The Sage Foundation at Stanford University published a report (PDF) that shows there is still this mantra among most Americans, Canadians (now) and banks that says that having credit is the same as having wealth. If 2007 taught us anything, credit destroys wealth.
The report does hit on a point. Median income today is worse than in 1984 when adjusted for inflation on CPI. 1984’s median income should be worth about $90,000 today. However, median income isn’t near that.
Here’s what I get:
When I used the Fed’s measure of inflation, the GDP deflator, and then adjusted for inflation with R=N/PI*100, I get median income should be around $75,000.
Not until 1995 did median income outpace inflation. Median income however, has been in a death spiral since 2007. Without adjusting for inflation, we have the same median income today as in 1995.
Since 2005, what has done a great job keeping up with inflation, is credit. Even with the credit freeze of 2008, credit has still outpaced inflation. What’s more is that there is the greatest gap in credit and actual income (median) today than at any other point in history.
But maybe it has something to do with this:
Low wage job holders now make up 39%, the largest share of the labor force. That’s 39% of working people who will have no wealth creation to begin with.
Granted there is a need for credit, and it can be useful, but credit is not wealth.