often dishonest and are thus unreliable But my knowledge of economic theory and of such facts as the volume of regulation and the extent of inflation confirms what they have been saying in this case.

If you can cite facts which show otherwise, please write an article explaining them, and be sure to reconcile those facts with the negative results we should expect from the ever-increasing government intervention we’ve experienced for so many years.

The Bureau of Labor Statistics is the source of press reports about real wages. It compiles data on money wages and then adjusts the money wages for changes in the consumer price index. E.g., if both average wages and the price level double, real wages are unchanged.

I believe that the consumer price index understates the rise in prices and thus overstates real wages. E.g., if the rise in price of Good A leads people to switch to lower-priced Good B, it reduces the weight given in the index to the rise in the price of Good A.