An investment in knowledge always pays the best interest. - Benjamin Franklin
Money and markets have been around for thousands of years. Yet as central as currency has been to so many civilizations, people in societies as different as ancient Greece, imperial China, medieval Europe, and colonial America did not measure residents’ well-being in terms of monetary earnings or economic output.
In the mid-19th century, the United States—and to a lesser extent other industrializing nations such as England and Germany—departed from this historical pattern. It was then that American businesspeople and policymakers started to measure progress in dollar amounts, tabulating social welfare based on people’s capacity to generate income. This fundamental shift, in time, transformed the way Americans appraised not only investments and businesses but also their communities, their environment, and even themselves.
Nations are like people: no matter how much money they have, they never seem to have enough. Today the world has more capital funds for investment than ever before. Yet, there is evidence that capital is not being distributed fast enough to meet the rising volume of legitimate needs. Capital seems scarce and costly almost every where, and the global sclerosis will worsen unless the "flow" or distribution of capital begins to speed up.
Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. - John Maynard Keynes
One can learn a lot about somebody by assessing their spending patterns. Are they rich? Are they poor? What do they spend money? What don’t they spend money on? It is easy to see what people value by knowing how they spend, save, and invest their money. It also gives one a snapshot of the overall economic environment. If one is more incentivized to spend than save, one will spend and vice versa. Speculation, debt, and gambling are typically driven by an unstable economic environment. This uncertainty is what causes people to over spend and chase ever more elusive yields.
Alas, the U.S. economy doesn't come with a receipt. GDP tells us how much the country produces. GDI, or gross domestic income, tells us how much money the country makes. But these numbers don't tell us what the economy looks like from the viewpoint of a typical household. Earn,
Fortunately, there is something that's very close to an aggregate receipt for the American family going back more than a century: "100 Years of U.S. Consumer Spending", a report from the Bureau of Labor Statistics.
This is the story today: It is a story about how spending on food and clothing went from half the family budget in 1900 to less than a fifth in 2000. It is a story about how a nation that feels poor got so rich. Here's the big picture in one chart showing the share of family spending per category over the 20th century. The big story is that spending on food and clothes has fallen massively while spending on housing and services has gone up.
The United States is a different country. It is near the end of the Millennium, but in many ways Americans are living closer to the 1600s than the 2000s. A quarter of households had running water. Even fewer owned the home they lived in. Fewer still had flush toilets. One-twelfth of households had gas or electric lights, one-twentieth had telephones, one-in-ninety owned a car, and nobody owned a television.
So where were they spending? Most of ones income goes to the places where one works - to the farm, to the textile mills, and to the house. The typical household haul in 1901 was about $750. Families spent 80% of that on food, clothes, and homes.
In 1900, seen from the perch of the Bureau of Labor Statistics, which counts national jobs, income and spending - the United States was like one big farm surrounded by a cluster of small factories. Almost half of the country worked in agriculture. As for the budding services economy: there were more household servants than sales workers. As for the women's rights movement: more than twice as many households report income from children (22%) then wives (9%).
Over the next 100 years, the U.S. family got smaller, more reliant on working women and computers, less reliant on working children and farms, and, most importantly, much richer. About 68-times richer, in fact. Household income (unadjusted for inflation) doubled six times in the 20th century, or once every decade and a half, on average.
Compared to just five decades earlier, the United States was already a different country. The population doubled to 150 million. The economy's share of farmers fell from 40% to 10%, thanks to the mechanization of the farm, led by the mighty tractor. At the same time, food had gotten much cheaper compared to wages, and its share of the family budget declined from 43% to 30%.
Meanwhile, the manufacturing economy was at its apex. Nearly half of working men were craftsmen or operators. (The female labor participation rate was still below 20%.) Factory wages grew by seven-fold since 1901, and nearly tripled since the Great Depression. Textile manufacturing had never been higher and will never be higher. The year 1950 is its exact peak. Apparel manufacturing grew through the 1970s before collapsing in the last third of the decade. The U.S. was the manufacturing capital of the world, and its dominance probably felt indefinite.
Half a century later, factories, just like farms before them, would become the victims of American efficiency.
Many consider the 1950s a golden age in American economics. Employment was full. Wages were rising. Manufacturing was strong. But the 2000’s were for the kind of person who liked electronics, clothes, and food. A consumers paradise.
In the last 50 years, food and apparel's share of family has fallen from 42% to 17% (and remember, it was near 60% in 1900). Food production became more efficient, and offshoring the making of clothes to other countries with cheaper labor drove costs down considerably. As a result, apparel's share of the pie, which hardly changed in the first half of the century, shrank in the second half by two-thirds.
So, why does the typical American family feel squeezed?
The first answer is housing and cars. Half of that orange "other" slice is transportation costs: mostly cars, gas, and public transit. A century ago, 80% of families were renters and nobody owned a car. Today, more than 60% of families are home owners, and practically everybody owns a car.
The other answer, which isn’t as clear in this chart, is health care. Health-care spending makes up more than 16% of the U.S. economy, but only 6% of family spending. One reason for the gap is that most medical spending isn't out of personal pockets. Employers pay workers' premiums and government foots the bill for the elderly and the low-income. Government spending on Social Security, Medicare, and Medicaid has quadrupled since the 1950s in the most meaningful measurement, which is share of GDP.
In short, health care costs are squeezing Americans. But the details of this squeeze elude the color-wheel above. People are paying for health care with taxes, borrowing, and compensation that goes to health benefits, rather than wages and savings.
Although we had been warned by some of the greatest political thinkers of the nineteenth century, by Tocqueville and Lord Acton, that socialism means slavery, we have steadily moved in the direction of socialism. - Friedrich Hayek
THE 100-YEAR SQUEEZE
In 1900, the Bureau of Labor Statistics counted three categories as necessities: housing, food, and apparel. In the last 100 years, they have added to the list. Health care has become necessary. For most people, a car has become necessary. Even higher education is a necessity for today's middle class.
People have new expectations for what money should buy. People have earned the right to expect more from life in America. Right?
Historical context shouldn't cheapen middle class suffering. Today's suffering is real. Unemployment is high (the number most see obfuscates many issues such as those who have stopped or never started looking for work). Wage growth is flat. People are squeezed by rising health care costs and scarcity of affordable housing in productive cities.
And yet, who can deny that people are richer? A century ago, one spent more than half of ones money on food and clothes. Today, one spends more than half of ones money on housing and transportation. Ambitions turned from bread and shirts to ownership and highways. People have become victims of the expectations that 100 years of wealth have bought.
This is not to say that things cannot continue to get better for working class people in America. The way in which the country makes stuff has transitioned from the world of atoms - cars and jeans to the world of bits - software and crypto. The changing landscape that globalism and free trade have ushered in comes with its own set of problems, but it is imperative for people to realize the new landscape. It is cheap to consume, but expensive to save. Spend less, save more. Stay healthy, stay wealthy.
thus, one must build ones skillset to thrive in a software fueled world. That means that ones child should be fluent in Python rather than French and that one should maintain ones health and vitality rather than spending money on the electronic that is soon to be obsolete. In the world of bits and an every growing amorphous landscape now known as the meta-verse (a blend of the digital and physical worlds) one needs to be agile across both domains in which the meta verse encompasses to remain successful. One needs to be knowledgeable about the things that drive the digital world and knowledgeable about what allows one to thrive in the physical world. Regardless of the domain, health is wealth. Sharpen ones mind with the ways of success in the open source bits world and the ways of success in the personal health and wellness physical world. Health is wealth.