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I’m converting dollars. (In order to save the rustbelt)

With all the discussion about our plight money wise I thought it would be interesting to see just how distorted our view can become depending on what factor we choose as a comparison. Also, I find this site fun.

So, just how do we compare today to the fondly remembered yesterday? I am very grateful to you for asking. Let’s see, we need a base. Let us use Social Security (OASDI to be complete) as a base dollar source. There have been suggestions that we need to raise the wage cap. OK, maybe, but what should it be? Using this OK, but what should it be? Using this pdf chart I picked 3 different years as starting points. 1937, because “In the Beginning” there was poverty. 1966, because the beginning went so well, we added more. And 1983 because we became enlightened .

Using the Measuring Worth site I produced this chart:

The 6 factors are explained at the Measuring Worth site. My short hand is: C Bundled = Consumer Bundle, Unskilled = Unskilled Wage. The N in NGDP stands for nominal.

So, what number do we pick? The one that shows the current cap is set way to high, so we obviously are covering too much in OASDI as compared to the past. Or the one that shows the current cap is too low, so we obviously are not covering as much in OASDI as in the past.

I vote for the one which shows that the $94,200 cap is about the proper income to be earned by the Unskilled Labor force allowing such a person to have maintained their standard of living based on the Consumer Bundle. Yet even at that, their share of GDP would be historically rather low.

Anyone recall me presenting an argument that we have pushed the cost of the American Dream up to the point that one has to be in the top 10% of income earners to have it? It also takes 2 people working to do it.

In fact how uncanny that the median household income in which the wife is not working, for 1967 (couldn’t find a number for 1937) converts to an Unskilled Labor income of $48,353 and the Consumer Bundle is $51,019.

Maybe we shouldn’t feel to bad. Based on Measuring Worth’s President George Washington example, the current President George is getting screwed by about $100K. But, this does not include the benefits received by the present George. Guess we are getting the short end compared to being president.

Saving the rustbelt goes beyond a geographic area. Saving the rustbelt is referring to a demographic group.

Update: Link American Dream

Update: fixed the chart link paragraph missing before the chart.

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INT’L RATE SPREADS &THE DOLLAR

Here are some charts to demonstrate what I was talking about. the recent drop in US bond yields has not been accompanied by a similar drop in European rates.
Consequently the spread between US and foreign bonds has narrowed and it no longer compensates foreigners for the currency risk they take when investing in the US.
The consequences are a weak dollar. Note the opposite happened when Reagan first
created structural deficits and the dollar had to weaken enough to create a large enough
trade deficit to facilitate the capital inflow. At that point we had crowding out but it worked through the dollar to crowd out the manufacturing sector rather then the interest sensitive sectors.


It is also working against the Euro as you see the it strengthen when rates spreads widen.

When the US made itself dependent on foreign capital inflows the world got a lot more complex and it was no longer possible to analysis monetary or fiscal policy as if the US were a closed economy. I worry that we are now starting to see the bear case that I have worried about for years when international capital flows prevent the Fed from easing when domestic considerations call for it. I’m not making a forecast, I’m just laying out factors that make the analysis much more complex and that need to be brought into the analysis.

Maybe it is what we need to revive the manufacturing sector, and will be what drives the economy over the next decade. Save-the-rustbelt would love this. But, it creates inflation and real income complications for the rest of us.

I probably is what will happen since Don Boudreaux at the Cafe Hayek blog just got one of his letters to the FT published where he praised the trade deficit. I just base my analysis on the thesis that he is usually wrong.

I realize these charts are simple and the real world is more complex involving covered interest rate difference, etc, but they are adequate to make the point.

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