Spoiler alert: this ends badly.
I have endeavored to explain how our economy has changed dramatically over the past 50 years beneath the surface. Nothing that’s going to happen in the future will make sense unless we understand this, so refill your beverage of choice and let’s go through what changed.
Wages gained ground 1945 – 1975, and lost ground 1975 – 2025. In the “glorious 30” (Trente Glorieuses) years of sustained global growth 1945 – 1975, wages’ share of the economy remained around 50% of the nation’s income. As the economy expanded, wages increased in step with the economy.
Since the mid-1970s, that trend has reversed. Wages have lost ground for the past 50 years. As the economy expanded, wages’ share declined, meaning the economy’s gains flowed to capital rather than wages. (Chart #1 below)
This wealth transfer was non-trivial: $150 trillion was siphoned from wages to owners of capital.......
....The net effect was to load younger generations with debt while funneling the majority of Federal spending to the older generations who also happen to own most of the assets. Since younger workers couldn't buy assets when they were cheap, few have gained from "the wealth effect."
By effectively impoverishing the nation's younger generations, we've chosen a demographic doom-loop as marriage and birth rates have collapsed from 2007. Guess what happens when you make starting a family and buying a house unaffordable to younger generations? They no longer start families and have children.
As the Boomer generation retires, the legacy of retirement programs designed in the 1930s (Social Security) and the 1960s (Medicare) is fiscal bankruptcy as these programs are driving the expansion of federal spending and borrowing.
It's called a Doom Loop, with no exit, for all speculative asst bubbles pop. Once "the wealth effect" reverses, assets get sold off to raise cash and since only the wealthy can afford to buy them, there's no buyers left, so valuations crash.
It didn't have to be this way, but our leadership chose poorly, and the consequences will fall on us. Let's go through the charts supporting this grim reality.....
The weblog, feature articles and books of Charles Hugh Smith www.oftwominds.com |
We will collectively bear the burdens of catastrophically short-sighted / self-serving policies of 2009-2025 for decades to come. Beneath the easily gamed statistical veneer, our economy and society have been hollowed out to the benefit of the few at the expense of the many.
These are real-world problems, not monetary problems. Unfortunately, playing around with "money" doesn't make all this go away: stablecoins, Universal Basic Income (UBI) and Modern Monetary Theory (MMT) are all disconnected from the real world: what ultimately matters is resources extracted, productivity and efficiency, and how the gains and losses of these real world factors are distributed.
"Money" in all its manifestations is simply the unit/medium used to instantiate the distribution.
