“The real price of everything, what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it.” – Adam Smith

It’s no secret by now that America is in an economic rut.   I’ve described our current predicament as a balance sheet recession which is essentially the hangover after a great great party.  And let’s not kid ourselves – Americans threw one hell of a great party over the last 20 years as they accumulated massive debts as they stockpiled McMansions with all the big boy toys a person could dream of.  But the bill on these toys has come due and now we find ourselves with a sizable private sector debt issue which is capping real growth.

But it’s also important to keep things in perspective.  What is not happening in America is some dramatic collapse in our livings standards.  I know it’s not popular to try to imply that things aren’t so bad in the USA these days, but we have to keep things in perspective.  We are after all, the largest economy in the world and our GDP per capita ranks at an astounding 7th in the world.  A remarkable feat for such a large country.   We are an enormously wealthy group of people despite the recent economic woes.

While recent times have certainly been tough, let’s not forget that the American growth story is, without a doubt, the most remarkable in the history of human kind.  This country has achieved an incredible amount in just 235 years.  In this brief period we went from a small group of colonies to the world’s superpower.  We have grown from poor immigrants to the wealthiest country on earth.  We have grown into the greatest innovation machine that man has ever witnessed.  These accomplishments are not good.  They are flat out incredible and anyone who tries to downplay them has not opened a world history book in their lifetime.

But this bigger picture gets lost in a “what have you done for me lately world” where we can’t remember anything past the last 140 characters we typed out.  So, how bad have things been lately?  Not great, but not horrible either.  As the above Adam Smith quote mentions, the true price of everything is the toil and trouble of having to acquire it.  So, when our wages don’t outpace inflation our standard of living declines as we have to do more work to obtain the same amount of goods and services in some prior period.

A good example of our extraordinary increase in standard of living over the last 100 years is to imagine all the things we can accomplish in an hours time.  Last night at 7PM I put my laundry in the wash, I put the dishes in the dishwasher (yes ladies, I am a man who cleans dishes), ordered dinner from a local restaurant and went upstairs into my office where I did an hour of work.  At 8 PM my dinner arrived, my laundry was done, I ate dinner on a fresh clean plate and I had done an hour of work in this period.  Imagine trying to do all that 100 years ago?  How long would it take you?  Days?  Perhaps even weeks?  That is a remarkable increase in living standards.  This is why, when someone says the dollar has fallen 95% since 1913, you should remind yourself never to listen to that person’s opinion ever again as they are just misconstruing the reality of our living standards, most likely in an effort to push some personal agenda.

But let’s put this into perspective with some data.  An analyst at Nomura forwarded me the median wage statistics from Social Security.  This data cannot lie for obvious reasons.  And if we compare it to inflation data we can see just how much our standard of living has increased or declined.  Over the last 20 years the data shows the following:

(Figure 1)

Not a bad looking picture considering the mess of the 2000′s.  As figure 3 shows us below, the total real increase is approximately 15% over this period.  Not great, but not a decline either.  Our real standard of living has increased since 1990.  The same cannot be said since 1999.  It has been a terrible period for the USA in terms of our living standards:

(Figure 2)

(Figure 3)

Social Security doesn’t have this data going back beyond 1990, but we can obtain a similar picture from the St Louis Fed database.  It confirms the Social Security data even though it is the per capita wages and not the median wage.  What we see is a near doubling in our living standards since 1960 and a rough patch in the 2000′s:

(Figure 4)

Don’t get me wrong.  I am not here to try to downplay the magnitude of the problems we face today.  If there is anyone that is familiar with the horrid disease that is the balance sheet recession, it is me.  But we have to keep things in perspective.  America is a fabulous country.  It always has been and I am confident that it always will be.  We will get out of this rut and one day we will look back at this period and hopefully learn from it.  But what we should not do is try to convince ourselves that the world is ending or that things are worse than they really are.  History, even our relatively brief history, has shown us that this would be a colossal mistake.

* Standards of living is being viewed from a purely economical perspective in this piece.  Clearly, there are many differing definitions of living standards.  

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  1. the pendulum has swung too far – we are richer than anyone, and greatest success story ever, etc, etc. But income and wealth inequality, hatred and fear mongering, are all at peaks not seen since the great depression. Things may have to get even worse before they get better – maybe we’ll get some john dilligers before it’s all said and done. But the wealth, production, know how, etc is all there. We just have to stop crapping all over ourselves and we can get out of this mess.

    This article is a perfect example of the insanity that is gripping our nation

    So if you feel that top 1% have too much, you are akin to a genocidal murderer.

    I’m optimistic long term – all pendulums swing back. I’m pressimistic short term because we have an entire party who are trying to out-do each other in impressing the know-nothings, while the other party lies on their back and allows themselves to get trampled on. And since no one other than pragcap readers understand MMT there is no hope that anyone with good policies solutions can win an argument since they don’t know why they’re good – or how to defend the attacks.

  2. Ugh, what a sh1t-storm here today. I have a completely different perspective on this. And I am not sure even *I* have the energy to vomit. I shall return once my head stops spinning. And once I declare email bankruptcy. And once my “smart” phone stops…bzzzz, bzzzz, bzzzzz, bzzzzz…BECAUSE SOMEONE ON FACEBOOK PARTED THEIR HAIR ON THE OPPOSITE SIDE OF THEIR G-DAMN HEAD TODAY. AND STOP TEXTING ME..WHAT ARE YOU 12???

    I need a drink.

  3. Wow–the pessimism is apocalyptic. I vividly recall similar attitudes in 1976-80. The visceral reaction of the public to Watergate and Nixon produced the election of Jimmy Carter. He was supposed to be a simple peanut farmer who carried his own bags; a novelty. He turned out to be a misguided leftist who combined excessively easy money with hair shirt environmentalism, goofy tax policy and pessimism about the future of America. Sound familiar? I expect to soon see the bumper sticker that was popular in 1979: “Hang on America–the Republicans are coming.”

    • “Wow–the pessimism is apocalyptic. I vividly recall similar attitudes in 1976-80.”

      Me too. Of course it took until 82 to find the bottom. And Reagan.

      • One can argue that we never really got out of the 1970s’ malaise. One can even argue that under Reagan, the FIRE economy really took off, de-industrialization increased, and our economy took on more and more ponzi characteristics.

        Did we really get out of the 1970s malaise? Or are we paying for how we temporarily got out of the 1970′s malaise today?

        The FIRE economy is imploding. Global wage arbitrage is destroying the western middle class, and the world is transforming into the haves and have nots, and the capital classes will always be bailed out, and will always find an investment opportunity somewhere in the world, while the labor classes that are pinned down geographically enter poverty. (BTW, I hate sounding Marxist)

        When we began trading with nations that have a fraction of the labor laws we have, we began to import their poverty as well. There’s always a cost when importing cheap goods. In China, children get cancer due to lax environmental laws, and in the US, workers get laid off. There is a tremendous societal cost we will end up paying that many are not aware of.

        But many of us that invest(including myself) may not be so affected. But you know what? At least I have some humanity and humility to understand that others will never be as fortunate. We can’t all tap on keyboards all day and call that a vibrant economy, can we? We shafted our middle class into debt bondage and global wage arbitrage.

        Yea, we got out of the 1970′s slump – we got banks on steroids, a de-industrialzed consumption based ponzi economy – and look what it got us into. Massive debtloads on public and private balance sheets.

        Ask any 50 year old that has been recently laid off what the future looks like.

  4. Oh, here we go.
    Cullen’s factual work has brought out all the “boo hoo, whoe is me” whiners complaining that their standard of living is “falling apart at the seams” because they had to reduce their Neflix from 3 DVD to 1 DVD at-a-time, and have to hold on to to their iPhone 4 rather than upgrading to the all new i Phone 4S

  5. Am I missing something?

    You’ve jumped from wages to living standards as if they’re the same thing. That’s an incredible leap given there’s no definitive defintion of “living standards”

    One point however if you do want to compare through the ‘fall’ is the collapse of deposable income. So I see the mention of a 10% fall in wages. Not cataclysmic I grant you but for the majority on low incomes they’ve seen the cost of living remain constant / increase while their income has decreased.

    Thus say you spend 50% of a monthly wage of $1,000 on rent. Another $250 on bills, electricity, healthcare. That’s $250 of spending that they can make. If wages fall by 10%, suddenly that’s the same bills, but only $900 spending. Dropping your actually ability to spend down from $250 to $150. That’s a massive fall, and can have a huge effect on peoples’ lives.

    I think this example is more realistic to what people are actually going through than just seeing 10% off everything.

  6. I read all the way through this blog, every comment. How many people in this country are willing to do that? The issues are complex and are understood by too few, although readers here sees to have a handle on it. My views are a little left of center but that is not important. What is important? How many people in this country are really willing to get an understanding of the problems we face? 30 second sound bites are all people seem to know. Knowing you’re getting screwed isn’t enough. My optimism for those at the median will be in proportion to the amount of knowledge John Q. Public is willing to acquire.

  7. Nearly 20% real unemployment, unsupportable private debt levels, municipal defaults, $1.5 Trillion dollar budget deficits, a failing education system and industries fleeing to other countries at a record pace. Oh yeah and we might have already passed peak cheap oil and other commodities and the economy is headed into another recession or something close to it.

    I guess it’s time to look on the bright side.

    • You cannot be serious Winston..

      Shadowstats? Really?

      Williams has been calling for hyperinflation for years. Meanwhile he continues to collect fees in USD. I don’t know if he knows it or not, but regardless his analysis is flawed.

  8. “If the world hates America so much, why are they still banging down our doors to live here?”

    I work with several H1B India immigrants and they can’t wait to get enough experience in the US so they can go back to India and work for Indian local US companies. I have not meet one that wants to make the US a permanent home. They view the US as expensive and materialistic and don’t want to raise their children here.

    • Thanks for the additional insight into H1B Visas.

      I will also add that the US does not have a monopoly on immigration. I live on a Greek island that over ten years ago was practically all Greek.

      Today you will find living permanently on this island: a few thousand Albanians, a few thousand English pensioners, Pakistanis, Chinese, Africans, and even Eastern Europeans. They all live and work here. Admittedly, most illegal immigrants enter Greece to go into other EU countries. But many have stayed. Obviously, given the crisis, things are changing now – but the same can be said for the US as well. How many Mexicans have left the US when the construction industry imploded in 2008?

      So even lowly Greece had a recent influx of immigration. But somehow, the average American thinks that the US is unique in that it is the only place to experience immigration.

  9. I think your analysis needs to go to the next level, Cullen. How does this look if you break out income percentiles? I’d bet that the lowest decile hasn’t done so well.

  10. Your article is complete garbage. Inflation adjusted wages have been falling since 1973. In addition, to equate technology with standard of living is dishonest.
    Standard of living is a composite of ability to purchase goods and services, combined with ability to quit working and comfortably live without indentured servitude.
    While both the cost of production of goods and technological advancements make it appear as if we are getting more for our money today, the quality and quantity of the service we receive, and our ability to survive debt free and secure without employment is considerably less than previous decades.

    • I offered fact based proof for my argument. So far, the readers who disagree have done nothing but make general statements that do nothing to actually refute the data here. “Garbage” is making an argument without any facts or data to back it up. For instance, this:

      ” the quality and quantity of the service we receive, and our ability to survive debt free and secure without employment is considerably less than previous decades.”

      Is a statement you could never actually prove. If you think the USA was a better place in 1973 then let’s see your thorough data and facts. But I think you and I both know this country is in far better financial standing than it was then and our citizens are substantially more wealthy. Yes, I agree that std of living is a vague term, but from a purely wage based position, my data speaks for itself.

  11. I forgot to mention that most state retirement funds are ponzi schemes that are rapidly headed towards $0. When the money runs out old people will elect politicians to steal money from young people to pay for their power chairs, stretch pants and dinners out at Applebees.

    Taxes are headed up, up and then up some more.

    Predicting that incomes over the next 20 years will look anything like the last 20 years is pure craziness.

  12. Well Cullen, I have to remark that you are way too optimistic. I’m definitely not one of the 99% and I have serious doubts about making it through what lies ahead for America. IMHO we’ve had a great ride but not all things go up for ever. What you fail to address in your CPI and wages graph is monstrous in it’s simple depiction of numbers without hidden factors. You completely ignore the debt that was created to pay all those silly white collar workers that produced nothing in America. It like patting people on the back that got rich in a Ponzi scheme.

    America fell into a sweet spot and also massaged it by bullying the rest of the world and using the poor around the world to enhance our position of wealth. Read John Perkins “Confessions of an Economic Hitman” By the time we entered WW2 the rest of the world was so broke, it was a cake walk to take over the world and then of course America was Saudi Arabia when it came to oil. Later we made an unholy alliance with the house of Saud to further our grip on world power via making all oil sold tied to the dollar.

    Today we face a media run by corporations that work to keep people dumb.

    even Obama tells us we can compete with businesses in China that pay their labor pennies rather than dollars an hour. The day America becomes competitive again will be the day when our wages match those of Indian and Chinese workers. The days of America living in the land of milk and honey are way over my friend unless some miracle technology arrives very very soon.

    My biggest worry is the crime that will fall on our nation when the collapse occurs. Back in the last depression, something like 95% of the nation either lived on a farm or had a close relative living on a farm. You fail to mention the security that comes from knowing at least you will have food to eat. Yes today our food is readily available and people can afford the power of a washing machine and all the other modern conveniences. Everyone assumes the machine will just run for ever. Today the number of people with access to a farm is less than 5%. My aunt tells me stories of how lucky they were. They lived on a farm and had a dad that was a mailman, so they got to have lard spread on their sandwiches while the other kids just had bread for lunch at school.

    It might be fun to be optimistic but it’s safer to be a realist. 99% of us are fast becoming realists while most born with a silver spoon in their mouths still remain clueless. Imagine what life in China was like before America let them trade with us and consider what life might be like here in the not too distant future. At least the Chinese knew how to grow food. Americans are a bunch of spoiled idiots with little if any ‘live off the land’ skills and I’m one of them. I would humbly salute you if my prophecies are wrong and your prove right 5 years from now but I’m betting everything that I own that you are wrong. Buy gold, silver, guns, bullets, farm land or fishing boats.

    My advice to this forum is to buy farm land now and get ready.

    • Will Rogers on technology during the Great Depression:
      We’ll hold the distinction of being the only nation in the history of the world that ever went to the poor house in an automobile.

      Will Rogers on prosperity and debt:
      Don’t make the first payment on anything. First payments is what made us think we were prosperous and the other nineteen is what showed us we were broke.

  13. Anyone can rig up and article to sell a message. Stats that I have seen show that real disposable incomes in the US have fallen since 1970 and that the ‘deficit’ in consumption has been taken up by debt. This is not peculiar to the US.

    The other point is that rose tinted articles like this ignore structural issues such as the distribution of wealth. Granted the US maybe 7th in terms of GDP per head but that is an average. The Gini coefficient for the US has change dramatically over the last 20 years to show that a small minority take more of the nations wealth.

    The US could have internalized is productive capability via an ‘innovation economy’ many decades ago but chose to go down the route of cost arbitrage (cost of capital and labour) driven by Wall Street and large US transnationals so the US labour pool is now part of a global labour pool that includes a couple of billion Chinese and Indians. Hence the off-shoring, out-sourcing and in-sourcing.

    The consequence is that US workers are being deskilled and significant pool of ‘reserve labour’ is building up in the US and this will only get worse as the US population is still growing and more will enter the US labour pool..

    In the face of the above and other effects I’d expect living standards to fall in the US and this will accelerate if the dollar starts to lose value. Once it does this it will increase living costs within the US.

  14. Cullen said “America’s a fabulous country” – Yeah, only if you like fascism!

  15. That’s be an interesting chart if it actually showed the real inflation rate, instead of the modern CPI that was created to specifically hide the substantially higher real inflation rate.

    We’re baking at a 9% to 10% real inflation rate per the 1980 CPI right now.

  16. Those who had work during the great depression didn’t find it that bad especially with ongoing deflation. But those who were not working however suffered greatly. I think someone is wrong hiding behind statistic may prevent some from understanding or concluding what is occurring in reality.