Wednesday, February 9, 2011

NOON CARTOON: What $100 Is Worth

Courtesy of reader Bud Wood, a chart of the declining purchasing power of $100—quite the depressing little cartoon:

(click to enlarge)

Any questions?


  1. Just one question:

    Where is the corresponding graph with rise in salary from 1950 to present? Sure $100 buys a lot when you only make 30 of them in a year.
    The average salary throughout the 1950's decade was $2,992/yr (unofficial but looks in line: Today it's $40,711.61/yr (more official: That's a 13x increase compared to a 90% loss. I think that means we are ahead.

    Oh here is the graph:

  2. Doug, you forgot to take into account massively increased taxes, decreased tax exemptions and deductions, and other hidden costs. There is NO way we're ahead today.

  3. There are also other ways to measure the value today. Then, gold was $35 per ounce. Today it's $1365. That's a 39x increase. Coinage was 90% silver. Today, that coinage goes for over 20x face value. And remember, the silver content value back in the 1950s was much less than face value, so the total real increase is even greater.

  4. Shimshon - really? Massively increased?

    Federal income marginal tax rate on $2,992 in 1950 was 22% with $600 exemption 10% standard deduction (up to max $1,000) and 20% as the lower bracket. Highest marginal rate of 91%

    Federal income marginal tax rate on $40,711.61 in 2011 is 25% with $3,650 exemption, $5,800 as standard deduction and 15 and 10% as the lower brackets. Highest marginal rate of 35%

    I'll grant that FICA has gone from 1.5% in 1950 to 7.65 today. That is a 400% increase in 60 years and is outrageous. But is almost immaterial.

    Doing some rough math it looks like that average wage earner in 1950 paid a total of 14.2% in federal income and fica taxes. The average wage earner in 2011 pays 16.2% for the same or a difference of 2%. If you are above average by, let's say 2.5x (that would put you at just over $100k/yr) the increase in taxation rate over 60 years is about 5.2% total assuming only standard deductions (who does that at $100k/yr?)

    So where are these massive increases?

    Look, I'm no proponent for taxation. But people get so worked up over our burdensome taxation and pine for simpler days (like the 1950's) not realizing that what they are really pining for is their childhood or life on the My 3 Sons set, not the actual 1950's

  5. Doug, state income taxes? Property taxes? Sales taxes? Medicare? They're ALL up. Also, FICA is not immaterial, since something like 50% of workers, or close to it, don't pay any income tax at all, so for those people, that is indeed a MASSIVE tax increase.

    That's not even discussing regulation, which is a very nice hidden tax. And I would say that the government stats are less accurate, and certainly more amenable to manipulation, than the gold and silver price differentials.

  6. Doug,
    According to this gragh you provided:

    average income in 1950 was about $25,000. That's less than a 2x increase today.
    Please explain.

  7. The graph is adjusted for 2006 dollars.

    It sorta makes the point. The average income in 1950 was the equivalent to making $25,000 in 2006.

    If you need more sources for what the actual dollar amount was for incomes in 1950:

    And since government numbers are so prone to manipulation here are some decidedly less government sources

    So the annual income was somewhere in the $3,000 range give or take a couple hundred dollars. These numbers are not really disputable. The purchasing power of that income is a valid topic for debate, but what the numbers were and the similarity of tax burden is very straightforward.

    As for the hidden cost of regulation... I think it's worth looking at the hidden cost of deregulation as well if you want to got there. How much of the cost from our current fiscal crisis goes back to the repeal of Glass-Steagall by Graham-Leach-Bliley?

    GL, can we get a 10PM Tut on Glass-Steagall and GLBA?

  8. Doug,

    I have to go with Shimshon on this. And I strongly disagree with you about the tax burden. The tax burden is much, much higher now. Today, more than 50% of individual U.S. income goes to taxes.

    The average person today, in terms of purchasing power of their after-tax income, is slightly worse off than their counterparts of the 1950s.

    What Wood's chart demonstrates is the effect of inflation over the decades. Looking at your photo, I don't think you're retired yet. One day you may need to live on fixed income investments. Then, you will feel what it is like to be screwed by the official policy of inflation.

    -Dave in MO

  9. For argument's sake, let's say that Doug is correct.
    But, like most all scamers, the guys who put together our current US monetary system were really, really clever.
    So let's see if we are really, really better off:
    Let's look at the federal debt: $14 Trillion (T) treasuries, $4 T Fredie Mac and Fannie Mae, $200 T for the unfunded liabilities of Social Security, Medicare and Medicaid and (drum roll) Obamacare $??? T.
    Assuming a US population of 300 million and a total US debt of $218 T, excluding Obamacare.
    If my math is correct ($218 x 10exp12 / 3 x 10 exp6) = $72.6 million per US citizen.
    Doug: please mail your $72.6 million payment to Uncle Sam.

  10. Dear Doug:
    I have good news for you, your debt payment is only $726,000 not $72.6 million.
    I should have divided by 300 x 10exp6 (300 million) instead of 3 x 10exp6 (3 million).
    Please accept my apology for the math error.

  11. @ Doug

    Besides rising prices, there's the redistribution with the newly printed, inflationary money: first receivers buy at old, lower prices, fixed income groups come last with their "inflation adjusted" receipts. Inflation (money printing) = theft.

  12. It seems to me the real difference between the 1950's versus today is the lifestyle expectation. Families have to carry a much higher insurance burden (insurance for everything that moves or doesn't) technology both for adults and kids, at least two cars per family, the expense of kids in formal sports programs (fees, hotel stays,gas, required "safety" equipment) instead of playing with the neighborhood kids in the park, tuition for private school and/or college which has gone through the roof, and overall less reliance on the community as everyone is expected to pull this stuff off by themselves. Even if you try to simplify it doesn't work because the community expectation is that you have all these things and make them work. I believe these higher expectations came into play with the lose credit which enabled everyone to get everything with credit cards. I know very few families that are driving around an 18 year old car like we are. And no one is telling their kids they can't play travel soccer this year...

  13. 18 year old car? What a piker! :)
    We are rocking the 1987 BMW. That was our upgrade from a 1991 sedan that we drove the wheels off for 10 years.

    You definitely are on to something with regard to expectations. Consider that the while housing prices inflated through the roof, it goes along with the size of houses inflating through the roof as well. In 1950 the average house was about 980 sqft. Today they are nearly 2500 sqft.

  14. For Dave who is sure that 50% of all individual income goes to taxes. That is a fantasy pure and simple. If an individual is paying 50% of income to taxes then it behooves them to evaluate the benefit they are getting from their zip code. There are 9 great states representing a variety of climates and regions with no state income tax. But again, it's purely fantasy to say that 50% of individual income goes to taxes. Oh and retirement is a fantasy as well. Everyone who rails against the Fed should be equally outraged with the fraud that is government sponsored retirement. I'll retire when I die or when I've amassed enough personal savings to not work. If I'm unable to do the latter then I deserve the former.

  15. Ebag, aside from your math being off by a couple orders of magnitude (apology accepted, if you like), it's also relatively immaterial to this discussion. It's not immaterial in general as it's going to lead to the bankruptcy of the Federal government, but I just don't see it's relevance to current taxation and inflation. And clearly no one else sees a correlation since the cry from the new-right is constantly for less taxation but not fewer services(and I'm on the right myself). Those unfunded liabilities will of course destroy our children (or perhaps our elderly if GenX, Y and Z decide seniors can just suck it and defund social security/medicare - the only logical outcome for generations raised to believe in situational ethics and relative morality - #justsayin).

  16. In light of this whole purchasing power/wage discussion, I was intrigued by the opening of Elizabeth Warren's lecture here:
    Haven't had a chance to finish it but the data points from the first 10 minutes are very remarkable.

  17. One last passing thought related to precious metals for Shimshon - I'll care about gold's value and the %age in coins when it is related in terms of another PM. But as long as the value of gold is related in terms of a fiat currency like dollars, gold is just another fiat element. When an ounce of gold is exchanged for a unit of work or food then it will have actual value and in the event of total economic collapse you are more likely to see food, clothing, labor and ammunition as units of trade. How many people got food and water with gold when the economy totally collapsed for months around New Orleans during Katrina?

  18. Dear Doug:
    The debt is relevant to the discussion because the higher wages and standard of living that you enjoy are an illusion.
    The reality is that you, and everyone else in the US, owes $726,000.
    The illusion is courtesy of inflated, more accurately, counterfeit dollars.
    What you have is not real, you have to subtract what you owe from it.

  19. Throwing all the statistics out the window, I can tell you without hesitation that people who died in the fifties would be astounded to see how well the average person lives today.

    As to how long it will last, well that's another question entirely. As a nation, we were on much more solid footing in the fifties.

  20. Dear Ebag,

    I'll take my reality. It's pretty tangible. I don't owe $726,000 as the national debt belongs to the Federal Government and not to me. The Federal Government will likely default on that money. But since $112T is unfunded liability in medicare and social security, those who don't get paid will be neither young or healthy enough to force collection. When push comes to shove, they will just be out of luck. Sad, but true.
    And since only about 25% of the public debt is held by foreign governments and we still have all the missiles, no one country holds enough bad US debt to do much about it. They will just be out of luck. Again, sad but true.
    Finally, it's domestic US Bondholders who will end up having the worst effect from the coming default but they aren't going to come try to extract the money from me - I'm not the federal government. They will just be out of luck. Sad, but true.

    So, I'm not under any illusion about what I "owe". If it's uncollectable, it's an illusion to say it is "owed".

    Oh and you can save your math cycles next time and just use:
    Between debut and unfunded liabilities they are figuring about $1.2 MM per taxpayer which is more ominous but no more real than your $726,000.

  21. Dear Doug:
    Your debt is collectable and real.
    The debt collection will come via hyperinflation.
    Anyone holding bonds, annuities, insurance policies and cash will see those assets disappear.
    There will also be unintended consequences, most likely civil unrest.
    If you own hard assets you will do well unless the civil unrest bites you.
    This stuff is real, it's happened in many countries.
    Including the US, for example during and after the Revolutionary War and the Civil War in the South.
    Unfortunately I've experienced hyperinflation first hand, it's not pretty.
    Good luck to you.

  22. Ebag, good luck to you as well.

    Since you've experienced it first hand, could you tell me what you consider to be hyperinflation? The reason that I ask is that I lived in Belarus in 2004 and 2005 during periods of what I considered to be hyperinflation. That is, in 6 months the cost of any particular item went from 100 rubles to 1000 rubles. I was in Argentina in 1990 when inflation was rising at 10-15% monthly and the prices in the stores changed between the time you walked and the time you checked out.
    When I hear GL and others refer to 15% annualized inflation as "hyper" I scratch my head. Sure 15% annually is bad, horrible in fact but seems like "hyper" is being dumbed down as a prefix.

  23. Dear Doug:
    My experience with Hyperinflation is Cuba circa 1960.
    In 1959 you could exchange 1 Cuban peso for 1 US dollar.
    My father exchanged his cash at 10 Cuban pesos for 1 US dollar.
    In the black market and he was robbed twice, during exchanges.
    Shortly thereafter there was no exchange rate as no one would exchange any amount of Cuban pesos for 1 US dollar.
    Then the Cuban government came out with a new currency.
    It was announced, unexpectedly, in the mouthpiece of the Cuban government: the newspaper Granma. Funny name for a revolutionary newspaper, isn't it?
    You were told to visit your nearest friendly nationalized bank, at your earliest convenience, and exchange your Cuban pesos for the "new and improved" Cuban peso, not to exceed 350 Cuban pesos, no matter how many "old pesos" you had.
    I call that hyperinflation.
    I believe that GL was referring to 15% annualized hyperinflation as the tipping point leading to hyperinflation in the US, unless severe hikes in the interest rate were imposed.
    I'm somewhat familiar with what he went through in Chile and I can assure you that their hyperinflation was much higher than 15%.
    I just find it so unbelievable that this great country, that I love so dearly, is acting so economically suicidal.
    Take care.


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