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Illusion Of Prosperity: Deflating The American Dream; No Recovery In “Real” Income
Freedom Outpost
In The Morning After; Price Discovery is Zero; PUT on the Bond Market? Is Inflation Really Under 2%? I posted a chart with a caption of “wages” buy the corresponding chart showed “income.”
The post is now fixed, but newer data has come in, and Doug Short at Advisor Perspectives has updated charts that I would like to share.
Click on any chart for a sharper image.
From Median Household Income Growth: Deflating the American Dream, by Doug Short.
What is the single best indicator of the American Dream? Many would point to household income growth. My study of the Census Bureau’s data shows a 600.7% growth in median household incomes from 1967 through 2012. The ride has been bumpy, but it equates to a 4.5% annualized growth rate. Sounds impressive, but if you adjust for inflation using the Census Bureau’s method, that nominal 614.2% total growth shrinks to 18.8%, a “real” annualized growth rate of 0.39%.
But if we dig a bit deeper into the method of inflation adjustment, the American Dream looks more like an illusion, as in “money illusion.”
The data for the charts is from Sentier Research. Sentier uses the CPI as the deflator for computing their real household income data series.
The above chart goes back to 1968. It shows that income growth since 1968 is nearly all inflation. Closer scrutiny shows “real” income growth has been negative since the year 2000.
Incredible Shrinking Income
Please consider this chart from Real Median Household Incomes: Another Monthly Decline by Doug Short.
Reposted with permission.
