“You have to make twice what you make today in 15 years to stay even” — billionaire explains why Americans are getting poorer

With the cost of essentials such as housing, automobiles, and everyday consumer goods increasingly out of reach for many Americans, billionaire investor Ron Baron offered an explanation for why so many people feel chronically poorer every year.

In a recent interview with CNBC, Baron described the current economic and monetary environment facing the country, arguing that inflation is eroding roughly 4% to 5% of the average person’s purchasing power each year, while real economic growth remains closer to 2%.

Taken together, Baron said, those forces create an effective annual headwind of about 7% for anyone whose income is not rising, as inflation and economic expansion combine to push prices higher.

“That means everything doubles in ten years,” Baron said. “The value of money falls in half every 15 years. You’ve got to make twice what you make today in 15 years just to stay even.”

The situation has worsened since the pandemic, with cumulative inflation totaling roughly 26% since the start of the decade. That pace puts the 2020s on track to be the most inflationary decade since the 1970s and early 1980s, according to Ritholtz Research.

“Inflation is a point of stress for everyone,” Taylor Bowley, an economist with the Bank of America Institute, said recently, noting that recent price increases have fallen most heavily on lower-income households.

As Baron noted, the current inflationary environment makes it impossible for Americans to stay ahead of the inflation curve unless they’re heavily invested in the market — an approach that may fall outside many people’s comfort zones but has become essential under today’s conditions.

Paychecks haven’t caught up

Although inflation has eased from its post-pandemic peak, cost pressures remain pronounced as Americans continue to feel the lingering effects of expansive government spending and monetary stimulus.

In November, the average U.S. worker earned $36.86 per hour, a 3.5% increase from the previous year. While that marks continued wage growth, it has largely only kept pace with inflation, which has been running at roughly the same rate.

At the same time, pay increases have steadily cooled since the pandemic-era peak, when wage growth topped out at 5.9% in March 2022 and has not returned to that level.

“Wage growth is easing into a sustained affordability crisis,” Joe Brusuelas, chief economist at RSM US, told CNN.

Although many Americans are struggling, consumer spending remains elevated, supported in part by record credit card debt and growing reliance on “buy now, pay later” financing.

Credit card balances climbed to a cumulative $1.23 trillion in the third quarter, a new all-time high, according to data from the New York Fed.