Within the United States, there has always been a drive for profits. It is as old as the nation and viewed coast to coast as part of the American dream. The US is clearly the land of opportunity and much can be said about the indomitable spirit of Americas to innovate and develop businesses. The current state of the nation is that the powerful and wealthy have become generationally brilliant at making money.
The richest members of the Forbes 400 wealthiest families have soared to $81 Billion in 2016.
Corporations are systems that often grow over time in their effectiveness and efficiency. Simply put, for them to survive and thrive in the countries supply and demand market they must always innovate their ability to sell more for less. How this impacts you and your family depends on which part of the equation you are on.
If you are wealthy, you have mastered the process of acquiring and keeping capital. This is clear when considered for those making $10 million or more, their salaries only make up 15% of their income. Where is the rest from? 25% is from owning a part of a business, 15 to 20 % from dividends earned on stock they own or from or from interest from large savings. This is many of the 10.8 million (yes million) of the nations millionaires make and grow their money.
If you are not wealthy, you are often trading labor hours for a salary. When labor (or income) is compared to the year over year increase in returns for capital it is easier to see where some of the problem is. Simply put labor is not doing as well as corporate profits.
So with all that said, how does this impact you and your family? This impacts you in some important ways.
First: Labor grow has not improved with the growth of profits. This is a reality.
Second: Americans are doing a lot more work, producing a lot more output and giving their companies a great ability to resell the products and services they create. Essentially, you are working harder and doing more every year, your company is utilizing that labor to increasingly turn a profit, but they are not compensating the workforce for this increase in productivity! Compensation is not keeping up with productivity.
Okay, there is another important mechanism at work that directly impacts how you and your family experience the economy. The vast majority of Americans are not able to save much. On average the working class saves about 5%, so they put about 95% of what they make back into the market when they buy products and services. These transactions support the hiring of employees.
When the top 10% control 90% of the wealth what do THEY do with all that money? They put it into things that employ very few people.
You see the problem here. 40% of the wealth of the wealthy simply sit in accounts. That money is effectively removed from the market that can directly benefit the working class. So the more that the wealthy make, the more they put their money into things that need fewer employees to manage that wealth. This is having a devastating effect on the middle class.
The very important bottom line
So with everything covered above, there is a very important bottom line.
This is the way that you and your family experience your purchasing power.
If you have said to yourself “It seems like my money does not go as far” that is because it does not. There is a mountain of economic a play but if you compare the increase of income (normal growth) to what that money can buy (real growth adjust for purchasing power) there is a shocking reality.
It is easy to see how this has changed over time. Simply search for “Inflation adjusted” homes, college, utilities etc. What you will find is the cost of things you buy and pay for and how those costs have been going through the roof!
So when you compare the inflation-adjusted cost of the major things you pay for compared to the inflation-adjusted incomes for the middles class you can see the intense crisis that exists and will likely get a lot worse.