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.
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.
Data from:
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#
Recommend this article...
Last update : 01-02-2008 09:39
|
(0 vote)