Want to see an interesting graph? Click the image to view the large version. Read the full report here.
From looking at this you might think that the USA and developed world had large swaths of their population stuck with no growth over a 20 year period, but that is not accurate. The truth is every economic group in the USA saw on average increases in their income over that period. Here is a wider swath with a per country breakdown in a few different ways:
When you strip it down to just the USA, you see that every element of the USA grew, usually at an annual pace of around 1.25% or more. But, this growth wasn’t as high as many other developed countries like the UK and others though. And, when you dig in a bit more you see that it often had years of decline followed by years of gain. You might be up at the end of it, but it has been a rough ride full of uncertainty and chaos.
So why do so many people feel they are being left behind by this economy?
1. People want to live a “middle class” or possibly “rich” lifestyle and they are taking on huge amounts of debt to pay for it when they can’t afford it. People shifted what they think they can afford, in part due to industries getting very smart about how they pitch financing & credit cards.
I’ll give one big example that really bugs me, housing debt. I am starting to think the 30 year mortgage is one of the worst things ever created. 86% of people opted for a 30 year mortgage in 2015, and they could have saved a lot of money with a 15 or 20 year mortgage.
Bob buys a house for $200,000 dollars at an interest rate of 4%. What is the monthly payment, and total he pays with each mortgage term?
30 year = $955 a month, for a total bill of $343,749.
20 year = $1,212 a month, for a total bill of $290,871.
15 year = $1,479 a month, for a total bill of $266,288.
This is impacted even more because interest rates on shorter terms are less. Right now a 30 year is 3.6%, a 20 year is 3.4%, a 15 year is 2.8%.
15 year @ 2.8% = $1,362 a month, for a total bill of $245,161.
So imagine buying a house, paying $400 dollars more a month for a 15 year mortgage, but owning the house in 15 years instead of 30, and then having $x,xxx more money each month towards retirement, travel, or anything else. With a 30 year mortgage that $200k house costs you $343k, ie $143k in interest, versus $45k in interest for the 15 year mortgage.
It isn’t that people are stupid, rather they lack the knowledge of how important this type of decision is. Especially when the finance industry has every incentive to steer them towards max financing and short term gain for the bank/wall street. Don’t even get me started on ARM mortgages, they should be illegal and any banker who pitches them ashamed.
Related to this is the problem of rentals, when someone buys a rental property for xxx,xxx at an inflated price with a 30 year mortgage they have to rent it out at an even higher rate. As the entire market shifts, it then shifts the rental market higher, fucking us all over even if we don’t buy a house. Especially when shitty zoning codes protect owners, and not new builders.
Now apply this same math to new cars, education loans, fancy dorms, etc…
2. Health care is beyond broken, and taking everyone’s money.
Health care costs have risen faster than inflation and the costs are hidden for most Americans behind the company who pays most of the cost. So instead of getting a raise, that money is going to pay the yearly increase in health care premiums for everyone. Or you are paying some and your company is as well, and that keeps going up sucking all your paycheck as well as money from the company.
Right now in the USA on average pays $8,233 per person per year for health care, the average in OECD countries is $3,268 per person. If we were able to achieve that rate it would mean a raise of $4,965 back to each person, roughly $414 bucks per month in additional income per person (super huge if you have a family of 3 (napkin math)). In 1960 health care expenditures were 5% of the GDP, now they are about 18%.
Health care is not something you budget shop for, it is something you need when you get sick or hurt. The entire system is broken.
The funniest part is people don’t realize they already pay for health insurance for every american because hospitals can legally not turn away patients, even if they can’t pay. And, they can’t give a bill to a debt collector if the person will pay even a little bit. So when someone says I can pay $50 a month on a $50,000 dollar inflated bill, guess who eats the rest of that bill? Everyone… then the hospital charges more, then your insurance rates go up. We already have socialized health care, it is just done very badly and cost 2.5x what it should be costing if we actually fixed it.
3. The Government failure to lead, and build an acceptable safety net for everyone. Key areas of concern?
A. Education – See #1, but the government totally fucked this up. By subsidizing loans, they never thought to also limit the cost of the universities or amount of debt a student could take. Now they are given that they have destroyed an entire generation of people’s ability to take risk to start businesses, or do many other things. When you have $25k to $200k in student loan debt it is hard to move forward in life. Especially when you can’t declare bankruptcy or buy a house, and are stuck with super high interest rates.
B. Retirement – Social security is our retirement program, yet it hasn’t evolved for the times. We need to lift caps, and put more into it. Instead we screwed over loads of people with 401ks and other nonsense that let bankers sift percentages off of it. We’ve started to fix it, but we need to accept that people are terrible at saving, and force SSN to be about 2x higher out of payroll taxes.
C. Minimum Wage / Transition To Service Jobs – So much here, but basically we stopped pegging the minimum wage to inflationary growth, not to mention to try to increase it. When my dad was in his 20s in the 1970s minimum wage adjusted for inflation was $9.74. Right now it is $7.25. WTF, at least peg that to something that doesn’t slide like that. If the government had been thinking, they could have increased it yearly by CPI + 1/4th of a percent, and slowly over 20 to 50 years been pushing out low margin businesses and fostering better ones. As well as having yet another tool to fight inflation in case they needed to skip that for a few years. (Also, for those that argue not many people are on minimum wage I would say that is bullshit, minimum wage affects the entire payscale. If someone is being paid $10.25 right now, upping minimum wage to $10 usually means they are going to see a $2 to $3 dollar improvement as well over time. If you tie minimum wage to productivity gains the wage would be ~$19 dollars. Meaning that instead of money going back into companies for robots and other improvements, some of that would be shared with the people and increase their paycheck.)
D. Cannabis is harmless, tax the fuck out of it and make it legal. Not only is it responsible for something like 8%-20% of our court and jail costs, but it has given loads of money to drug dealers in other countries.
I think a lot of things are headed in the right direction in this country. I’d like them to try more, but if the federal level is broken hopefully we see more States trying to improve this. I’d love to see a State try public health care, or public education with full fees paid.
Obamacare is a good step forward to try SOMETHING, and will hopefully lead to everyone in Medicare or more rules on charges and more caps on what they can charge.
I’d love to see the US government cancel everyone’s college debt. Or at least make it interest free, and cap it at 5% of their after tax income. To really fix it they need to make public universities cost at most x% of your income or something affordable. I am all for incentivizing certain degrees to based on what those graduates actually end up earning. IE, you can only take debt out for up to 25% of what you will earn in one year for most people with that degree. That way it self regulates a bit more.