Why America Should Have $550k Average Wages

Something broke in the 1970s. If we hadn't instituted degrowth policies, the typical American family would be unrecognizably wealthy.

Here's a number that will make you angry: $550,000.

That's approximately what the average American wage should be today if we had continued the economic trajectory we were on before the 1970s.

Not the median. Not for coastal elites. The average—which means many people would be making more.

Instead, the actual average wage is around $65,000. We're missing about $485,000 per worker, per year.

This isn't a rounding error. This isn't "well, different assumptions lead to different estimates." This is a policy-induced catastrophe—the largest theft of prosperity in American history, perpetrated over decades through decisions that seemed reasonable at the time.

Let me show you how we got robbed.

The Break Point: 1973

Something strange happened in 1973. Two lines on an economic chart that had tracked together for decades suddenly diverged—and never came back.

From 1948 to 1973, productivity and median wages grew in lockstep. When the economy became more productive, workers captured that value. Income for the typical family grew at 3% annually—doubling roughly once per generation.

Then it stopped.

After 1973, productivity kept growing—but wages didn't follow. By 2016, if wages had kept pace with productivity (as they did pre-1973), median compensation would have been 41% higher.

But that's just the direct wage effect. The full picture is worse.

The Compound Disaster

The 1970s didn't just slow wage growth. They slowed everything—and in a compound system, slowing the growth rate is catastrophic over time.

Consider: GDP growth from 1946-1973 averaged 3.8% annually. Since then, it's averaged closer to 2-2.5%.

That 1-1.5 percentage point difference compounds. Over 50 years:

• At 3.8% growth: the economy grows 6.5x
• At 2.3% growth: the economy grows 3.1x

We have half the economy we should have—roughly $25 trillion in annual GDP that doesn't exist. Spread across the workforce, that's hundreds of thousands of dollars per person.

Now add the wage-productivity divergence on top of that. Workers capture a smaller share of a smaller pie.

$550,000 isn't pulled from thin air. It's what happens when you compound 3% growth for 50+ years instead of 0.6%, and workers capture productivity gains instead of losing them to regulatory drag and housing costs.

What Happened in the 1970s?

The 1970s weren't a single policy disaster. They were a cluster of policy decisions that, combined, fundamentally changed the relationship between Americans and economic growth.

1. We Made It Illegal to Build

In the early 1970s, California pioneered something called "downzoning"—changing the rules to make it harder to build housing in areas that already had it. San Francisco essentially banned apartments in neighborhoods that already contained them.

The effects were catastrophic:

• Between 1970 and 1990, housing units near BART stations declined by 11%—even as the region grew 20-25%
• By 2010, California had a shortage of 2.7 million housing units—20% of what was needed
• San Francisco, between 2010-2015, permitted just one new home for every eight new jobs created

This wasn't just California. The National Environmental Policy Act (NEPA, 1969) created environmental impact requirements that could delay projects for years. Local zoning became increasingly restrictive everywhere. Single-family zoning locked in low density across most of suburban America.

2. Housing Ate the Economy

When you can't build housing, prices rise. And they didn't just rise a little.

Home prices have increased almost twice as fast as incomes. That gap is pure wealth transfer—from workers to landowners, from young to old, from newcomers to incumbents.

A healthy price-to-income ratio is considered 2.6. We haven't seen that nationally since the 1990s.

3. Labor's Share Collapsed

In 1970, wages and salaries were 51% of GDP. Today, they're 43%.

That's an 8 percentage point shift from labor to capital—from workers to owners. On a $28 trillion economy, that's over $2 trillion per year that used to go to workers and now doesn't.

Where did it go? Housing costs. Healthcare costs. Regulatory compliance. Profits captured by incumbents protected from competition.

4. Regulatory Accumulation

Every regulation has a cost. Most regulations, individually, seem reasonable. But regulations accumulate—and the accumulated burden compounds.

The 1970s saw an explosion of federal regulation: EPA (1970), OSHA (1970), NEPA implementation, Clean Air Act extensions, and hundreds of other rules. Each added friction to economic activity. Each made it slightly harder to build, start businesses, hire workers, create value.

The cumulative effect isn't slight. Economists estimate that accumulated regulation has reduced GDP growth by 0.5-1.0 percentage points annually. Compounded over 50 years, that's enormous.

What Would Life Look Like?

Let's make this concrete. If the typical American family earned $550,000 instead of $65,000, what would be different?

Housing would be a minor expense. Even in expensive cities, a $500k house is less than one year's salary. The median home price to income ratio would be under 1x, not 6x.

Healthcare would be affordable. Out-of-pocket costs that bankrupt families today would be manageable line items.

Education wouldn't require debt. Private school, college, graduate school—all affordable without loans.

Retirement would be simple. Save 10% of $550k for 30 years and you have millions. The "retirement crisis" wouldn't exist.

The middle class would be rich by today's standards. A factory worker in 1960 could support a family of four, own a home, and take vacations. That same proportional prosperity, compounded forward, means middle-class families living like today's wealthy.

Why This Isn't Just Nostalgia

You might think: "Sure, but the past is the past. You can't just extrapolate trends forever."

Fair point. But consider: the slowdown wasn't inevitable. Other countries didn't experience the same deceleration at the same time. The policy changes were choices—made by specific people, for specific reasons, with specific effects.

And some of those policies could be reversed.

What if we:

• Eliminated single-family zoning nationwide (as many cities are now doing)
• Streamlined environmental review to weeks instead of years
• Allowed housing construction at the rate of job creation
• Reduced regulatory accumulation by requiring sunset clauses
• Broke up the healthcare cartels that capture regulatory agencies

We probably can't get back to $550k. Too much compounding has been lost. But we could accelerate from here. We could make decisions today that put us on a faster trajectory for the next 50 years.

Or we could keep doing what we're doing—and watch the next generation be even poorer, relative to what they could have had.

The Politics of Decline

Here's the ugly part: the people who benefited from these policies are still in charge.

Homeowners who bought in the 1970s-1990s have seen their property values explode. They vote against new construction because it might—might—reduce their paper gains.

Incumbents in regulated industries have captured their regulators. They support "consumer protection" rules that happen to protect them from competition.

Older generations locked in low property taxes (Prop 13), defined-benefit pensions, and housing costs that seem laughable today. They have no incentive to change the system that made them comfortable.

The losers are the young, the new arrivals, the not-yet-born. They don't vote yet. They're not organized. They're too busy trying to afford rent to fight for zoning reform.

What You Can Do

I wish I had a simple solution. I don't. The policies that caused this are deeply entrenched, supported by powerful interests, and protected by systems designed to prevent change.

But awareness is the first step. Understanding that we're not living in a world of inevitable scarcity, but in a world of policy-induced artificial scarcity.

Things you can do:

• Support housing construction. Every time there's a local fight about a new development, show up. Vote yes. The NIMBYs always show up; the people who need housing don't.
• Vote for politicians who understand this. Ask candidates what they think about zoning reform, NEPA streamlining, and regulatory accumulation.
• Move to places that build. Some cities still allow growth. Austin, Houston, Phoenix. Voting with your feet sends a signal.
• Talk about it. Most people don't understand that their economic struggles are policy-induced. Spread the word.

The Future We Lost

Somewhere, in an alternate timeline, there's an America where the 1970s policy changes didn't happen. Where housing kept pace with jobs. Where productivity gains flowed to workers. Where regulation accumulated more slowly.

In that America, the average worker makes $550,000. Housing costs are trivial. Healthcare is affordable. The "middle class" lives like today's rich.

We don't live in that America. We live in the one where a few decades of bad policy compounded into trillions of dollars of lost prosperity.

But we're making the policies of the next 50 years right now. The question is whether we'll learn from the last 50—or keep compounding our mistakes.