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David Stanowski
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When Did the Decline
Really Begin?

by David Stanowski
21 September 2009


Abstract:
Most people think that our current economic "troubles" began in 2008. Some would point to the stock market top in October 2007, but a few would recognize that the overall market really topped in 2000, because the NASDAQ did not come close to making a new high in 2007. But, does the origin of our national "troubles" go back even further than that?

Introduction:
The latest data from the Census Bureau certainly supports a start date long before 2008. Their analysis, that was shocking to some, found that real median household income in 2008 ($50,303) was LOWER than it was in 1998 ($51,295)! This means that typical American household made less than the typical household did a decade ago!
Census Bureau Annual Report (see Table A-1)

"In the four decades that the Census Bureau has been tracking household income, there has never before been a full decade in which median income failed to rise. (The previous record was seven years, ending in 1985.) Other Census data suggest that it also never happened between the late 1940s and the late 1960s. So it doesn’t seem to have happened since at least the 1930s.

And the streak probably won’t end in 2009, either. Unemployment has been rising all year, which is a strong sign income will fall."
A Decade with No Income Gains



However, examining the Annual Report in more detail, using Table A-2, shows that the median real earnings for men peaked in 1973 ($48,452), and were actually down to $46,367 in 2008! This means that the real (inflation-adjusted) earnings of the typical American man have declined 4.3% over the last 35 years!

During this same period, the median real earnings of women INCREASED 30%! This huge difference in earnings growth seems to be due primarily to the number of women who have chosen jobs in education, government, and medical care; which have shown the most income growth as the private-sector has gone into decline. This disparity also provides a hint as to how far back the national decline really began!   
Census Bureau Annual Report (see Table A-2)
Census Bureau Slide Show

A more thorough analysis of existing data finds that the decline actually started about 1966, when  the stock market made a major top, and after 1973,
the country had entered an unmistakable downtrend. There have been a lot of deceptive ups and downs since then, but the long-term trend seems clear. 

Look at how government employment has been replacing private-sector employment.

Private Versus Public Employment

After the boom, directly following WWII had faded, the 10-year rate of change of private-sector job growth hit its peak in 1973, along with real median income for men. In recent years, the decline has accelerated, and it is now so bad that it's just about to turn negative!

!0 Year Rate of Change: Job Growth

Notice how payroll growth has declined in every decade since the 1960's. The current decade is the weakest of the bunch, by far!

Payroll Growth by Decade

The next graph tells the tale of the private-sector employment decline. Capacity utilization, the percentage use of the country's manufacturing base, was 90% in 1967, but it has declined steadily, and has never come close to 90% again since 1973. Today it stands at less than 70%!

Capacity Utilization

As the long decline set in, governments, businesses, and households began their reliance on more and more debt to make up for their losses in real income. From 1966 to 1973, households kept their debt, as a percent of their disposable income, well below 70%. Since then, it has doubled!

Household Debt as % of Disposable Income

As real income fell, and more and more debt was used to make up the difference, the personal savings rate declined so much that it turned negative in 2005 right at the peak of the real estate bubble. A low rate leaves households with no cash cushion during economic hard times. Since then, it has climbed back up to 6% as people try to adjust to the new economic reality.

Savings Rate

Even with all of the debt consumers piled up over the last 40 years, to maintain their spending, the rate of change of retail sales peaked way back in 1973, and in recent years hasn't come close to the 16% rate recorded, at that time. In 2008, retail sales collapsed to the highest negative rate of change in the last 60 years!

Retail Sales



Conclusion:
Why does a great nation fall into decline?

In this case, there are two reasons. Socialism has corrupted the character of the American people. It has changed us from self-reliant and independent to dependent and helpless. In addition, the Federal Reserve and the fractional-reserve banking system has corrupted the money of the American people. As the money steadily loses its value, it has changed us from savers, investors, and manufacturers to borrowers, speculators, and importers.

Historians will most likely recognize that our fatal mistake, and our ultimate folly, was in re-directing billions of Dollars of needed investment from our manufacturing base into residential real estate. Away from productive investment and into consumption.

The massive downside momentum shown by all of these data began to take hold 35-40 years ago, and it will require major changes, over the course of many years, to begin to reverse this decline! There is no reason to believe that things will get much better until the policies that created the decline are changed dramatically. 


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