2011 was a tumultuous year, we experienced everything from the nuclear disaster in Japan to a revolution in Egypt. While U.S. stocks were as volatile as the times, the S&P 500 ended up right where it started and returned 0% for the year. According to the stock market, we have gone nowhere for the past 12 months. Judging by other indicators, we have been running in place for even longer than that. Real personal income ended 2011 near where it was in 2001. In other words, income growth in the U.S. has stagnated for a decade. Meanwhile, assistance from Uncle Sam has been on the rise. Figure 1 shows real personal income (blue) and government transfers (red) from 2001 to 2011. While income has been flat, public aid has more than doubled.
The fact that we are neck deep in debt tells me we are obviously spending more than we should. Instead of trying to reverse that situation, the government is subsidizing people to maintain and even increase the spending that we cannot afford. Though we’ve managed to tread water so far, our country needs responsible fiscal management and efficient resource allocation to prevent us from sinking into worsening financial problems. Being an election year, 2012 provides us with an opportunity to remind our elected officials of their duty to implement responsible public policies. Red or blue, it’s time to stop arguing over personal differences, and to work together against the bigger issues that affect us all.
Victor K Lai, CFA
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