Since the early 1970s, the end of the ‘Great Prosperity’ era, the conversation around structural issues in the US economy have focused around several key issues: the lack of meaningful real wage growth among the majority of Americans, the aggressive outsourcing of manufacturing and jobs, the explosive growth of American indebtedness through consumer credit products, the large increases in costs for many fundamental services, in particular housing and higher education, and the aggressive consolidation of wealth.
These factors are all deeply interconnected, forming a vicious cycle of impoverishment for the majority of Americans. That they have not happened in a vacuum, but are the natural conclusion of millions of small, myopic decisions by executives, middle managers, government officials and others, driving the ‘invisible hand’ of the market towards this outcome.
This cycle has forced a “race to the bottom” for the US economy, a vicious cycle of demand for continued economic growth, with an increasingly impoverished population, requiring new and innovative mechanisms to fuel said expansion that serve only to further impoverish the population. This cycle is simple: Stagnated wages while CPI inflation continues means that consumer purchasing power must decrease. Thus, to fuel needed growth, the economy must find ways to increase individual and thus aggregate consumer purchasing power.
Companies do this is multiple ways:
1. Decreasing product costs through cost cutting
2. Rolling out consumer debt products to increase spending power
However, as time passes these tactics simple serve to continue the cycle; as cost cutting leads to job cuts and wage freezes, increased indebtedness decreases spendable capital, and increased lending helps drive inflation.
The Vicious Cycle:
This of course ignores population growth as well as governmental action, both of which play important roles in our discussion. (and which we will go into in later posts). As for productivity increases, I believe that this has helped to make the cycle worse, as companies are able to do more with fewer workers (and therefore lower costs). Again, I will explore in depth in the future.
The inevitable end of this cycle is what I call “Peak Cheap”; defined as the point at which companies, and society at large, can no longer provide products and services in an affordable range for the majority of the population. How we define the moment we reach this point is one that I hope to explore and define through this blogging experience. Reaching this point would create widespread issues both on an economic and societal level. Looking around the world of 2020, I would argue that we are getting close to this point; however, there may still be ways to pull us back from the brink.
I started this blog to share these thoughts, create discussion, and hopefully brainstorm ideas on how to find ways to navigate out of this cycle. I plan to start out by diving deeper into each of the components of this, with initial focus on the wage and corporate components. Government plays a major role here as well, between tax incentives, federal loans, and especially regulatory capture of whole sectors of the economy. This is something I plan to come to later as I continue my research. Another major question is how to tell when we have reached this point. I have theories, that will no doubt continue to evolve throughout this project. Again, to be explored in future posts.
I look forward to the discussion.
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