Let’s get the awkward part out of the way first. Yes, I’m one of those grey-haired Boomers who grew up in a very different world than the one we all live in today.

That being said, I’m also the guy people in the media come to for economic analysis when they want to tell their audience what’s really going on, and despite the claims by many financial “experts,” our economy simply doesn’t work for the majority of Americans any longer.

And no, it’s not because the younger generations are dumb, lazy, or unethical. That’s just an easy cop-out that some people use to deflect from the real problem: the underlying economic foundation is fundamentally broken.

If you’re doing well financially, you may feel like the issue is being exaggerated. Still, when you look at both anecdotal accounts and the data behind our economy, it’s clear that the problem is being downplayed in the media.

We’re going to break down the data in a moment, as well as the steps needed to fix the problems, but first, I want to address why many in the media are either silent or lying about the true state of our economy.

The truth is it’s far more fragile than almost anyone realizes, and if people knew how bad it is, it would induce a mass panic that would likely lead to economic collapse. In other words, it’s a massive PR campaign.

Unfortunately, there’s not a good answer here because we need people to understand the reality of the situation so we can demand the appropriate policies. Still, at the same time, we risk causing a panic that leads to a run on the banks, massive sell-offs in the markets, and a steep decline in consumer spending.

What’s really going on in the economy?

Let’s start with wages, which, when adjusted for inflation, have been stagnant for most employees since the 1970s. Then, we factor in productivity. Between 1979 and 2020, workers' wages grew by only 17.5%, while productivity grew over three times as fast at 61.8%.

Workers understandably feel shorted because while they’ve done their part, they aren’t fairly compensated.

While there is some merit to the fact that many younger employees often have unrealistic expectations regarding salary—especially starting salary, the truth is that wages need to increase if we expect the economy to work for everyone.

It’s pretty simple. If people can’t afford to spend money, businesses will collapse, which leads to layoffs and even lower consumer spending. It doesn’t take a doctorate in economics to see how this can quickly spiral out of control. In fact, we’re already in the early stages of that right now.

To put this in perspective and highlight the media’s misrepresentation of underlying data, let’s look at consumer confidence and spending—two critical factors in the health of our economy.

Consumer confidence has plummeted in recent years, but despite that, consumer spending continues to grow rapidly. Why is that? Part of it is that the media constantly tells us the economy is great, and many people take that at face value. But if wages are stagnant, how can spending continue to increase?

There are several factors at play here. The first is that inflation has dramatically driven the cost of everything—including essentials, so many have no choice but to spend more. But how can they afford it? They can’t, so they’re going into debt to cover the difference.

Most people don’t understand inflation or its devastating effect on their budget, but we are impacted daily.

When we talk about inflation, we usually talk about the inflation rate, which is a measure of the decline in the purchasing price of the dollar. Things become more expensive because our money is worth less than it used to be.

The problem is that the inflation rate is a measure of that change—so even when the rate declines, prices don’t. It’s the new baseline. That’s why you don’t see anything change when the Fed manages to decrease the inflation rate.

To put this in perspective, the purchasing power of your dollar today has declined by about 25% compared to just ten years ago. In other words—everything you buy today costs 25% more, but most of you haven’t seen a corresponding increase in your income. So, for many Americans, the only choice is to rely on credit, which adds up quickly.

Personal, corporate, and national debt has skyrocketed to historic levels. American households today carry a staggering $17.943 trillion in debt as of Q3 2024, with mortgages accounting for 70%.

And it’s not just that debt is increasing—people are defaulting at an increasing rate too. Credit card and auto loan delinquency rates have increased dramatically since 2022, reaching levels not seen since the 2008 recession. Meanwhile, the federal government currently has $36.19 trillion in federal debt, and the interest payments alone now exceed our entire military budget.

As a nation, we are dangerously close to a point where our liabilities will exceed taxes collected, and unsurprisingly, American businesses and families are in the same boat regarding their debt and income.

This all leads to the housing affordability crisis, which I believe, based on conversations I’ve had with hundreds of younger people, is the most significant single reason they feel the American Dream is dead. The story has always been that if you work hard, get a good job, pay your bills on time, and put aside some savings, you could own a home, but that’s becoming out of reach for millions of Americans.

As of Q3 2024, the median home sales price in the United States was $420,400, a 23% increase from the same period in 2020, when the median sales price was $327,900. To put this in perspective, home prices have historically appreciated by 4.4% per year, which works out significantly lower over the same time period—using the same $327,900 starting point that would result in a much lower price of $389,532—a far cry from what we see today.

Couple that with stagnant wages, and it’s a recipe for disaster. As of 2023, the median household income in the United States was $80,610, a 4% increase from 2022 and the first statistically significant increase since 2019.

Based on these numbers and the average household debt of $1,583 per month, a buyer could reasonably afford a home that costs $110,928. That’s much less than the median home price of $420,400 today. So clearly, it’s not simply a matter of making coffee at home and driving a beater car.

The economics of homeownership don’t work for the vast majority of Americans today. Especially the younger generations. It also explains why the U.S. recently saw an 18.1% increase in homelessness this year. 

There is a solution, but do we have the guts for it?

Let’s start by addressing the elephant in the room—it took decades of bad economic policy to get here, combined with decades of not teaching financial literacy. Add in corrupt politicians, and you will have a struggling economy run by an entrenched group of people opposed to real change.

But it can be fixed, and this election is a sign that the American people are ready to buckle down and make that happen.

We’ve already seen this in action with the recent debates around the H-1B visa program over the holidays when Americans stood up and made it very clear to their elected representatives where they stood on the matter, causing politicians to clarify and adjust course.

Holding them accountable and demanding they implement the policies we need is the foundation to everything necessary to turn our economy around. It won’t be easy or fast, but if we remain diligent in our efforts to demand sound fiscal policies and vote out our elected officials who fail to follow through, we have a strong opportunity to put our economy on the right track.

The most significant part of these policies is to dramatically cut government spending, which not only reduces waste, fraud, and abuse but also helps to curtail inflation, which has eroded the purchasing power of our dollar ever since the inception of the Federal Reserve.

It’s important to note that this doesn’t mean costs will come down—it just means they stop increasing as quickly, or in an ideal world. However, this will require significant cuts to have a meaningful effect, including things that some people want, but that’s exactly what’s needed. And the truth is, the free market can provide those things more efficiently anyway.

At the same time, we need to promote financial literacy education at all levels aggressively. About half of U.S. states have a financial literacy curriculum in their public schools, and that needs to be expanded to all 50 states as quickly as possible. But we shouldn’t rely entirely on the public education system either. As parents, business owners, and community leaders, I believe we have a responsibility to help educate youth and adults alike.

Cutting burdensome regulations is another core component needed to put our economy back on solid footing. This is critical because most people—especially the younger generation, don’t realize the absurd bureaucracy entrepreneurs face. While some may be tempted to say, “That’s just the cost of doing business,” it’s important to remember two key details.

The first is that these costs get passed on to customers 100% of the time.

Remember that, unlike the government, a business has to remain profitable to exist, so any increase in cost, by necessity, leads to a rise in prices. Otherwise, the company goes out of business, and its employees get laid off, leading to greater economic weakness on a larger scale.

The second is that these costs are cut into employee pay 100% of the time, and for all the same reasons.

While some people believe business owners are raking in profits hand over fist and that they’ll just buy another boat or vacation home, that’s not really the case. Most entrepreneurs make far less than you might think. Here’s what the data shows:

• Single owner/employee: $44,000 per year
• Businesses with up to 4 employees: $387,000 per year
• Businesses with 5-9 employees: $1 million in revenue
• Businesses with 10-19 employees: $2,164,000 per year
• Businesses with 100+ employees: $40.77 million annually

The reality is that when a small business reduces costs, the owners often increase employee pay.

By removing burdens on entrepreneurship, we create more productive economic activity that benefits everyone and has a holistic impact on the broader economy.

And finally, we need to reduce debt at all levels. Personal, corporate, and national.

I want to be clear: I’m not some kind of “debt is dumb” absolutist. There are numerous scenarios where debt, appropriately used, can provide tremendous leverage that can change your financial trajectory significantly and positively. The mistake most make is using it carelessly and/or speculatively.

The problem is that debt increases our costs as a result of interest charges, so if it’s not used in a way that produces a direct increase in revenue in a relatively short timeframe, it can quickly erode your cash flow putting you in a more precarious financial position.

A strong economy requires all of us to do our part

Our economy is broken, and most people reading this today played no role in breaking it. Still, we are all responsible for many aspects of our own financial situation. And regardless of anything, we all live in this economy, so if we want it to change, we all have to do what’s necessary.

It won’t be fast or easy, but we and future generations deserve it.

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Dr. David Phelps created Freedom Founders to help its members achieve the freedom they wanted in their lives by building the necessary financial foundation. He is a noted financial expert who is regularly cited by the media, and recently helped the FL Dept. of Education develop its new financial literacy curriculum.