Wages must increase

I was over at Karl Denninger's Market Ticker yesterday, and saw this amazing graph:


This graph shows the growth in the US population since 1970 (about a 50% rise), as well as the growth in consumer credit (close to a 20-fold increase). As Denninger points out, this doesn't even include mortgage debt. Or corporate debt. Or government debt.

Why this gigantic increase in debt?

In real terms, if you properly adjust for inflation, wages have been falling during the entirety of the above graph. Note that government statistics about inflation, particularly after about 1980, are lies. The government understates inflation in order to reduce Social Security payments, which increase along with inflation.

The American standard of living doesn't seem to have fallen much, though. Particularly not if you watch a lot of TV, where fictional characters are mostly wealthy and the mainstream news pretends that everyone is upper middle class at minimum. But even here in the real world, considering that wages have been falling for 40 years, it's amazing that we've kept this standard of living. (Again, I'm saying they're falling in real terms, in terms of what you could actually buy with your paycheck.)

Partly this is explained by the prevalence of two-income households, which are now usual. But clearly, much of the gap left by falling wages has been made up by credit cards, home equity loans, student loans, and so on.

However, that credit is now drying up and going away. Home equity lines have been canceled, credit card limits have been slashed. And yet 70% of the economy is based on consumer spending, so if you take away Americans' credit cards, their reduced spending also reduces the whole GDP.

Meanwhile, income disparity has been rising. We all know about the bonuses given to bankers who are complete failures, bankers making many hundreds of times what the bottom quartile of Americans earns.

The solution here really ought to be obvious: wages must rise. That hasn't happened, perhaps, because of globalization, but thankfully that is now coming to an end. Protectionism, tariffs, wars, and expensive crude oil will spell doom for the globalized economy. As this happens, workers need to demand better wages. It's not selfishness-- it's what's needed to restore some semblance of an economy.