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Musings Report 2022-4 1-22-22 2009-2021: Asset Inflation, Wage Deflation: 2022-2025: Asset Deflation, Wage Inflation
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2009-2021: Asset Inflation, Wage Deflation: 2022-2025: Asset Deflation, Wage Inflation
The irony of the sudden panic about real-world inflation generated by rising wages is two-fold:
1. The status quo never mentions the rampant inflation in assets, because the already-wealthy got wealthier, so asset inflation is wonderful and deserves to be permanent
Look at this chart (courtesy of Mac10) of S&P 500 profits / wages adjusted for the CPI (consumer price index): corporate profits have soared against wages since 2009.
2. Wages have been hammered by deflation since 1975, as RAND Corporation research found $50 trillion has been transferred from the workforce to capital in the past 45 years.
The wealthy had no complaint about wages losing purchasing power for 45 years, but the first modest blip up in wages' purchasing power causes a panic.
In my analysis, the trends of soaring asset inflation and deflation of labor have reversed: assets will now deflate rapidly and wages will rise.
"Markets rise on a escalator and fall in an elevator" is a Wall Street saying, but there is more than reversion to the mean or other technical dynamics at work: the obscene wealth that's been transferred to the top 0.1% is now a political target.
Being self-supporting at 19 years of age sharpened my memory of earnings, costs and the purchasing power of a day's labor.
I kept a logbook of all expenses, no matter how modest, in my early 20s when my wages were low due to limited hours (being a full-time university student) and low pay.
By the horribly understated official inflation calculator (https://www.bls.gov/data/inflation_calculator.htm), the $1.65/hour we earned as minimum wage in 1970 is now worth $12.17.
But when I recall what I could buy with modest wages, I think the more realistic equivalent is $16 to $18/hour.
The $3.50/hour I made in 1974 is officially worth $20, but in terms of what I could buy with that $3.50, it's closer to $30/hour.
For example: in 1974, the rent for my low-end studio in Honolulu was $125/month. (Recall that Honolulu has long been one of the most expensive cost-of-living cities in the U.S.) It took 35 hours of labor to pay the rent (ignoring taxes for simplicity).
Today, it takes about 60 hours of labor at $20/hour to pay the rent on a studio in Honolulu ($1200/month). By this calculation, $3.50 in 1974 bought the equivalent of $34 today. ($1200 rent divided by 35 hours = $34.)
Much is made about the higher quality of goods today and the lower cost of electronics, etc. But we forget that TVs, appliances, etc. lasted a long time back then, so such purchases were rare. Used goods were available for a fraction of new.
The truth is the worker making $3.50/hour in 1974 had more money and could save more than the worker making $20/hour today.
As an experienced (but not yet full journeyman) non-union carpenter in 1977, I was earning $7.50/hour. According to official inflation, that's worth almost $36/hour today.
How many experienced (but not yet full journeyman) carpenters make $36/hour today? The short answer is: none. And by my calculations of what I could buy then for $7.50/hour, the equivalent today is more like $45/hour. Back then, I paid rent, ownership of a vehicle, taxes, dining out, etc. and still saved 50% of my net pay.
Is that possible for someone earning $36/hour paying open-market prices for rent, healthcare, vehicle ownership, dining out, etc. to save half their net earnings? Not without a "special deal" on rent or extraordinary sacrifices. I didn't sacrifice anything in 1977, I simply didn't squander my earnings. There's a big difference between sacrifices and merely being frugal / careful to get full value.
When I was a building contractor in the mid-1980s, we paid 100% of our employees' full-coverage healthcare insurance. It was $50 for each individual and around $150 for a family.
According to official inflation, $50 in 1985 is now worth $132. Can you buy full-coverage healthcare insurance for an individual for $132 a month now? No. "According to research published by the Kaiser Family Foundation in 2019, the average cost of employer-sponsored health insurance for annual premiums was $7,188 for single coverage and $20,576 for family coverage." That's $600/month for a single individual.
As a result of cartels, monopolies and asset inflation, real-world costs have eaten wage-earners alive for decades.
Asset inflation will reverse into asset deflation for many reasons, and wage deflation will reverse into inflation (i.e. gaining purchasing power) for many reasons.
When cycles turn, we seek specific explanations, but the reality is often more systemic: extremes reached limits, diminishing returns turned into negative returns, the pendulum consumed all the available momentum and is now swinging back to the opposite extreme.
Look at the chart of wages share of GDP (gross domestic product) above. If wages gained 8% and returned to levels of the mid-1970s, that would be 8% of $21.5 trillion GDP (2021) or $1.7 trillion.
That equals $13,000 a year for each of the 130 million workers in the U.S.
Corporate profits have risen from $400 billion to $2.4 trillion. What would it take for those profits to decline back to $700 billion?
Most people gambling in assets don't think they're gambling; they think "investing" isn't gambling. But asset bubbles are not the result of investing, they're the result of speculation running to extremes.
Most people would be horrified by a 40% decline in their "investments." When bubbles pop, speculative assets don't drop 40%, they drop 95% or even 99%. Many tech companies that were $100+ in early 2000 were $4 or even $2 by 2003.
More recently, consider the marijuana meme-stock Tilray, which was $148 in October 2018 and hit $3 in March 2020. It is currently under $6 per share.
This is not at all unusual. We've simply forgotten what happens when bubbles pop.
The U.S. stock market was worth $53 trillion at the beginning of 2022. If corporate profits fall to $1 trillion annually, and the price/earnings ratio drops to a historically reasonable 11, U.S. stocks will be worth $11 trillion, a decline of roughly $40 trillion or 80%.
Recall that U.S. stocks fell to $11 trillion in value in 2002 and again in 2008.
"Impossible!" Yes, of course. That's what everyone thought in 2000 and 2008 just before the bubbles popped. This is the third bubble, and it is the most gargantuan and the most stretched, and so the reversal will be the most extreme.
Think elevator, not escalator.
Highlights of the Blog
podcast:
Move Out Of The Unraveling City BEFORE Economic Collapse (1:02 hr)
posts:
The Cult of Speculation Is a Cult of Doom 1/21/22
Choose One, But Only One: Defend the Billionaire's Bubble or the U.S. Dollar and Empire 1/19/22
Politics Is Dead, Here's What Killed It 1/17/22
Best Thing That Happened To Me This Week
Time caught up with the broken clock of market Bears right at midnight. ("Even a broken clock is right twice a day.")
From Left Field
NOTE TO NEW READERS: This list is not comprised of articles I agree with or that I judge to be correct or of the highest quality. It is representative of the content I find interesting as reflections of the current zeitgeist. The list is intended to be perused with an open, critical, occasionally amused mind.
Technology / NFTs market hits $22bn as craze turns digital images into assets
Drawing bought for $30 at estate sale is actually worth $50 million
yung-Chul Han: How Objects Lost their Magic--worth a read IMO....
By Bill Rees: On the Virtues of Self-Delusion—or maybe not!
Capitalism Is Ruining Science: Creeping marketization has created perverse incentives for researchers — threatening the wholesale corruption of science itself.-- this has been painfully visible for a long time...
Last seen in... birdwatchers asked to join hunt for world’s 10 rarest birds: Search for Lost Birds project is asking birdwatchers everywhere to help track down species sometimes not seen for centuries
What if the Doomsday Glacier Collapses? -- "Doomsday Glacier" has such a nice ring.... who needs World War III?
How Child Care Became the Most Broken Business in America-- wait a minute, what about healthcare, social media, Internet search, etc.?
A Critique of Obscene Wealth -- everyone deserves a $100 million yacht....
overcapacity and post-scarcity: an interview with aaron benanav part I
The Great AI Reckoning: Deep learning has built a brave new world—but now the cracks are showing -- overhyped technology...
The art of scientific deception: How corporations use "mercenary science" to evade regulation--David Michaels, former Assistant Secretary of Labor, explains how corporations whitewash harmful products and drugs
"There is advantage in the wisdom won from pain." Aeschylus
Thanks for reading--
charles |
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