We paraphrased this idea from the famous saying of the not-so-famous US General Oliver P. Smith who said "Retreat, hell! We're not retreating, we're just advancing in a different direction." Nowadays thanks to a new trend to make large databases available for free on the Internet, we are being gifted with the very weapons we need to show you just how bad current economic -and other- situations are. In this article we used statistical information from the OECD as well as from Eurostat. As these numbers are the official, formal and for the record statistical numbers from countries, whatever we may find has actually been blessed by their respective governments. Let nobody accuse us from concocting our own data for our own purposes in our own manner. This means that these numbers are as official as you can possibly get. In other words, these numbers are the absolute best case scenario (for them) that you can possibly think of. Yet…
DISPOSABLE INCOME
One of the key statistical measures on which economists rely is a little known parameter called Disposable Income. It's official definition reads:
The disposable income of private households is the balance of primary income (operating surplus/mixed income plus compensation of employees plus property income received minus property income paid) and the redistribution of income in cash. These transactions comprise social contributions paid, social benefits in cash received, current taxes on income and wealth paid, as well as other current transfers. Disposable income does not include social transfers in kind coming from public administrations or non-profit institutions serving households.
Simple right? What all this mumbo-jumbo means is that Disposable Income is the amount of cash that you have left (in this case per year and per household) once you have paid all your "obligations" including taxes. This is the money you can spend freely. The idea being that if there is "progress" in a country (or as in this case the EU area) then the Disposable Income should be rising. If the economy is doing well, then people should be becoming richer. This much is a no-brainer. If we now take the data from Eurostat and plot it for recent years, we see the following:
And as you can see and as predicted by economic bureaucrats, every year the people of the Europas have indeed retained a little bit more money to spend. You can even see the effect of the 2008 economic debacle. There you have it. Incontrovertible proof that current economic policies are working. The EU Central Bank and each local Central Bank along with all the Ministries of Economy are guiding the economic boat safely to wealthier shores. Or are they?
MONEY VERSUS WEALTH
This is all great and fine and interesting but… yes dear reader… there is always a but. The real question (as the Germans in the Weimar republic discovered) is not how much money do you have but what can you buy with it. What would you prefer, to have 20 Morlocks and being able to buy a bicycle or having 200 Morlocks and being able to buy only a pack of chewing gum? Obviously the former and not the latter right? Yet, what the statistic above is showing is the latter and not the former. Don't you think this is a little bit disingenuous to say the least?
Not to worry. That's our task. To show you just how misleading those numbers really are. To do so we are going to take some data from the OECD and with it we are going to calculate the same numbers in constant EUR. This is, we are going to subtract inflation, which as we all know is just colored paper and nothing more. By so doing we can now look at wealth (or purchasing power) instead of meaningless amounts of money. Take a look:
Do you notice a slight difference? Yes, we are being cynical here. But before we move forward, we need to clarify that this correction for inflation is as standard a procedure as it can be in standard Macroeconomics. We are not pulling any magic tricks here. This is pure mainstream economics. The difference is astounding.
- In terms of money, Europeans gained about 24% in EUR
- In terms of wealth, Europeans lost about 11% in constant EUR
In other words, there is a difference of 35% between what Euro politicians are telling people and what people are actually feeling every time they go shopping. It is no wonder that people feel so discouraged all over EU. They are in fact not progressing. They are regressing!
CONCLUSION
Thanks to new data that it is coming online all the time, we now have better and sharper tools to show you just how bad current situations are. And please, dear reader, do keep in mind that as all this data originates in governments, the real data is actually far, far worse. This time we focused in the Euro zone, but we could have chosen any country in the world and obtain similar results. As we have mentioned many times before, this is a world problem not a country problem. It is not a matter of voting a new-and-improved politician or changing economic policies. The only solution is to get rid of all politicians altogether. We know this because everything else was already tried over the last 200+ years and failed miserably. It is extremely doubtful that in the near future we will discover new breakthrough economic laws that will affect how the real economy works. Besides, we don't need them. We already have the tried-and-true free market which we know it works. In this case it is a simple case of regressing to the methods of the past (or, to be precise, to the non-methods of the past).
This is, unless you believe in money. Unless you think that having more money in your pocket while being able to buy less is OK with you. If this is the case, we simply point to you the obvious; there is no free lunch and everything has an Alpha And Omega. When the time comes, don't tell us we did not warned you.
Note: please see the Glossary if you are unfamiliar with certain words.