Gyroscopic Investing

Is this really accurate?

I've heard/seen this being claimed for years in the libertarian/ Austrian econ/ hard money worlds. I don't have any reason to doubt the numbers. Inflation is an unseen tax on the poor and middle class. That's the beauty of it for the banksters.

I have a purchase contract from 1940 for a new car, albeit a demo at the end of the year. The car was bought from the dealer for $375. Just think about that. My research says it would have listed for about $550-600 but would sell at some discount even before being a demo.

I also have a pay stub from a factory for the same time. The hourly rate for an assembly line worker was 90 cents. Not counting overtime that would be an income a little below $2000 a year. Today the average new car sale is mid 30's from something I just heard or read. Does the average worker make 4x that?

Now, the 1940 car was nowhere near as good as today's 35K car. But still....

What happened?
Obviously a lot of things. In 1940, even after the GD, the US was powerful and had no economic rivals in the world. WWI crushed Europe. Russia and China were third world powers in the middle of a long period of self destruction due to their worship of your avatar.
Once China decided to embrace capitalism, our days of glory were numbered. They are great capitalists.

But yeah, I still think the move to fiat money is good for the government and the elites (but I repeat myself), and bad for the working class.

Is this an argument for UBI? Namely, that the funny money would get injected into the economy from the bottom up, rather than filtering down through the bankster intermediaries? There is an important principle, I can't recall the name of it, that says that those who get the first use of inflating money are able to use it before the inflation is felt. Up till now, that has been the banksters and wealthy. All of this funny money at the top of the food chain is probably a big reason why financials assets are being bid up so high, but wages are not.

MMT and UBI will be a colossal failure for other reasons, and will hasten the downfall of a country. But maybe this will be an argument for it. I think that my guy Joe B is being advised to find ways to send more money directly to the lower and middle classes. Maybe UBI by another name.

Interesting comparison, Shrugged!

A similar comparison can be made for home prices. My parents bought their house in 1968 for $45,000. At the time, my father was working as a civil engineer for $8,000 a year. That prices the house at 5.6x salary.

Today, that same house will sell for $600-700K (it's not updated so probably in the lower end of that range). Assuming $650K and the average civil engineer earning $100K, that's a very similar ratio. On the other hand, my dad's salary in 1968 might not be representative...think it's low actually.

College costs, however, have very much outstripped salaries.

I would guess that the degree of government interference in each instance is the biggest factor in changing ratios of price to income. For cars, there's a lot of government mandated modifications that have been built in since the 1960s. For housing it would be mortgage subsidies. And for college, it's loan subsidies.

My first house, purchased for $17k with a VA loan in 1974. I remember celebrating my first $300 bi-weekly paycheck in that house. The large building out back had an apartment I rented out for $100/month, so we lived on about $700/month. Two of my three kids were born there and though things were tight we managed to buy a used RV and do a lot of camping.



My parents retired in 1979 with about $150k in savings but were very lucky to double that to around $300k just by holding CD's paying 18%. They were almost broke at the end due to always following that strategy not accounting for inflation at all.

I retired with around 1.5 million though that number is still growing with my wife working. When I think about it, my lifestyle isn't that much different than my parents except that we have a lot bigger televisions and eat in fancier restaurants (they preferred Denny's and Bob Evans). But I DO have a strategy for inflation, at least I hope so.

sophie wrote: ↑Tue May 18, 2021 9:29 am Interesting comparison, Shrugged!

A similar comparison can be made for home prices. My parents bought their house in 1968 for $45,000. At the time, my father was working as a civil engineer for $8,000 a year. That prices the house at 5.6x salary.

Today, that same house will sell for $600-700K (it's not updated so probably in the lower end of that range). Assuming $650K and the average civil engineer earning $100K, that's a very similar ratio. On the other hand, my dad's salary in 1968 might not be representative...think it's low actually.

College costs, however, have very much outstripped salaries.

I would guess that the degree of government interference in each instance is the biggest factor in changing ratios of price to income. For cars, there's a lot of government mandated modifications that have been built in since the 1960s. For housing it would be mortgage subsidies. And for college, it's loan subsidies.

A few data points that may be of interest:

My first year at WVU tuition 2 semesters per year - $90/semester
My college appartment (kitchen, bath, 1 large room) rent, first year 1/2 of $45/month with one roommate, went to 1/2 of $60/mo when second bedroom was added by landlord
My last year at WVU tuition - $120/semester
My first new car, a 1966 VW Beetle - $2k
My total college expenses for 5 years, tuition, books, appartment rent, food, gas and maintenance for car (I ate a lot of maccaroni and frozen pot pies, the pot pies were 5 for $1 and I don't think I've had one since graduating) - $5k
My total debt upon graduating college - Zero (I worked summers, had a couple scholarships, wife worked last year of school)
My first job at a large corporation upon graduating with a BSChe in 1968 - $10k/yr
Our first child in 1969, ob doctor and hospital expenses - $300
Our first house in 1972, 1700 sq ft, 3 br, 2 bath, Houston area - $30,500
My wife - priceless! Still happily married.

Inflation? Nah!

I Shrugged wrote: ↑Tue May 18, 2021 9:21 am MMT and UBI will be a colossal failure for other reasons, and will hasten the downfall of a country.

I'm curious to learn a little more about why you feel UBI will be a colossal failure. I'm inclined to agree with you, but I'm also of the opinion that it's not the dumbest idea I've ever heard bandied about, and sure beats the pants off of our current welfare system. And I'm also inclined to think that continued wealth disparities driven by things like ZIRP will end badly (some type of revolution followed by a dictatorship), and maybe UBI in some way could help alleviate that.

I suppose a careful parsing of my statements might lead one to believe that I think UBI will be a colossal failure, but any other approaches will be a colossal failure as well so we might as well give it a shot.

Simonjester wrote:

dockinGA wrote: ↑Tue May 18, 2021 11:57 am

I Shrugged wrote: ↑Tue May 18, 2021 9:21 am MMT and UBI will be a colossal failure for other reasons, and will hasten the downfall of a country.

it's not the dumbest idea I've ever heard bandied about, and sure beats the pants off of our current welfare system.

the problem is it will be stacked on top of the current system not used to replace and improve it...

Yeah, you're most likely right. That takes a 'not the dumbest' idea and turns it into the absolute dumbest idea. Which makes it all the more likely that will be an idea that we will unfortunately try.

Simonjester wrote: yes...
"more likely" to the point of being counted with death and taxes as a sure thing...

dockinGA wrote: ↑Tue May 18, 2021 11:57 am

I Shrugged wrote: ↑Tue May 18, 2021 9:21 am MMT and UBI will be a colossal failure for other reasons, and will hasten the downfall of a country.

I'm curious to learn a little more about why you feel UBI will be a colossal failure. I'm inclined to agree with you, but I'm also of the opinion that it's not the dumbest idea I've ever heard bandied about, and sure beats the pants off of our current welfare system. And I'm also inclined to think that continued wealth disparities driven by things like ZIRP will end badly (some type of revolution followed by a dictatorship), and maybe UBI in some way could help alleviate that.

I suppose a careful parsing of my statements might lead one to believe that I think UBI will be a colossal failure, but any other approaches will be a colossal failure as well so we might as well give it a shot.

Just look at all the employers saying they can't find anyone because people are being paid enough to stay home.
When payments reach a comfortable level, people will just become bums. It will be like Brave New World, but money will be soma (the drug).

I Shrugged wrote: ↑Tue May 18, 2021 2:20 pm

dockinGA wrote: ↑Tue May 18, 2021 11:57 am

I Shrugged wrote: ↑Tue May 18, 2021 9:21 am MMT and UBI will be a colossal failure for other reasons, and will hasten the downfall of a country.

I'm curious to learn a little more about why you feel UBI will be a colossal failure. I'm inclined to agree with you, but I'm also of the opinion that it's not the dumbest idea I've ever heard bandied about, and sure beats the pants off of our current welfare system. And I'm also inclined to think that continued wealth disparities driven by things like ZIRP will end badly (some type of revolution followed by a dictatorship), and maybe UBI in some way could help alleviate that.

I suppose a careful parsing of my statements might lead one to believe that I think UBI will be a colossal failure, but any other approaches will be a colossal failure as well so we might as well give it a shot.

Just look at all the employers saying they can't find anyone because people are being paid enough to stay home.
When payments reach a comfortable level, people will just become bums. It will be like Brave New World, but money will be soma (the drug).

Fair point. I guess I'm thinking more in a (far?) distant economy where many of the 'productive' jobs have been replaced by robots/technology. Is UBI a possible solution at that point to stave off unrest amongst the low earners that see their jobs being 'taken away' by technological advancements? I don't know.

dockinGA wrote: ↑Tue May 18, 2021 2:34 pm

I Shrugged wrote: ↑Tue May 18, 2021 2:20 pm

dockinGA wrote: ↑Tue May 18, 2021 11:57 am

I Shrugged wrote: ↑Tue May 18, 2021 9:21 am MMT and UBI will be a colossal failure for other reasons, and will hasten the downfall of a country.

I'm curious to learn a little more about why you feel UBI will be a colossal failure. I'm inclined to agree with you, but I'm also of the opinion that it's not the dumbest idea I've ever heard bandied about, and sure beats the pants off of our current welfare system. And I'm also inclined to think that continued wealth disparities driven by things like ZIRP will end badly (some type of revolution followed by a dictatorship), and maybe UBI in some way could help alleviate that.

I suppose a careful parsing of my statements might lead one to believe that I think UBI will be a colossal failure, but any other approaches will be a colossal failure as well so we might as well give it a shot.

Just look at all the employers saying they can't find anyone because people are being paid enough to stay home.
When payments reach a comfortable level, people will just become bums. It will be like Brave New World, but money will be soma (the drug).

Fair point. I guess I'm thinking more in a (far?) distant economy where many of the 'productive' jobs have been replaced by robots/technology. Is UBI a possible solution at that point to stave off unrest amongst the low earners that see their jobs being 'taken away' by technological advancements? I don't know.

Yes, it's a valid concern. It seems like an existential question, really. The lights have gone out on civilizations in the past. It's hard to see a civilization surviving the uselessness of a significant share of its people. Does the useless class become like herds of deer? Deer with smart devices for amusement? Wandering around grazing, texting, fighting, and reproducing? Maybe they get a much better smartphone or UBI payment if they undergo sterilization? You'd think I'm making a joke, but if we lose our moorings, who knows what will emerge as public policy. I guess this is getting away from doodle's original questions.

sophie wrote: ↑Tue May 18, 2021 9:29 am
Interesting comparison, Shrugged!

A similar comparison can be made for home prices. My parents bought their house in 1968 for $45,000. At the time, my father was working as a civil engineer for $8,000 a year. That prices the house at 5.6x salary.

Today, that same house will sell for $600-700K (it's not updated so probably in the lower end of that range). Assuming $650K and the average civil engineer earning $100K, that's a very similar ratio. On the other hand, my dad's salary in 1968 might not be representative...think it's low actually.

College costs, however, have very much outstripped salaries.

I would guess that the degree of government interference in each instance is the biggest factor in changing ratios of price to income. For cars, there's a lot of government mandated modifications that have been built in since the 1960s. For housing it would be mortgage subsidies. And for college, it's loan subsidies.

I think you are correct. My freshman college year was 1969 at a math / science / engineering college. The first night we were there our dorm overseer person told us that when we graduated we'd be starting at $10,000.

doodle wrote: ↑Tue May 18, 2021 7:42 am Is this really accurate?

hhEyOouLK_Ph_YMn5hbopwc_f4tQ3RxF2l5e0i06JM4.jpg

It is accurate but I don't necessarily think it was because we abandoned the gold standard (or more accurately, the quasi-gold standard....Bretton Woods was not really a "pure" gold standard in the classical sense).

The Austrians, libertarians, and conservatives who claim it was because of this are likely confusing correlation and causation. Yes, we did abandon the Bretton Woods gold standard in 1971...but do did every other major industrialized country (well, Switzerland was still on a sort-of weak sauce gold standard where in theory each Swiss Franc was backed by a minimum of 40% gold but they eventually abandoned that in 1999 or 2000) and if you look at similar data for Germany, France, Austria, Japan, the Benelux countries, Canada, Australia, New Zealand, and all of the Scandinavian nations you won't see a similar magnitude of stagnation of middle class and working class incomes from the mid-70s to nearly the present day. If abandoning the gold standard was the proximate cause for this decline then why did other advanced economies not experience it (or at least not experience it to the depth we in the US did)?

I would suspect declining union density, the neoliberal turn in politics and economics in response to the 1970s recession/stagflation, the refusal to raise the minimum wage much at all (in real inflation-adjusted terms....and that's not even considering in real productivity adjusted terms in which case it would be north of $23 an hour today if counting from its height in 1968), the Fed keeping real risk-free rates typically higher during the 1979-1996 period than they were during the 1950s through the early 70s (doing so being done at the expense of allowing the economy to run as close as possible to full capacity and full employment and thus at the expense of workers' bargaining power), and the decline of top tax income rates and capital gains/dividend rates from the 1970s through 2013 or so (thus incentivizing concentration of income at the top and less of the fruits of economic growth going to average Americans) had as much if not more to do with it than abandoning the gold standard.

I Shrugged wrote: ↑Tue May 18, 2021 2:20 pm

dockinGA wrote: ↑Tue May 18, 2021 11:57 am

I Shrugged wrote: ↑Tue May 18, 2021 9:21 am MMT and UBI will be a colossal failure for other reasons, and will hasten the downfall of a country.

I'm curious to learn a little more about why you feel UBI will be a colossal failure. I'm inclined to agree with you, but I'm also of the opinion that it's not the dumbest idea I've ever heard bandied about, and sure beats the pants off of our current welfare system. And I'm also inclined to think that continued wealth disparities driven by things like ZIRP will end badly (some type of revolution followed by a dictatorship), and maybe UBI in some way could help alleviate that.

I suppose a careful parsing of my statements might lead one to believe that I think UBI will be a colossal failure, but any other approaches will be a colossal failure as well so we might as well give it a shot.

Just look at all the employers saying they can't find anyone because people are being paid enough to stay home.
When payments reach a comfortable level, people will just become bums. It will be like Brave New World, but money will be soma (the drug).

But that is exactly the difference in UBI vs unemployment insurance (or for that matter vs welfare/TANF) and it's night and day: UBI pays you no matter what; if you get a job you will still be better off because then you will be getting a paycheck plus your UBI check. Unemployment explicitly stops paying you once you get a job; if you see a place hiring and want to try working there but it actually pays less (or at least less after subtracting FICA taxes) than you'd make on your current unemployment then you are essentially facing a 100%+ marginal tax rate in order to take the job. Under that circumstance I can't blame anyone for not wanting to take said job!

UBI advocate Scott Santens said it far better than I could: Unemployment (or welfare) pays you to do nothing; UBI pays you to do anything. With UBI you're always better off financially if you do work....it just provides a floor no one can fall beneath if for some reason they can't find a job.

The OP’s chart of real wages after inflation is misleading because it does not include the dramatic growth in the number and value of employee benefits since inflation took off in the 1970s-- now estimated to average about 46.6% above and beyond real wages. Such benefits include:

-Health insurance
-Dental insurance
-Disability insurance
-Life insurance
-Unemployment insurance
-Employer contribution to Social Security
-Employer contribution to Medicare
-Health savings accounts
-Retirement Plan match
-Employee stock purchase plan
-Educational tuition reimbursement plan
-Student loan repayment plan
-Voluntary benefits ( eg., company cafeteria, gym membership, public transportation plan, paid legal assistance)
-Paid vacation and holidays

NOTES:
1. The value of these benefits are even greater because most are tax-free.
2. The growing value of these benefits is actually an even more powerful argument for why we should encourage people to work rather than to sit on their butts.

https://www.forbes.com/sites/financialf ... b73b937879

jhogue wrote: ↑Tue May 18, 2021 11:59 pm The OP’s chart of real wages after inflation is misleading because it does not include the dramatic growth in the number and value of employee benefits since inflation took off in the 1970s-- now estimated to average about 46.6% above and beyond real wages. Such benefits include:

-Health insurance
-Dental insurance
-Disability insurance
-Life insurance
-Unemployment insurance
-Employer contribution to Social Security
-Employer contribution to Medicare
-Health savings accounts
-Retirement Plan match
-Employee stock purchase plan
-Educational tuition reimbursement plan
-Student loan repayment plan
-Voluntary benefits ( eg., company cafeteria, gym membership, public transportation plan, paid legal assistance)
-Paid vacation and holidays

NOTES:
1. The value of these benefits are even greater because most are tax-free.
2. The growing value of these benefits is actually an even more powerful argument for why we should encourage people to work rather than to sit on their butts.

https://www.forbes.com/sites/financialf ... b73b937879

How much of that increased $ amount in employer paid benefits is not because employers are adding new benefits (and/or making the ones they already provide better or more generous) but simply because the most expensive (by far) employer-paid fringe benefit (employer-provided health insurance coverage) has increased in cost above and beyond the rate of inflation? The health insurance doesn't buy any more health care (in fact, given the growth of deductibles and cost sharing in employer plans since the mid to late 1990s, it arguably buys less); it just costs the employer more to provide it because medical costs in America (i.e. healthcare prices) are out of control relative to those of other first-world OECD countries.

And why pray tell do increased employer SS contributions count as increases in benefits? If they actually bought an earlier retirement age or a more lucrative income stream relative to what SS was legally mandated to provide before the FICA tax rate was increased it might be fair to count them as a benefit but from what I can tell if anything they buy less; the retirement age has been increased from 65 to 67, SS is now taxable whereas before the early 1980s it wasn't, and the amount of income that you can earn besides SS before your SS starts getting taxed has not been adjusted for inflation much if at all since the 1980s.

Finally, it is true that most employers do provide retirement plan matches and 401Ks but how much do they spend on these vs how much they used to have to spend on defined-benefit pensions (likely less....why else would almost all employers have abandoned pensions in favor of 401Ks)?

Mountaineer wrote: ↑Tue May 18, 2021 10:36 am

sophie wrote: ↑Tue May 18, 2021 9:29 am Interesting comparison, Shrugged!

A similar comparison can be made for home prices. My parents bought their house in 1968 for $45,000. At the time, my father was working as a civil engineer for $8,000 a year. That prices the house at 5.6x salary.

Today, that same house will sell for $600-700K (it's not updated so probably in the lower end of that range). Assuming $650K and the average civil engineer earning $100K, that's a very similar ratio. On the other hand, my dad's salary in 1968 might not be representative...think it's low actually.

College costs, however, have very much outstripped salaries.

I would guess that the degree of government interference in each instance is the biggest factor in changing ratios of price to income. For cars, there's a lot of government mandated modifications that have been built in since the 1960s. For housing it would be mortgage subsidies. And for college, it's loan subsidies.

A few data points that may be of interest:

My first year at WVU tuition 2 semesters per year - $90/semester
My college appartment (kitchen, bath, 1 large room) rent, first year 1/2 of $45/month with one roommate, went to 1/2 of $60/mo when second bedroom was added by landlord
My last year at WVU tuition - $120/semester
My first new car, a 1966 VW Beetle - $2k
My total college expenses for 5 years, tuition, books, appartment rent, food, gas and maintenance for car (I ate a lot of maccaroni and frozen pot pies, the pot pies were 5 for $1 and I don't think I've had one since graduating) - $5k
My total debt upon graduating college - Zero (I worked summers, had a couple scholarships, wife worked last year of school)
My first job at a large corporation upon graduating with a BSChe in 1968 - $10k/yr
Our first child in 1969, ob doctor and hospital expenses - $300
Our first house in 1972, 1700 sq ft, 3 br, 2 bath, Houston area - $30,500
My wife - priceless! Still happily married.

Inflation? Nah!

You can buy (in both cases a brand new 2021 model) Chevy Spark for $13,600, a Nissan Versa for $14,980, or a Toyota Yaris for $16,500...and that's at the MSRP which is typically a ripoff price no one actually pays unless he/she is an idiot or just refuses to even try and negotiate from the dealer's inventory purchase price. $2K in Dec 1966 is equivalent to $16,234 today; $2K in mid-1967 is equivalent to around (or just a few dollars under) $16K today; I am using late 1966 or mid-1967 price equivalents because you said you bought it new in 1966 and I figured it wouldn't be for sale new any time after the early summer of 1967 or so; I also tried to pick cars that are roughly modern-day equivalents in size, power, fuel economy, and target market to the VW Beetle.

One also has to consider that cars back then were often junk after 100K or 150K miles (or less!) nd that on top of that many/most had: no AC, no power brakes/power windows/power anything, no ABS, no airbags (and seat belts only became mandatory for auto manufacturers to include in 1966), a crumple zone that--with the exception of certain Mercedes-Benzes and Volvos--was pretty much "the entire car including the passenger compartment", a cheap basic radio and (maybe) an eight-track player, cruise control not being standard equipment on anything (with a few exceptions like Cadillacs, Lincoln Continentals/Mark Vs, and high end Imperial models from Chrysler), crappy steering, a single master cylinder, drum brakes, bias-ply tires with less grip (and that wore more quickly) than the radial tires on pretty much any car today......oh, and when it comes to quality engineering and marking a car that was perfect from the factory (remember....this was well before Deming, 5S, Toyota Production System, Quality Circles, TQM, and Six Sigma) the unofficial slogan of union and management alike in the 1960s auto industry might as well have been "let the dealer fix it". A well-maintained used car today is IMO just as good (or better than) as a brand new 1966 VW Beetle and (before the COVID associated events influenced runup in used car prices recently) you could easily get a decent used Camry or Civic for around half the prices (or maybe a bit less than that) I mentioned above; I myself bought a 2015 Toyota Camry SE (with the 4-cylinder engine and not the 6....but with leather seats and power everything) in 2019 with just over 100K miles on it--and full dealer maintenance records for the previous owner--in roughly that price range.

The other items you mentioned (college tuition, housing, rent, medical care) have indeed increased faster than inflation but for college tuition a lot of that is less direct government money support for schools and thus they have to raise tuition and room/board prices and students and/or their families bear more of the costs; for medical care it's because we have no system-wide mechanism for cost controls (no rate setting on medical care prices which every other industrialized nation has in one form or another), and for housing prices/rent (at least in most large metro areas and their immediate suburbs.....in the Rust Belt and in rural areas it is a different story) we simply have not built enough new housing units for at least the last 15 years or so (and the last 30-40 years or so in big coastal metros like NYC, Boston, San Fransisco, San Diego, and LA ) to keep up with population growth and with the increasing urbanization of the US population as a whole; the "supply" has not nearly kept up with the "demand".

As for the inflation-adjusted price of a wife.....well, I guess that could vary from "priceless" to "less than worthless" depending on what woman one chose to marry....although given current divorce laws any man with sense would be advised to assume the worst and just not get married in the first place which would reduce his cost to basically zero.

@D1984:

1. It is simply false, as you state, that “health insurance doesn’t buy any more health care.” Ask any physician who does knee replacements or treats breast cancer how those illnesses would have been treated in 1970 versus today. Our system for providing health care certainly leaves much to be desired, but it is unquestionably providing us with a stream of constantly improving medical care. I am certain MangoMan could tell you the same regarding dental care in the last 50 years.

2. Employer social security contributions certainly constitute an employer provided benefit. Ask someone who is self-employed whether they are obligated to fund both the employee and employer contributions to this retirement system out of their own earnings.

3. Many employers certainly have tried to switch from defined benefit to defined contribution retirement plans in pursuit of cost containment. That is what happens in a competitive free market system. Personally, however, I like the fact that the creation of tax-advantaged retirement plans in the last 50 years such as 401k, 403b, 457b, Traditional IRA, and Roth IRA has given me rather than the government more freedom over what my retirement funds are invested in.

For another source detailing the myth of "wage stagnation" in the American economy, see:
https://fee.org/articles/dispelling-the ... r-decades/

Here is a right side article on the topic. It links to a current Krugman article on inflation, and a study by the Obama admin about the post WW2 years.

https://www.independent.org/news/articl ... mhide=true

1. It is simply false, as you state, that “health insurance doesn’t buy any more health care.” Ask any physician who does knee replacements or treats breast cancer how those illnesses would have been treated in 1970 versus today. Our system for providing health care certainly leaves much to be desired, but it is unquestionably providing us with a stream of constantly improving medical care. I am certain MangoMan could tell you the same regarding dental care in the last 50 years.

I think we are kinda talking past each other here. By "not buy any more health care" I was specifically refering to two things:


One, the amount of heath care security health insurance provides i.e. the actuarial value of the health care that heath insurance buys in dollar terms....e.g. how much does the insured person have to pay out of pocket vs how much the insurance covers. If a person needs a $40,000 surgery and he/she (the insured) has to pay, say, $4K out of pocket and the health insurance covers the rest then the health insurance is obviously "buying less health care" in dollar terms from the insured's perspectives than if the insured had to pay, say, only $400 out of pocket and the insurance covered the rest.

Two, I was also referring obliquelely to how much we spend vs how much we get. Given US healthcare spending vs other industralized countries' average healthcare spending we ought to have healthcare outcomes that are not only #1 but far ahead of almost everyone else in every category. We don't; we are middling in most things. Why isn't our money buying as much healthcare per monetary unit as everyone else's?

Obviously, healthcare has progressed quite a bit since 1970 or so and I'm not arguing against that; with that said, healthcare also progressed stunningly from , say, 1900 (or 1919 or 1934 or whatever....pick your year that was some degreee in the distant past from the early 70s) to 1970 (or 1969, or 1972, or 1973....again, the exact year isn't all that important) and indeed progressed quite a bit even from 1946 or 1947 to the early 1970s and yet healthcare spending didn't seem to eat up wage increases during the great postwar boom from that 1940s to the early 70s (nor did it seem to eat so much of it up for other countries besides the US even post 1973).

Finally, I would like to add that when "total compensation" (which includes fringe benefits and thus captures increases in employer-provided fringe benefit costs--which obviously include the largest component in $ terms....health insurance coverage) are taken into account the "productivity vs pay" gap does narrow a bit but it still doesn't disappear by far; see https://www.epi.org/productivity-pay-gap/ (and also see https://www.epi.org/publication/underst ... -its-real/ that debunks attempted debunkings from the likes of Heritage, AEI, and places like FEE arguing all the ways that the productivity-pay gap is a myth); for that matter, we have total compensation index data as a whole from BLS since at least 2001--I can post a link to it if you wish--that shows how much employers' total compensation costs/spending per employee on average have risen since then and over the 2001-2020 period it lags all three of the following:

1.Nonfarm business sector productivity
2.Total business sector productivity
3.Real inflation-adjusted total GDP growth per person employed in the US for this time frame as a whole

Oh, and since the BLS total compensation data only goes back to 2001 the above doesn't even capture the circa late 1970s to roughly late 1995/early 1996 period when the productivity-compensation gap really opened up and grew at an alarming pace).

2. Employer social security contributions certainly constitute an employer provided benefit. Ask someone who is self-employed whether they are obligated to fund both the employee and employer contributions to this retirement system out of their own earnings.

Again, I think we are kind of thinking of rather different definitions of "benefit". It may constitute an additional "cost" for employers (well, for employees since they are the ones that indirectly bear it) but how did the FICA tax increase provide an additional "benefit" to said employees? It would be one thing if in return for the FICA tax increases from, say, the late-1970s onwards (and that were even greater from 1983 to 1990 and which continued at the now-increased rates to the present day) bought, say, an additional extra $100 or $150 a month in benefits beyond what the law already mandated, or bought an earlier retirement age but that was not the case; in fact, the benefit formula did not change and indeed the retirement age was gradually raised. Heck, even by the bare minimal standard of "was supposed to fix the Social Security underfunding issue fully for the next 75-80 years" the FICA tax rate increases of the late 1970s and the 1980s failed....although to be fair that wasn't because the Social Security actuaries were wrong and seriously underestimated/miscalculated stuff in their math and data; it was because the earnings cap was supposed to cover/capture roughly 90 percent of aggregate taxable labor/wage earnings in the economy as a whole from that point forward but because:

1. Wages at the top rose much faster than wages as a whole (this was the lion's share of it but the other two reasons below do account for a bit as well),

2. Income that normally would've been taxable as wages/payroll (and thus would've incurred FICA taxes) was shifted to non-FICA taxable forms (LLC income, S-Corp income, employer-side 401K matches, Section 125 plans, certain types of stock-based compensation, NQDC plans, etc),

3. An increase in the capital share of total national income vs the labor share,

It ended up only covering a just under 83 percent of wages as of 2019.

in the end, look at it this way: If the FICA tax increases had been totally put on the employee side (i.e. the employer FICA tax rate was kept at whatever it was in the late 70s/early 80s and the employee side FICA tax was instead raised to well above the current 7.65% to make up the difference) no one in their right mind would be calling it a "benefit increase" or saying "look at the extra benefits your increased compensation going to FICA is buying you"...why should the fact that it was filtered through the employer (so that the employer ended up having to pay the tax in lieu of them just paying the employee the exact same amount as the now-increased tax and him/her having to then pay it instead) make it a benefit that could rightfully be seen as an increase in compensation?

In other words, it wasn't actually a "benefit" increase / compensation increase in the classic sense of the word despite the fact that it cost the employer (well, technically the employee since pretty much every economist right, left, or in between agrees that payroll taxes are borne by workers whether directly or indirectly) more....it was just a tax increase on working people as a whole.

3. Many employers certainly have tried to switch from defined benefit to defined contribution retirement plans in pursuit of cost containment. That is what happens in a competitive free market system.

Which wouldn't be such an issue if they had simply switched from DB plans (like pensions) to DC plans (such as 401Ks) merely because the DC plans were cheaper to administer but other than that there were no real diffferences and pretty much everything else was identical when it came to the two types of plans. Too bad pretty much everything else WAS far from identical between the two types of plans.

The biggest issue by far was that most companies who switched from DB plans to DC plans did so because they could also contribute less to said plans in total (which is a completely separate issue than if one plan type was cheaper to administer than another). In a DC plan the employer is on the hook for paying benefits so they know they'd best not try and underfund the pension or else they will have to make it up later; as such, pension contributions typically ranged from around 9-10% of payroll on the low end to roughly 18-20% on the high end (and these were not as deductions directly from employee paychecks but rather on top of their regular pay); there was also the not-so-minor little detail that even if a company DID want to try and underfund the pension plan and thus gamble on having to make it up later it wasn't legally an option in most situations; a company cannot just assume its pension plan will earn, say, a ten percent return on average and thus use that to skimp on contributions by presuming that excellent market returns will do the work necessary to make up for the underfunding--the PBGC simply wouldn't allow it. With a 401K all the employer has to do is say "here's a 3% match, save at least 6% out of your own pay to get the match, try to invest it the best you can, and hopefully you'll have enough to retire on at 67. If not; too bad, that's your concern to deal with, not ours". You can see the problem here: The employer went from kicking in anywhere from ten to almost twenty percent to just three percent! It's no wonder that the median 401K balance at age 65 is only around $64,600 (https://www.businessinsider.com/persona ... 1k-balance)! I fundamentally wouldn't have much issue with 401Ks instead of pensions if employers were required to fund them just as well as they typically funded pensions (or in lieu of that were only required to match into a 401K at 2% or 3% but then they had to take the difference between that 2 or 3% and what they would've spent on a real DB pension and give it to the employee as regular pay; at that point the employee could either contribute it to the 401K, contribute it to an IRA/Roth IRA, save it in a bank or brokerage account, buy I-Bonds/EE Bonds, pay down their mortgage, or just flat-out blow it on consumption) but what has happened instead was a giant stealth compensation cut in the form of reduced retirement savings contributions by the employer with nothing extra to the employee to make up for it.

Other issues that 401Ks have that pensions don't:

A. Pensions guarantee an income stream; a 401K doesn't guarantee anything (unless you are one of the few whose 401K includes some kind of annuity option)

B. For any given amount a pension can provide a higher income stream (and can guarantee it for life even if you live to 110) than simply SWR'ing from the same sum in a 401K and hoping for the best; this is because pensions can average longevity risk whereas a lump sum in a 401K can't; see https://earlyretirementnow.com/2019/08/ ... s-part-32/

C. If an employer's pension plan has high-fee options and/or gives subpar returns they (the employer) have to make up the difference so they have at least some incentive to try and get good value when it comes to fund returns and to management fees and plan fees; on the other hand, if an employer's 401K plan has poor/expensive investment choices then the employees are stuck with the Hobson's choice of participating in a crappy high-fee plan or nor participating at all and forgoing the match. While employees can rollover neither pension fund monies nor 401K savings while still employed (albeit with certain limited exceptions for employer and profit sharing contributions to 401Ks.....but not for employee deferrals) at least with the pension fund the "penalty" for choosing high-fee investments (or ones with poor returns) or a plan with costly administrative fees is on the employer (they still have to pay the defined benefit regardless) while with the 401K it is shouldered by the employee. If employees could rollover their 401Ks (whether to an IRA or to another 401K) while still employed this wouldn't be so much of an issue but as it stands now they cannot. If an employer chooses a 401K plan with high-fee funds, no index funds, loaded funds, and costly monthly/quarterly admin fees the employee can either suck it up and pay the fees or not participate at all. This leads to many employees having expensive and/or mediocre returning 401K options which the 401K plan providers have no incentive to change because they have a captive market (since an employee can't roll over his/her money to a better 401K plan provider or IRA without quitting his/her job) and employers having little to no incentive to provide a cheaper/better 401k plan because they aren't the ones paying the fees in the first place (the classic "agency problem")! Two simple changes in Federal law could remedy this (see the thread at https://www.bogleheads.org/forum/viewto ... 1&t=349156 .....do note that the second change mentioned--mandating plan providers allow such rollovers even if the employee is still employed--is just as important as the first because even if you did legalize full in-service rollovers under the law and the tax code there's still the issue that if the employer itself didn't allow them--say because the employer's 401k plan provider didn't like the idea because they didn't want to lose AUM in their crappy high-fee plan--then the employees would still be in the same unfortunate situation they are in currently even though the law itself was no longer preventing them from doing the rollover) but for right now an employee has no truly good option if their employer's 401K plan is a subpar one.

At this point I have to chop my reply in half as it was over 26,100 characters and the forum software only allows 18,000. See next post for rest of reply.

PART 2 of reply follows (please read part 1 first or else it'll look like I only replied to half of the post).

Personally, however, I like the fact that the creation of tax-advantaged retirement plans in the last 50 years such as 401k, 403b, 457b, Traditional IRA, and Roth IRA has given me rather than the government more freedom over what my retirement funds are invested in.

That's fine as far as it goes but the whole point of a retirement savings system is to increase retirement security for Americans as a whole rather than to give any particular indivdiual more freedom--and more tax sheltering--in his/her investments. Given how meager most people's 401K balances are and how even the "father of the 401K" (Ted Benna) has stated that given a choice he would blow up the 401K system and start over, has admitted he "created a monster", and has said that he never intended for 401Ks to replace pensions or to be employees' main retirement savings vehicle I can't see how they have been such a great success at insuring greater retirement security (at least as vs DB pensions.....to be fair some changes could--and should--IMO be made to the US's DB pension system too but that is beyond the scope of this reply) for the vast majority of American workers.

On top of all this their is also the major issue of how tax-favored retirement savings vehicles overwhelmengly benefit the already affluent/wealthy and how after all is said and done they don't even seem to increase overall national saving very much (rather, their effect has been to shift saving that largely would've happened anyway from taxable to tax-favored vehicles).



On the stuff from FEE:

Of Alan Reynolds' claim of "Average real wages and benefits have risen by nearly 40 percent since 1973, after adjusting for inflation. Sensational claims that 80-90 percent of Americans have experienced low and stagnant real incomes since 1973 are also shown to be incorrect . . . real consumption per person increased 74 percent from 1980 to 2004" and/or Peter Ferrara's claim that "From 1973 to 2004, about 30 years, such real per capita consumption in America nearly doubled."


All of the below numbers are taken from the BEA NIPA data and are of course in "real" terms (by which I mean in constant inflation-adjusted dollars):

From 1980 to year-end 2004 real GDP per capita increased by a bit over 65.4%, real disposable personal income increased by just over 70.4%, and real personal consumption expenditures per capita increased by around 80%

These numbers are in the ballpark for the "74% increase" Reynolds claimed so that's not the real issue.


From 1973 to year-end 2004 real personal consumption expenditures per capita increased by around 99.2% which is also damn near spot on to the "nearly doubling" that Ferrara claims.


Any astute observer will of course pretty quickly notice the major issue with all of the above: All these are is AVERAGES which tell us how much income or consumption per person would have increased if somehow, magically, everyone in 1973 (or 1980) had the exact same share of the nation's income and/or consumption and then everyone in 2004 had the exact same share of the country as a whole's income and/or consumption (i.e. if the country's total consumption spending or GDP was divided exactly evenly between every person and no one had more or less than anyone else). Suffice it to say that this is not remotely how reality actually works. If this is seriously what Reynolds and Ferrara are trying to use to claim that the average middle class or working class American's consumption increased by that much then this is a gross abuse of the concept of averages (and of statistics in general). Imagine if Jeff Bezos or Bill Gates joined this very forum; suddenly, the average wealth and income (not to mention the average amount paid in divorce settlements) of forum members would skyrocket! Of course, "averages" mean virtually nothing unless you look at the "actual" distribution of wealth/income/consumption (which in the case of the Forum would be all-but-unchanged unless Gates or Bezos suddenly decided for some reason to start giving every forum member part of their considerable fortunes). For another example of showing how absurd a calculation based purely on "averages" can be imagine if you stuck one of your hands in a pot of boiling water (212F) and the other in a pail of dry ice pellets (-109F.....on "average" the temperature of your hands would be a slightly cold but still tolerable approximately 51F or so (no worse than a chilly late autumn day) but I think it is fair to say you would be in a lot of pain and very uncomfortable, averages be damned.



On "Average real wages and benefits have risen by nearly 40 percent since 1973, after adjusting for inflation." see below:

https://www.epi.org/productivity-pay-gap/

If one is using 2004 data (which I have to assume since his book was finalized in late 2005 and since Reynolds mentions "to 2004" as the endpoint for his claim) then MEDIAN compensation has not risen "nearly 40 percent" since 1973; it has risen a bit above 11%. Using AVERAGE compensation it has indeed risen 37.7% but see above for the huge problems with using averages; if (for example) the pay of CEOs, CFOs, doctors, corporate lawyers, hedge fund managers, investment bankers, asset managers, high level engineers/scientists, and mid to high-level tech employees increases by far more than the worker at the median then the average as a whole will rise far faster than the median. Since we are (presumably) concerned about the fortunes of the actual vast majority of workers (who are decidedly closer to the median than the average) it makes more sense to look at median compensation (or if one wishes to look at average compensation rather than median at least go by something called "average compensation for production and nonsupervisory workers" which incorporates the lion's share (roughly the bottom 80 to 81 percent of the American workforce) of American workers.



Thomas Sowell: "In the case of statistics claiming that workers’ incomes have not risen significantly – or at all – over the years, these data exclude the value of job benefits such as health insurance, retirement benefits and the like, which have been a growing share of employee compensation over the years."

The EPI data above shows total compensation (including benefits like health insurance and retirement plan contributions), not just wages. So does the BLS compensation data (albeit it only goes from 2001 to 2021) I mentioned earlier.



On the Cox & Alm study on economic mobility:

See: https://www.nytimes.com/1996/04/25/busi ... ading.html

They made pretty much the same mistake Glenn Hubbard and his immediate subordinates at the Treasury Department Office of Tax Analsysis did in the early 1990s:

See: https://prospect.org/economy/rich-right ... ty-debate/

Read both articles above. It's kind of complicated but what it basically boils down in both cases to is the researchers mistook the tendency of income to increase as one gets older (because A. one typically gains more education, job skills/experience, and wisdom and experience in general--not to mention seniority at work if one stays with one employer for a while....and B. because high school and college students tend to not hold full time jobs and thus tend to not work a full 40 hours a week or anything close to it and thus don't generally earn nearly what full time employees working normal 9-5 hours five days a week do) with actual economic mobility.


The rest of the FEE article is just assertions that the CPI is the wrong measure of inflation and/or that the CPI actually overstates inflation (and thus understates gains in real income). Giving the authors the benefit of the doubt and assuming that the CPI does truly overstate inflation (even though I think you'd be very hard pressed to find someone whose actual lived experience agrees with that) all it means is that real (inflation-adjusted) actual economic output as a whole is actually (just as an example...it could be higher or lower than this but I had to pick an exact number to use as an example example), say, 0.4% a year higher and that if one's income increased by (say) 1% a year after inflation according to the CPI then one's real income in terms of economic purchasing power increased by 1.4%. The issue here is twofold (well, threefold but I've already said that just for the sake of argument I'd give them the benefit of the doubt and agree that their nerfed CPI--or whatever they choose to use as a measure of inflation--was closer to real inflation than the actual CPI.....although it is indeed rather humorous in an ironic sort of way to have one group of libertarians/Austrians/goldbugs/paleoconservatives swearing up and down that the government is conspiring to understate inflation, the CPI is a giant lie, and citing Shadowstats or Chapwood as proof.....and then to see another set of people of the exact same political and economic persuasion swearing just as fervently that the CPI is instead overstating inflation):

One, none of this changes the actual DISTRIBUTION of the fruits of economic growth. Assume that using the "new and improved" 0.4% per annum lower CPI figure showed that real total compensation for the median worker had increased at, say, 0.73% per annum instead of merely at 0.33% a year (that 0.33% was roughly the case from 1973 to year-end 2004 using the regular CPI to measure inflation). However, you also have to remember that economywide real output per worker would ALSO have increased by 0.5% a year more using the new (lower) inflation number in lieu of CPI. The gap between how much median compensation COULD'VE risen and how much it actually did rise remains the same in real terms...the only real gain the median worker received under the new calcualtion of inflation was that his/her dollar would buy more in economic terms (again, this assumes the lower inflation reading is actually correct i.e. that the CPI as it stands overstates inflation), not that he or she actually got a share of economic output commensaurate with productivity gains.....which leads right into issue # 2.

Two, if the CPI does overstate actual inflation from the early 1970s to the mid-2000s (presumably due to not counting "hedonic" gains due to improved technology and consumer goods) then who is to say it didn't also overstate it from its 1913 inception (or even its backtested-to-1890 inception using the Warren-Pearson data) until the early 1970s? If you look at what was available in technology, transportation, appliances, electronics, and consumer goods from the 1900s (or 1940s, or 1910s, or 1930s, or 1920s) to 1972 or 1973 there was some very swift technological change as well (and argugably even higher increases in the actual hedonic-adjusted standard of living than from the early 70s to today; if I sent you back to an average kitchen or house from, say, 1970 or 1973 you would find it annoying/inconveinent not to have a flat panel TV, IPhone, internet, Amazon Prime, social media, wireless headphones, computer, or microwave but overall you still would be living a roughly "First World" lifestyle; if I cranked up the time machine again, set the dial for another 50 years back or so, and sent you to the average American house of the late 1910s or early 1920s you would--rightfully--be horrifed at not having even a radio, refrigerator, washing machine, electricity, telephone, electric or gas stove, or for that matter running water or inddor plumbing in general. Maybe if you were lucky you would be one of the 30 percent of households or so in 1920 who owned a car--probably a beat-up old Model T....and don't even get me started at what happens if you get seriously ill in 1919 or 1920 vs in the early 1970s). If the CPI did indeed overstate inflation as well during earlier parts of the 20th century then why did real (inflation-adjusted using the lowered CPI in both cases--until the early 70s and then after the early 70s up to today) median total compensation roughly keep up with productivity from the 1940s to roughly 1972 or 1973 and only then start to diverge?

I Shrugged wrote: ↑Thu May 20, 2021 7:12 am Here is a right side article on the topic. It links to a current Krugman article on inflation, and a study by the Obama admin about the post WW2 years.

https://www.independent.org/news/articl ... mhide=true

@ I Shrugged:

I suppose you must know that the lines between the inflationistas (like Judy Shelton) and the deflationistas (like Paul Krugman) have been fixed long ago. The drawn-out conflict reminds me of trench warfare in World War I, with the antagonists furiously digging in on both sides, constantly sniping away at each other, and occasionally hauling in their heavy artillery to smash a threatening position on the other side. The author of the referenced article, Judy Shelton, is a well-known inflation hawk and staunch defender of a return to the gold standard. Trump nominated her for a seat at the Federal Reserve, but Paul Krugman’s allies firebombed her in her public confirmation hearings for her supposedly “extreme” views. Her nomination was not confirmed so we may count her as yet another casualty of an endless conflict.

What is a prudent investor to do? Like a good Swiss banker in WW I, I have declared my neutrality and refuse to be drawn into the fight on one side or the other. Will we end up like a deflationary Japan? Will Biden’s spending plans induce a reckless inflationary spiral? Who really knows??

The genius of Harry Browne’s hard-won agnostic views on personal finance is that it is most prudent -- and most profitable—to be prepared to trade with both sides. A barbell portfolio composed of both I-bonds for inflation and 30 year Treasury bonds for deflation leaves me prepared for either outcome.