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The economic challenge to a Young Patriarch

28 Nov

I recently had a chance to talk with an older man, relatively economically successful, married for many years and with what might be called a quiverful. He was not understanding why young men were unable to start and maintain a family with incomes in the high-five figures, when he had had two children and bought a large house by age 25 on a salary less than one tenth the size.

I asked him his salary in 1964; he recalled it as $6500. The house he recalled paying $15,000 for, about 2.5 times his annual income. According to this website, the average salary in 1964 was $6000, and the average house price was $13,050, so he was not far above average by any means. From that website, we see that gas cost $.30 a gallon, and average monthly rent was $115.

I asked about taxes; he was less certain. According to this website, he would have paid 7.25% (employer plus employee, or 3.625% out of his pocket) on a maximum annual amount of $4800; according to this publication, starting in 1964, the first $3000 earned by a married man with a wife and two children was free from income taxation. According to this history of tax rates, his marginal tax rate on the $3500 of taxable income he would have to report was 18%; his effective overall tax rate might have been about 17%, Federal. Overall, then, he would have paid a total of $769 to the Federal Government, $174 in Social Security (there was no Medicare), and about 595 in income tax, leaving him with $5731 in after-tax income.

Contrast that with a man earning slightly above the annual average salary today; that would be $55,000. Next year, he will pay $4207 in SS/Medicare taxes; his income tax liability is difficult to calculate. He can take a standard deduction of $11,600, plus an exemption for himself and his three dependents of $3800 each, for a total of $15,200; all told, $26,800 of his income is not taxable. Of the 28,200 left, he will pay about $3350 in income taxes, leaving him about $47,500 in after-tax income. Assuming he lives in Texas or Florida with no income tax, why can he not raise a family in better fashion than his forebears on this amount?

Well, let’s go back to those 1964 figures. 1964 was the last year that US Quarter Dollar coins were minted in 90% silver. One quarter from 1964 is useable now in shopping; you’ll get 25 cents worth of goods for it. Of course, it is worth more for its silver content: when I discussed this, that value was about $6.25. Meaning that one dollar in 1964 quarters is worth about $25 now. Compare, then, two slightly-above-average men from 2012 and 1964: one had after-tax income of $47,500, and one had after-tax income of $143,275. Ignoring house prices, sales taxes, and all other manner of economic drag: is it any wonder that people can no longer afford the cost of children?

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22 Comments

Posted by on November 28, 2012 in Uncategorized

 

22 responses to “The economic challenge to a Young Patriarch

  1. Bill

    November 28, 2012 at 1:26 pm

    Uhhm. You start to make a good point and then ignore the changes to cost of living to go off on some bizarre and generally irrelevant tangent about the value of precious metals.

     
  2. electricangel

    November 28, 2012 at 2:59 pm

    @Bill,

    That was actually the point of the whole article. Without a God-created standard (God made silver and gold; I don’t know WHO “makes” the “dollar”) we have had slippage we don’t even know about. The older man in the story was paid FAR MORE than the younger man today, and had FAR MORE disposable income available. When measured in dollars, it does not appear so. But the 1964 quarter was a valid measurement then for income, and a valid measurement now. Basically, the young man earning slightly above average is getting paid one third of what a young man in 1964 was getting paid. In order to have the equivalent after-tax payment in God-created money, our young man would need to earn over 250,000 dollars. In other words, Obama’s “rich” are the slightly-above-median people of 1964!

    In trying to compare apples to apples, we need to use reliable yardsticks. You’d make reference to the Bible when discussing revealed Truth; you make reference to natural money when you want to compare different epochs.

    Did you notice, by the way, that 30 cents, 3 dimes, bought a gallon of gas in 1964? Those same three dimes today are worth about $7.50, meaning that gas costs less in terms of 1964 money today than it did then. This progress is hidden from us by a shameless government that uses its control of money to defraud us, but it is there.

     
  3. DC Al Fine

    November 28, 2012 at 3:17 pm

    @ Electric Angel,

    My only quibble of your analysis is that the drastic fluctuations of silver prices throw off your analysis. Silver is trading at around $33.70 per ounce right now, which translates into 1964 man having an after tax income of more than $140 000 by your analysis.

    However, silver was prices at $5 an ounce as recently as 2004, which is $6.12 in inflation adjusted terms. $33.70 is 5.5 times more than $6.12. Applying this ratio to your 1964 man, he has an after tax income of $26 050, which is far less than our current incomes, making 2012 man better off.

    You are absolutely right that people are worse off today, but let’s compare apples to apples. 1964 man was better off in worthless paper money compared to 2012 man in worthless paper money.

     
  4. DC Al Fine

    November 28, 2012 at 3:20 pm

    One other thing. I think the patriarch lifestyle, while less affordable compared to 1964 is still attainable if one is willing to live a 1950’s lifestyle. A small house in a non-coastal location, one car, no TV or cable bill, no restaurants, and not always buying the latest gadget make it far easier for one to live like a patriarch compared to most people’s McMansion & SUV filled lives.

     
  5. asdf

    November 28, 2012 at 3:21 pm

    I agree with the other commentator on the whole precious metals thing. Are we to assume that before the silver spike with the financial crisis that there was no inflation. This is a bad way to do things.

    Anyway, if we use the normal CPI we find the person in question has about the same income. The difference is debt.

    In 1964 you didn’t need college to earn a slightly above average salary in yours 20s. Today you do. And the cost of that education is much higher.

    In 1964 you could find those jobs all over the country. Today you need to move away from your family to a large city and pay very high rent for a tiny apartment. Your average monthly rent would be $858 today, but try renting a place for that in any of the “winner” cities with the good paying jobs. The rent is too damn high!

    Also, so much of this man’s earnings will go to medical expenses. It is true that the medical tech today is much better, but it has had its cost.

    So there you go. The CPI doesn’t show much change, but most of the money is going towards essentials (housing, medicine, education) that either didn’t use to be essentials or where much cheaper.

     
  6. electricangel

    November 28, 2012 at 3:40 pm

    @DC Al Fine,

    Silver is still pretty far below the nearly-$50 it hit last year. One could, of course, use gold as well. By that count, $1 in 1964 would buy 1/35th of an ounce of gold; our 1964 earner would thus be earning in gold what today would be nearly $325,000. (This suggests either that gold was wildly underpriced in 1964, or overpriced today. Note: then, it was priced by the government in a closed market where the average citizen couldn’t play, while today it is a freely-traded commodity. I’ll let you pick which is closer to the truth.)

    But using CPI to adjust prices gets us into trouble: we use the government’s statistics, which are as trustworthy as their money. When they have no incentive to lie, OK; but CPI sets tax rate decreases and SS increases. As Roissy writes, when a woman has an incentive to lie, she will choose dishonesty over the truth EVERY SINGLE TIME. So with the CPI; I make reference to ShadowStats.

    I look for measurements that show that life in fact HAS improved. One I read of years ago was “the cost of light:” how many hours does a man have to labor to earn one candlepower of light? By that measurement, life has been improving for a long time, up to the present. I haven’t followed it recently, but I’d bet that environmental restrictions have driven it slightly higher. Still, books and light are cheaper, and as you note, you CAN live a 1950s lifestyle decently.

    But not on the average salary in most areas; where I live, 55K wouldn’t approach getting a decent place to live.

     
  7. electricangel

    November 28, 2012 at 3:48 pm

    @ASDF,

    “Are we to assume that before the silver spike with the financial crisis that there was no inflation. ”
    Perhaps. Economic conditions generally improved from 1980 to 2000, when silver was at its most recent nadir, 90% off the Hunt brothers spike in 1980.

    I did in fact ignore other costs applied to the young man today, for simplification purposes. If anyone believes that that 47K he has left after taxes doesn’t have all the bites taken out of it that you mention, he’s wildly wrong.

    And just checking a couple of websites, the average price for a house in the USA goes for about 190K, so 10% above that, like 1964 guy, would be about 210K. That’s about 4 times the salary of 2012 man, versus 2.3 times the salary of 1964 guy. Interestingly, the SS+Medicare+FedIncomeTaxRate is only about 2% more of income than 1964 guy. I did not expect it to be so low.

     
  8. DC Al Fine

    November 28, 2012 at 4:21 pm

    @ EA

    Another factor to include is interest rates. My grandparents say that when they bought their house in 1965, the interest rate was about 5.5% while today you can get a 3% mortgage easily. Do you have any idea how those calculations work in order to figure out how much house price an extra 1% interest rate is worth?

     
  9. Ben

    November 28, 2012 at 5:28 pm

    Anyone who thinks of money as a commodity simply does not understand how humans relate with each other.

    Silver was chosen as a currency BECAUSE it was plentiful. The transition to a gold standard and the repudiation of silver was instrumental in the destruction of the Roman Empire in 220AD. It led to mass enserfment and enslavement, and created chaos until Charlemagne introduced the pound sterling 500 years later. More than anything else, this is what paved the way for recovery from the collapse of Rome.

    Inflation is a necessity as long as you have money lending. And money lending appears necessary for a functional economy as I know of none that don’t have it. If supply of money doesn’t increase at a greater rate than the increase in interest payments in aggregate, which increases exponentially I might add, people have less income to spend on things other than debt service. At best, this causes a recession and decreases in living standard. At worst, you have slavery as what happened in Rome.

    In any event, there is a great complexity here with the US that makes it difficult to explain in a short post. In short, the tool that unifies a polity and makes a broad market possible for money is government authority. Since Roman times, until the 1970s, this was done pretty much exclusively through taxes or tribute. The US started something very different after Bretton Woods however. Via foreign aid and military actions, we compel the world to use US dollars, with the effect being similar to tribute. The prosperity of the country since 1980s largely stems from this. Today, over 75% of global trade is settled in US dollars. Meaning, 75% of global trade must work its way through Wall Street at some point. That is a huge amount of money. And it is the source of all wealth in America.

    Ever wonder how the hell we can buy so much crap even though so few people in this country actually do anything useful? Now you know. It’s all a vast trickle down lie and you get the scraps.

     
  10. Carnivore

    November 29, 2012 at 12:35 am

    It’s probably a combination – higher costs, higher taxes and higher expectations today. Regarding the latter, expectations today bring much higher costs, debt and interest. Back in the 50’s and 60’s, parents were able to raise a family of 4, 5 or 6 children in a two bedroom flat. My parents never had a credit card. The only thing they bought on credit was the family house. Cars were paid for in cash and kept until they were literally rusting apart. When I was a kid, my family “went” on vacation by going to the Chicago museums and zoos. And mom packed a picnic lunch for each outing; as kids we never got food purchased from the museum cafeteria or the snack stand at the zoo. But then, my parents were able to payoff their 15 year mortgage in 9 or 10 years. My dad worked in a factory, unskilled labor. And there were quite a lot of other families in our neighborhood with similar situations. And it was a clean & decent neighborhood. No one had anything to fear walking about late at night.

    We only had one car and one phone line and one TV (broadcast, not cable). Dad did as many repairs on the house and car himself as he could. Food was all home cooked by mom. We were fortunate in that we had meat or fish usually every day but one in the week. Some friends of mine in the neighborhood were not as fortunate. But even if they had more meatless days with an increased amount of potatoes or pasta, they weren’t fat. No one was obese like you see today. Working class, blue collar men actually took a thermos of coffee with each day that their wives had prepared along with their lunches. Buying coffee and a sandwich from the sandwich truck that pulled up to the factory door at lunch time was considered a waste of money.

    People back then knew how to save and pinch pennies because they had to.

     
  11. chesterpoe

    November 29, 2012 at 9:32 am

    Carnivore is right on this one. Much of the problem comes from people spending too much on unnecessary items. Forego that all talk, text, and internet cell phone service for the family, the new plasma TV, new SUV, the thousand mile vacation, the six televisions, the cable service, the purchased snacks and lunches, instead hang clothes out on a line, cook your food at home, grow fruits and vegetables in a garden, and learn how to fix what you own. Right there you just saved thousands every year without really reducing your quality of life.

    I decided to take a risk in what is becoming a very profitable industry. There is no guarantee of success but it should provide me with a comfortable standard of living and a career in nature. Currently I am in the process of learning how to become a professional beekeeper while also pursuing a degree (just in case). A lot of people may scoff at the idea but like joining the oil industry in the Dakotas or Texas it is a good way of making an honest living without going deep into debt or having to kiss ass.

     
  12. electricangel

    November 29, 2012 at 3:06 pm

    @CP,

    I’ve been fascinated by Beekeeping for a while. A guy who lives near me, in his 90s, is a true Patriarch. WW2 Veteran, a man who sets his own course, and still has balls of steel in the way he trades his stock account. A beekeeper, he had his whole family working with him. You can tell he was revered by his children by how they STILL look up to him, how they take care of him, and how his daughters, well along in years themselves, are still petite, attractive, and orderly.

    I should think that if you could solve the diseases that afflict commercial bees, you could make a nice living. Any online resources you’d care to link to?

     
  13. electricangel

    November 29, 2012 at 3:07 pm

    @Carnivore, CP:

    Your comments demand a follow-up post. I will do so tomorrow. I sort of knew what you were writing about, but ignored it in this context; now I must integrate those thoughts with these.

    Thanks.

     
  14. electricangel

    November 29, 2012 at 3:21 pm

    @DCAF,

    I would think you use a discounted cash flow model to calculate differences in interest rates. For example, a 30year bond with an interest rate of 5% is worth less than one with a rate of 10%. Simplest is to make each a zero-coupon bond, which sells at a discount to its face value, and pays off the full amount at maturity.

    Using the formulas here, a zero-coupon mortgage at 5.5% for 30 years would be worth about 196 per thousand today. The 3% would be worth about $409. So the value of the 5.5% mortgage is about twice what the 3% is to the bank. Of course, back then the bank was charging about twice in interest what it paid to depositors; today, banks MIGHT pay .5% to the Federal Reserve, and they charge SIX times that. This encourages leverage by the banks, as the profits are scandalously large if you do this over a large enough base of funds.

    A better calculation would be Net PResent Value, but I’ll leave that exercise to the reader. http://en.wikipedia.org/wiki/Net_present_value

     
  15. ChesterPoe

    November 29, 2012 at 3:45 pm

    @electricangel

    Here are some good links to get you started.

    http://animalcareers.about.com/od/Careers/a/Beekeeper.htm
    http://www.uky.edu/Ag/NewCrops/introsheets/honey.pdf
    http://smallbusiness.chron.com/grants-starting-apiary-20755.html
    http://www.ehow.com/info_10052426_salaries-beekeepers.html

    It is recommended that you live in a Deep South state. Anywhere from Texas to South Carolina should work fine. Living in North Florida this is perfect for me.

     
  16. a tiny little mouse

    November 29, 2012 at 3:52 pm

    A man can earn a decent living but if his wife isn’t thrifty, they still will be in need of money. Girls nowadays aren’t taught even the basics of good housekeeping and budgeting. It is quite possible to raise a family on one income, but they will have to live frugally.

     
  17. Carnivore

    November 29, 2012 at 8:54 pm

    @CP – good for you! I hope you succeed! Running your own business is very satisfying and becoming self sufficient will be very beneficial as we get closer to a collapse of some sort.

     
  18. sunshinemary

    November 30, 2012 at 10:10 am

    I agree with Carnivore and a tiny little mouse. Everyone is too materialistic and not focused on what really matters (God and family), but women are far worse then men on this issue. Women buy too much crap for themselves but are even worse with their children. I’m surprised by how many of my daughters’ peers have their own very expensive cell phones starting around fourth or fifth grade. What do they need unlimited texting and web access for? That is very expensive. I’m always suspicious when a married woman tells me she cannot afford to be a housewife. I can usually spot many unnecessary expenses.

     
  19. an observer

    December 1, 2012 at 9:49 pm

    1964 man had a number a factors in his favour. After schooling, he could:

    1. Get an apprenticeship and later start his own business
    2. Get a job in manufacturing, learn skills on the job and get promoted to well paying positions
    3. Buy a house for a small multiple of his gross income
    4. Meet, marry and raise a family
    5. Nixons guns and butter program was still A few years away.

    2012 man has a few hurdles to overcome.
    1. Apprenticeships are difficult to obtain, and small businesses are obstructed by regulatory requirements
    2. Manufacturing jobs are few and far between. Many entry level jobs often require a pointless four year college degree.
    3. Affirmative action, hiring quotas, hr hiring practices and jobs for the girls means white collar jobs are often filled by girls with liberal arts majors.
    4. The typical divorce and child support payments make budgeting difficult if not impossible.
    5. Green spans and Bernankes zirp has made asset speculation a widespread sport, overinflating house prices on assets that often produce no income, only costs.

    So, besides extra years of publik edukation, college debts, divorce rape, no jobs, costly housing and little opportunity, what are these men complaining about?

     
  20. an observer

    December 1, 2012 at 10:41 pm

    Ssm,

    Cheap credit at low interest rates make it all possible. Dont be distracted by the criticism of toys. Whilst partially correct, phones, celebrity worship, entertainment on demand are just distractions. Boobus Americanus has not had to think for years.

    How many afcs bought gold at the brown bottom? Or silver at four dollars an ounce?

    Since nixons guns and butter, we have seen the intro of credit cards, various bubbles, the parabolic student debt rise and the likely denial of passports to those behind on their debt service. Basically the return of debt servitude.

     

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