In the last post I described how a significant portion of the population is plagued by an affordability crisis centered on grocery prices, housing costs, healthcare premiums, & cost of living participation rates that raise the poverty level above the median household income. This post identifies the underlying forces that made the affordability crisis happen as well as the sequence of events that show how it happened.
Please look @ the green line on the graphic below, depicting the real median male earnings in 2024 dollars, from the September, 2025 U.S. Census Bureau report entitled Income & Poverty in the United States: 2024.
Click on graphic to enlarge
You'll notice that the green line is on a steady upward trajectory from 1960 through 1973 when it flattens out for the next 51 years. Annual inflation for the six years from 1960 through1965, under Eisenhower but mostly under the JFK presidency or its supply side economic influence, was well under control averaging 1.3%.
But LBJ's Great Society got under way in 1965 with landmark government spending healthcare laws - Medicare for seniors & Medicaid for the poor - followed by Nixon's easy money policies so that for the period 1966 to 1972 inflation started to pick up averaging 4.1% annually. In 1971 Nixon implemented a 90-day freeze on all wages, prices, rents (54 years before Mamdani), & salaries; announced a Keynesian type government spending plan to stimulate the economy; & worst of all on Sunday August 15, 1971 took America off the gold standard including refusing to exchange 35 paper dollar bills for a troy ounce of gold. The Federal Reserve increased the growth of the M2 money supply by 79% from 1970 to the period 1971 & 1972 (7.3% growth in 1970 to 13.2 average growth of 1971 & 1972).
Couple all of the above self inflicted selfish political Death Of Democracy government dependency moves, that are in direct opposition to our founding principles, with food shortages, government spending on the Vietnam War, two OPEC oil embargoes that led to lines of cars around the block to get gasoline, & the inept Jimmy Carter presidency, & it should be no surprise that CPI inflation went from 6.2% in 1973 to 11.1% in 1974 & 13.5% in 1980. It was in the 1970s that America learned the term "stagflation" where the Phillips Curve was turned on its head when inflation & unemployment simultaneously moved higher & we suffered under the misery index.
The deterioration in the dollar's purchasing power today compared to the early 1970s is displayed by the government exchanging one troy ounce of gold for $35 in 1970 to gold trading on the COMEX, LBMA, & SGE markets starting on October 7, 2025 @ over $4,000 for that same troy ounce of gold & less than four months later @ over $5,000. The dollar's value over this period as defined by the price of gold has dropped by 99.3%. Talk about affordability!
All of the above problems to our economy occurred under an income tax system & a Federal Reserve central banking system, both of which were created in 1913, as well as FDR's two New Deals from 1933 to 1938 from which the Cato Institute has identified the derivation, either directly or indirectly, of 126 welfare programs in effect today. The Great Society & ObamaCare followed suit.
The income tax system has damaged America because it taxes work, savings, & investment & as such is the basis of so many ill-advised incentives that have nothing to do with our prosperity except for destroying it.
The dollar has lost 97% of its purchasing power to inflation since 1913 when the Fed's two original goals were to be "a lender of last resort" for the nation's lending institutions & to preserve the value of the dollar. Testimony of the Fed's failure - it takes $33.07 today to buy what $1.00 did in 1913.
Since January, 2012 I have offered solutions to four of our intractable problems that are unsustainable. Namely, 1) replace the Medicare plan with one of premium support to buy private insurance using a nominal dollar demogrant, unadjusted for inflation, for people younger than 55, 2) change the basis for the initial Social Security benefit to the CPI instead of the national average wage index to ensure that benefits do not grow faster than the cost of living, 3) cut, cap & balance federal spending @ 18% of GDP, & 4) replace the federal income tax & IRS with the FairTax Plan. Implementing any one of these four would do wonders for changing the government dependent mindset that effectively is a bureaucratic anchor that separates us from our founding principles of limited government, personal responsibility, & free enterprise. These four are long term solutions needed to reset America's sail before we completely go adrift.
We can see the importance of having a stable currency from the above history of what set up our latest chapter of economic trouble - affordability. Alexander Hamilton laid a solid foundation for the gold standard & the following graphic summarizes the main sound dollar points of this post. Notice the flat line for low CPI growth from 1800 into the 1960s that starts to dramatically increase in the early 1970s as described above.
Click on graphic to enlarge
Inflation averaged 0.2% a year from 1790 to 1913 when the Fed was created. From 1914 to 1971, under the Fed managed gold standard, inflation averaged 2.7% per year, & from 1972 to 2025 it averaged 3.9%. At 0.2% annual inflation it would take 348 years for prices to double. Now that's stability!
In 1913 the United States was the wealthiest country in the world. Since then the government has become much more involved in everything we do & I'm only talking economically in this post. I leave personal pronoun selections & the like to others.
Almost unbelievably, the Fed has the conceit to think it can manage & control the monetary system of the $30 trillion United States economy, let alone do this still using the discredited Keynes' ideas that led to the Phillips curve inverse relationship between unemployment & inflation. This despite the stagflation lesson of the 1970s that proved unemployment & inflation can both move in the same direction - in that case higher. Shouldn't we have long ago questioned an inflation fighting model that deliberately slows growth & raises unemployment? Reaganomics proved that growth is good & not inflationary.
The effective way to cure inflation is to stabilize the value of the dollar by linking it to gold. Returning the dollar to a gold standard system can be started by the President placing a phone call to the Treasury Secretary to initiate discussions with central banks on stabilizing the price of gold, even around broad bands much like Fed Chairmen Volcker & Greenspan did from early in Volcker's term to 2006 in what was essentially a de facto gold standard. These men focused on the value of the currency & not just the quantity of money alone. To stabilize & support the value of our money from sliding lower, the government should publicly state their intention to do so followed by the affirmative action of shrinking the monetary base - the most liquid component of the money supply consisting of the total amount of currency in circulation plus the reserves held by commercial banks in their accounts at the central bank. This is done by selling government bonds in exchange for domestic currency through open market operations & letting these markets determine the level of interest rates after dollar stabilization. The Fed will no longer set interest rates. This type of gold standard would assure investors who lend money to other people that they will get sound money back 10, 20, 30 years later with the same purchasing power as the money they originally lent. Sources - Inflation by Steve Forbes, Nathan Lewis, & Elizabeth Ames pages 79 to 85 & Wall Street Week transcript Hey Jude (Wanniski) - November 13, 1981.
The above information & information from the last post shows the events (including current events concerning the Fed's operations) that cumulatively produced the affordability issue distressing the American consumer today as well as the reasons the American worker, especially those with limited education, should be petrified of AI. AI is directly aimed @ replacing these people in the workforce.
All inflation is made in Washington & the current manmade unaffordability humiliating blunder came right out of the pandemic era government programs that flooded the nation's money supply with direct deposits & personal checks to 175 million Americans.
But the most bitter pill to swallow comes when we find out we were once on track to completely avoid this affordability mishap - Using Table A-7 of the above referenced Census Bureau's income & poverty report, the growth in real median annual earnings for men for the 13 years from 1960 through 1973 was $19,550 in 2024 constant dollars. The growth for the next 51 years was only $4,960 in constant 2024 dollars. Had the growth in income continued @ the same rate as the period 1960 to 1973 to the present I calculate that the typical male worker would today be making $275,569 per year thereby not only precluding the affordability crisis from ever happening but bringing about a prosperity far greater than we have ever realized.
Does this calculation of enhanced prosperity quantify how much we have been cheated out of? I used to feel that way, but have come to realize it is just another shameful example of what we have let happen to ourselves.
