Digest: The Shocking Truth About Salaries in the U.S.

Welcome to your Sunday digest…my breakdown of the things we’re thinking about and talking about in the Global Intelligence world. 

First up…the true effects of inflation. 

You might imagine that you earn a lot more than your parents or grandparents. And in nominal terms, that’s certainly correct. 

The average hourly wage 50 years ago, in 1972, was $3.88. As of June this year, it’s all the way up to $27.45. That’s an increase of 607%.  

At this point, you can probably sense there’s a “but” coming, and indeed here it is… 

But, if you adjust those figures for inflation, Americans today are earning just 12 cents more than they were in 1972. 

Which means that wages in the U.S.—in terms of the goods and services you can actually buy with them—have basically stagnated for 50 years. 

And it’s not just that people are earning about the same…they’re having to work harder for it. 

According to the Economic Policy Institute, between 1979 and 2020, net productivity rose 61.8% in the U.S. Basically, a lot more work is getting done (and much larger profits are being made) than four decades ago, but workers are getting paid about the same. 

So, where’s all the money going? 

Well, it won’t surprise you to learn that it’s going to the top of the ladder, in the form of executive bonuses, share buybacks, and other ways to reward the top 1%…which is squeezing out the middle class. Since the 1970s, America’s middle class has fallen from 61% of U.S. adults to 50%, according to the Pew Research Center. 

The continuing decline of America’s middle class is a big problem.  

Every prosperous nation (that isn’t conveniently located atop massive quantities of oil, natural gas, gold, or some other in-demand commodity) needs a big consumer class—a large cohort of citizens to buy new cars and the latest iPhone and the bigger houses and the 64-inch 4K smart TVs.  

A collapsing middle class means collapsing demand…and collapsing demand means a radically different, and much smaller, economy. 

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Next up…is China gearing up for a U-turn on its zero-COVID policy? 

As I written about extensively in this digest, China has the world’s most restrictive COVID rules…forcing citizens into mass, mandatory lockdowns for even a single case of the virus. 

But now the Chinese government is loosening up aspects of this approach. 

Since Nov. 11, people who are “close contacts of close contacts” of COVID cases no longer need to quarantine. Mass-testing cannot be used unless it is unclear how infections are spreading in an area. And travelers arriving from abroad will have to quarantine for eight days, down from 10.  

Of course, these new rules are still stricter than those in place in any other major economy. But the changes mark the first significant climbdown since zero-COVID was introduced. 

It seems the government was forced into this move by growing civil unrest. For instance, in the southern manufacturing hub of Guangzhou recently, a protest erupted in one part of the city over the lack of food after residents had been confined at home for three weeks. 

Now that certain restrictions have been relaxed, it will be interesting to see how the Chinese government reacts as cases begin to spread…which they inevitably will. 

China’s healthcare system is ill-prepared for a mass COVID outbreak, which is why authorities have been enforcing the zero-COVID policy.  

China’s authoritarian government will not want to see mass deaths from the virus, which could spark even greater civil unrest than the lockdown protests. 

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Finally this week, a hugely worrying sign for the energy industry and the global economy writ large. 

This has been a terrible year for the opening up of new oil and gas projects, both in the U.S. and around the world.  

According to Norwegian oil and gas data provider Rystad, only 44 oil and gas leasing rounds are expected to be completed globally by the end of this year, and only two in the U.S. By comparison, the number in 2019, before the pandemic, was 105. In fact, 44 would be the lowest figure in more than two decades. 

A major reason for this underinvestment in oil and gas exploration is climate concerns and the green agenda. 

Now, don’t get me wrong. Green energy is the future, no question, but the reality is that it’s decades away from being ready to fully meet our power needs.  

We simply cannot stop exploring for oil and gas because doing so will spark a massive global energy crisis. Yet, that’s exactly what’s happening.  

I explore this topic in much greater detail in the November issue of our monthly Global Intelligence Letter, in which I’ll tell you the name of one stable, high-dividend U.S. oil giant that’s going to be a big winner as this unfortunate reality unfolds in the global energy market. The November issue will be with you in the coming days. 

That brings us to the end of this week’s digest. Many thanks for being a subscriber. And if you have any feedback or questions, reach out through the contact form on the Global Intelligence website. 

Enjoy the rest of your Sunday.