Friday, February 17, 2012

Wages, Credit, and GDP

First add annual wage and salary disbursements to the year over year change in total credit market debt owed. For the sake of argument, let's think of this as our long-term spending power. We can get paid to work *and* we can apparently endlessly borrow money (sarcasm). We cannot endlessly spend saved money of course. It would eventually run out. I have therefore not included it.

Click to enlarge.

As you can clearly see, there has been an epic exponential trend failure in our long-term spending power.

Now divide that amount by our country's GDP. This shows long-term spending power as a percentage of our GDP.

Click to enlarge.

I am confident that we can eventually get back to 60%. All it would take is for our real long-term spending power to go up, our real GDP to come down, or perhaps even both.

Who thinks our real long-term spending power is going to rise much from here? Based on what I chose to name my blog several months before the first chart peaked (seriously), I think you can make an educated guess what I think.

Source Data:
St. Louis Fed: Custom Chart #1
St. Louis Fed: Custom Chart #2


Stagflationary Mark said...

Some might argue that I should factor in dividends (and rental income). I don't think I should.

If wages go to zero then dividends and rental income definitely go to zero.

The same is not true in reverse.

If dividends and rental income go to zero then wages won't go to zero. Someone, somewhere will still get paid something even in a profitless world. Companies tend not to fold until they actually lose money.

How could rental income go to zero? Easy. As a landlord, bring in $1000 a month in rental income but spend it all on maintenance and property taxes. You'll net zero if the house doesn't appreciate.

In my opinion, wages are therefore what ultimately matter.

Troy said...

Somebody at Angry Bear turned me onto:

and I'm about 2/3rds through it, and his thesis is all about how spending = income + debt take-on, and how modern economics is simply blind to this.

I try to bang this drum other places, but it's like talking to a wall .. .

Troy said...

wages are therefore what ultimately matter.

Of course, since rents are parasitical on wages.

It all gets down to actual wealth creation -- to create wealth requires labor, though automation is increasing the multiplier here, and the days where machines design, build, and repair other machines is not too far off. Maybe this century if we're "lucky", LOL.

Stagflationary Mark said...


I try to bang this drum other places, but it's like talking to a wall...

From the first review of within your link:

As Keen writes of his peers,


"As anyone who has tried to banter with an advocate of some esoteric religion knows, there is no point in trying to debate fundamental beliefs with a zealot."

Stagflationary Mark said...

Oops. I worded that poorly. Should have double-checked it. You get the idea though.