If average income in country has declined to one half while your asset price remained constant, it means that your asset value doubled, because everybody must work twice more to buy it. From this point of view it has logic to multiply the asset value by inverted income rate. Here is calculation:
Use the Median US household income, in dollars, source: 1, 2, 3:
Adjust it for M2 money-supply (our very first M2 adjusted chart). You can see that real household income is actually declining:
Divide the income-M2-adjusted curve by its initial value. The result is curve showing how many times has income increased or decreased (household income rate):
Invert this curve. For non mathematicians: by formula y=x^(-1). Now you can see how many times more you have to work to get the same income as in the year 1970.
After the adjustment of asset price for M2 & population you should multiply it by this curve to see its real value. That is what I call “income adjusted”.
Note: Maybe it looks unrealistic (to work nearly 3 times more to get the same) but don’t forget that in the 50’s and 60’s half of women was not participating in labor and husband was able to pay for everything. Maybe you have heard the stories about high school teachers in the 60’s having annual salary of 9 000 dollars while home price was 12 000 dollars. It may be truth…
4 thoughts on “Income adjustment”
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