Busted: Bankers and The Global Economy

May 4, 2009

Krugman: Falling Wages and a Recovery

Paul Krugman makes some excellent points:

So what should we conclude from the growing evidence of sagging wages in America? Mainly that stabilizing the economy isn’t enough: we need a real recovery.

But the unemployment rate is almost certainly still rising. And all signs point to a terrible job market for many months if not years to come — which is a recipe for continuing wage cuts, which will in turn keep the economy weak.

To break that vicious circle, we basically need more: more stimulus, more decisive action on the banks, more job creation.

Credit where credit is due: President Obama and his economic advisers seem to have steered the economy away from the abyss. But the risk that America will turn into Japan — that we’ll face years of deflation and stagnation — seems, if anything, to be rising.

The Falling Wage Syndrome by Paul Krugman

Inflation-adjusted American wages have remained ‘stagnant’ since 1975 but the cost of living has steadily increased. This contributes to the use of credit, the nation’s current plight regarding credit slavery and the high prices of market goods, notably automobiles. The recovery of the auto industry, for example, depends on moving cars and trucks. The problem remains in high prices versus wages of Americans. Houston: we have a problem.

In a review of the Census Bureau’s Historical Income Tables, the truth is not stagnation in an actual sense.  For example, the median income for white men fell nearly 10% between 1974 and 1982. The income for the same group climbed 15% from 1982 to 2007. Income for women increased only slightly between 1974 and 1982 and actually fell slightly for blacks during the same period. Meanwhile costs and expenses spiraled out of control at an annual average inflation rate hovering around 10%, fostered by runaway spending created by credit.

Some argue that wages have increased by 40% since the 1970’s. A recent study by the Federal Reserve Bank of Minneapolis discovered that wages for the average American worker went up by 20 percent between 1975 and 2005. However, one cannot accept the current 3% inflation rate pushed by the Federal Reserve and the federal government as fact. Assuming an average 10% inflation rate which is closer to truth, neither 20% or 40% hold a candle to the real and hidden inflation rate. Given a median inflation rate of 10%, you are looking a loss of buying power at a staggering 100% every ten years instead of a professed 30% reduction in buying power. Now you know where the problem really is. Inflation is not our friend. Living on predatory and usurious credit has come at great cost to the entire globe. The bottom line is that a liberal fractional reserve that has allowed runaway credit is truly responsible for the current plight of global financial malaise. The current mindset continues that monetary credit is the answer to the global meltdown. The actions of central bankers continue to dilute the value of the dollar as global currency.

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