Purchasing capacity, the ability of people to pay for basic goods and services, is the most direct and accurate way to measure their standard of living and the true state of the economy. People need to feel that their lives are improving. Prevailing consumerism manipulates people through advertising, creating artificial needs, to buy on credit and to ignore the environmental impact of their purchases. To increase purchasing capacity, products must be available to meet local demand. There must be stable prices, periodic increases in wages, and a steady increase in collective assets and infrastructure, such as public transportation, energy generating systems, and communication networks.
When one is readily able to purchase basic goods and services, then life can take on new meaning. Increasing the purchasing capacity of families enables them to be free from a constant struggle to survive. Parents need to feel they can provide their children with a reasonable standard of living, which will support their development into healthy adults.
Because Americans’ wages are falling, insecurity about personal finances is now the highest it has been in a decade. According to a recent Gallup poll, twenty percent of adult Americans, the highest percentage since first asked this question in 2001, rate their financial situation as “poor” (Saad, L., Feb. 21, 2012). The annual median wage fell in 2010 for the second year in a row to $26,364, a 1.2 percent drop from 2009, and the lowest level since 1999. Median income separates incomes of the population into two equal groups— with half earning above that middle earnings amount and the other half earning below that amount. Mean income is the average, or amount obtained by dividing the total income of a group by the number in that group (Berman, Jan. 23, 2012).
Median income is usually considered the more reliable figure (U.S. Census Bureau, 2010). Though our economy has been growing, most of us have relatively little to show for it. The median wage in the United States is the same as it was thirty years ago. The real income of the bottom 90 percent of American taxpayers has declined steadily. In other countries, as well, real income, adjusted for inflation, has not changed for decades. According to Deep Economy author, Bill McKibben, in Latin America, despite a program of growth economics, real per capita income is the same as it was a quarter century ago. In fact, in the last decade, per capita incomes fell in more than eighty countries world-wide (McKibben, 2008).
Though average median income in the 1950s was only about $3200, a gallon of gasoline was only eighteen cents, for example (“The People History”, 2011). Today’s median income is $26,364, and the price of a gallon of gasoline is nearly $4.00 (Gibson & Perot, 2011).). If you had taken one dollar to a store in the 1950s, you would have been able to buy items, adding up to less monetary value than today, but the actual value, according to prices at that time, would amount to a greater purchasing capacity in the 1950s than we enjoy today. While the median income has been falling in the United States, purchasing capacity has fallen even more rapidly. If one’s monetary income stays the same, but the level of basic consumer prices increases, the purchasing capacity of that income falls (www.measuringworth.com).
The standard of living of the population, a simple mathematical calculation (total national income divided by total population) is not a sufficiently reliable and scientific index to determine the country-wide per capita income average. It does not give an accurate picture of the standard of living of the people since the disparity in wealth in the society is concealed. Per capita income shows the mean and not the variation of income distribution (U.S. Census Bureau, 2012.) In other words, while people may have very high incomes, they may not be able to purchase the basic necessities of life. If the per capita income is low, yet people have great purchasing capacity, they are actually more affluent because they are able to purchase more with the money they earn.
To raise the standard of living of the population, purchasing capacity, must be increased, not per capita income (Berman, January 23, 1012). If inflation is also considered, the reliability of per capita (literally, “per head”, per person) income is further reduced. Inflation does not always imply falling purchasing capacity of one’s money since inflation may rise faster than does the price level. A higher real income means a greater purchasing capacity since real income refers to the income adjusted for inflation. Factors such as rapid increases in the money supply which is an inherent problem in a fiat-based currency system (not based on precious metal reserves) will generally cause inflation and devalue the purchasing capacity of money.
Many sources attribute Nixon’s 1971 action of taking United States currency off of the gold standard, sometimes referred to as “The Nixon Shock” as one of the most significant factors in the devaluing of our currency. However, other factors such as the rising price of imports, especially oil, and skyrocketing defense spending, all without attendant decreases in other areas of spending, are additional factors that have contributed to increasing inflation, and thereby to currency devaluation (“Wikipedia”, 2012). Fiat money, sometimes referred to as “toilet paper money” is currency used as legal tender which has no intrinsic value and is not backed by gold or silver reserves (“Investopedia”, 2012). Currently, our paper money in this country is fiat money, and has been devalued consistently since the Nixon presidency (www.dailyreckoning.com).
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