Amazing how much difference a few years make. We first visited China in the 1980s. It was an appalling dump. Few cars. Few roads. Almost no decent restaurants or hotels.
Now in Beijing you see large black luxury automobiles everywhere…and modern highways crisscrossing in front of huge hotels and apartment buildings.
The Chinese have made real progress! And what about Americans?
But let’s check in on Wall Street before we continue our tale. Uh-huh…nothing much going on there. Monday was another lazy, hazy summer day. Neither stocks nor gold did anything worth talking about.
So…back to China…
Nobody had any money in China in the 1980s. In contrast, today you lose control of your car in downtown Beijing and you are bound to run over at least a couple of millionaires.
‘We are very much aware of our extraordinary good fortune,’ said a Chinese man in his 50s. ‘We grew up with nothing. Now we are able to dine in fine restaurants, live in fine houses and travel to other parts of the world.
‘I thank Chairman Deng Xiaoping for having the wisdom to point us in the right direction…and the Party leadership for having the good judgment to keep us on the right road.’
The Party leadership is not infallible. Neither in China nor in the US. In both countries, the feds — looking out for themselves — make policy decisions that are disastrous for others.
We were in China for only a few days. We have no idea what calamity the central planners will cause there. But we can take a fair guess of what they will do to America. Broadly, China’s feds build too many factories, malls and apartments. America’s feds encouraged the opposite error — borrowing and spending too much for consumption purposes.
China’s real wages doubled in the last 10 years…after doubling in the previous 10 years. That is why the Chinese feel so much better off. They ARE much better off.
‘Yes, we know there may be a slowdown…or even a financial crisis…coming. But we have gone ahead so far so fast we can put up with a little backsliding,’ said our friend cheerfully.
Americans are not likely to be so cheerful about it. But they’ve lost ground, not gained it. And now, down at the bottom of the pay ladder, US workers are fed up. From Bloomberg:
‘Thousands of fast-food workers from restaurants such as McDonald’s Corp. and Wendy’s Co. walked off the job beginning today to protest for higher pay.
‘American fast-food and retail workers have been striking this year for higher wages, and the protest starting today seeks wages of $15 an hour, 66% higher than the $9.02 that US fast-food cooks earn, on average. In April, employees from McDonald’s and Yum! Brands Inc., which owns the KFC and Taco Bell chains, joined workers from Macy’s Inc. and L Brands Inc.’s Victoria’s Secret chain in walking off the job in Chicago and New York for higher pay.
‘The leisure and hospitality industry, which includes restaurants, is adding jobs faster than any other sector in the US. In June, the sector added 75,000 jobs, according to data from the Bureau of Labor Statistics. Fast-food cooks make $9.02 an hour, or about $18,760 a year, on average, according to 2012 data from the Washington-based agency.’
Let’s see… According to the official numbers, $1 when we were born (right after the Second World War) was worth about $10 today.
But the official numbers are fishy. An average house in 1950 sold for less than $10,000. Today (after a big sell-off following the subprime mortgage debacle of 2008) the typical house sells for about $150,000.
On that basis, keeping up with your No. 1 cost — housing — would require 15 times as much money as it did in 1950.
Do people earn 15 times more now? After the war, a typical family had a single wage earner with a salary of about $250 a month — or $3,000 a year. The minimum wage was 75 cents an hour — or about $120 a month. On an average wage, a man was able to support a family and buy a new car every three or four years. A new Oldsmobile Rocket 88 cost about $1,500 — or about half of a year’s wages.
Today, a median wage earner gets $30,000 a year — 10 times as much in nominal terms. But now, despite the feds’ phony numbers, he has much less buying power.
Without even starting to calculate the effects of higher taxes, health care and education expenses, we can see he has to devote at least a whole year’s wages to buying a new family car — twice as much as in 1950.
As for the house, that’s five years of wages — also twice as much as it was in the 1950s.
As you can see, the real wages of the typical working man in the US have gone down for the last 60 years. In terms of his time, his most important purchases are more expensive today than they were in 1950.
How did American workers survive with lower real wages and higher living costs? First, they began to work longer hours. Wives went to work. Husbands worked a second job. Now Americans work more hours than any other group.
Second, and most importantly from our point of view, they began to borrow. Aided, induced and bamboozled by the feds’ EZ credit policies… they went deep into debt to keep up with their own standards of living.
More to come…
for The Daily Reckoning Australia
From the Archives…
Has the Chinese Economy Hit the Great Wall?
26-07-13 – Bill Bonner
Crisis, Capital Controls, and Accidents of Birth
25-07-13 – Doug Casey
Australia’s Mysterious Natural Gas Shortage
24-07-13 – Nick Hubble
Bernanke’s QE Train Wreck That’s Heading Our Way
23-07-13 – Vern Gowdie
The Misallocated Savings of the Chinese Banking System
22-07-13 – Dan Denning