There are four structural drivers behind the soaring costs of the middle class lifestyle.
Why have the costs of a middle class lifestyle soared while income has stagnated?Though it is tempting to finger one ideologically convenient cause or another, there are four structural causes to this long-term trend:
1. Baumol's Cost Disease
2. Systemic headwinds to the current version of capitalism
3. Dominance of global corporate capital
4. Financialization
The key take-away here is that the first two causes are structural and cannot be changed by passing a law or funding another state bureaucracy. Though many believe they can tax global corporate capital to eliminate wealth inequality, capital is mobile and will move to where it can expand. The dominance of money in politics also means that the political machinery is for sale to the highest bidder, which just so happens to be global capital.
Since financialization rewards both capital and the central state that depends on tax revenue, reversing financialization politically is a non-starter.
No wonder the middle class is evaporating. These trends are far more powerful than the proposed solutions....
Debt-serfdom works just fine for the financial sector and the central state that enforces the serfdom. Food stamps (bread) and distracting entertainment (circuses) are cheap. What's not to like about debt-serfdom to those in power? Not only is it an ideal arrangement, it's the only one left to the state and its partner, global capital.oftwominds
How the Middle Class Lifestyle Became Unaffordable
Charles Hugh Smith
12 comments:
Tom, no one here seems very interested in this guy's 'insights.' He has nary a clue about sovereign currency issuance or modern money. He's a scaremonger at best. His piece on Social Security from late last year was absurd.
I see. So having a clue about sovereign currency issuance is the litmus test or in other words make or break characteristic in the human experience, which demonstrates if someone is interesting or not? It's this understanding, beyond all else, that is the foundational bedrock to inner and outer life? No one has anything useful to offer absent MMT understanding/dogma? Really? LOL..
This article has nothing to offer, in part because the author is out of paradigm. If you enjoy this bilge, just say so.
(1 + -1) == 0 ... Charles is imperfect but occasionally points out some interesting insights. His orthogonal approach adds diversity to an otherwise stereotyped conversation (as above).
There is nothing wrong with "bread" aka 'food' and "circuses" aka 'the performing arts'....
I hate when people use that phrase like this guy does here... this moron must think we should all be serfs or STEM-bots...
I'm sure Mr. Smith completely understands "sovereign currency issuance". Like any intelligent and normal human being, I'm sure he's appalled by it.
He's probably even more appalled to think that some people actually believe that funny money cures the problem of scarcity in our universe.
Charles Hugh Smith:
The Keynesian Cargo Cult's ability to print and squander money is insignificant next to the power of Diminishing Returns. By now we all know two things about the Keynesian Cargo Cult's religion:
1. It has failed to conjure up the recovery its sadly devoted believers insist is "just around the corner if we only borrow and squander more money" because...
2. Its main tenet--that the problem is "lack of aggregate demand," i.e. people will buy more stuff made in China and corporations will open more stores to sell the stuff made in China--if only it was dirt-cheap to borrow more money--is completely, utterly, painfully false.
The central premise of the Keynesian Cargo Cult is that this mechanism of making it cheap and easy to borrow money will work a kind of magic that can only be manifested by dancing around a fire at night waving dead chickens and chanting "humba-humba." The Keynesian cargo Cult calls this magic "animal spirits."
http://www.oftwominds.com/blogmar14/failed-Keynesians3-14.html
Wildly out of paradigm, but that doesn't invalidate other insights of CHS that are not dependent on being in paradigm with MMT wrt to monetary economics or socio-economic effectiveness.
BTW, "Keynesian" means exactly what? Robert Farmer just admitted that New Keynesianism has nothing to do with Keynes, for example. Paul Krugman and his ilk are "vulgar Keynesians" in the sense that they permit stimulative fiscal rather than monetary policy only in a liquidity trap.
It's now widely recognized that the Obama stimulus package did stimulate the economy, but fell short for being too little, just as Christina Romer had predicted when she said that 1.5 trillion was needed but caved to 1.2. The actual stim was about half of what she had said was needed. The notion that the stim had no positive effect is nonsense.
If "Keynesian" means that investment drives saving and that effective demand drives investment, that's in paradigm. It's not about the interest rate or monetary policy but fiscal. Post Keynesian and MMT economists correctly called QE worthless as economic stimulus since it did nothing to impact effective demand. Low borrowing rates alone don't drive investment in the absence of customer demand and consumers don't net borrow to spend or buy houses when they are saving and deleveraging in aggregate.
And taking safe assets in form of government securities off the table just drove up the price of riskier assets higher than they would have been otherwise, which the Fed erroneously expected to stimulate spending due to the "wealth effect," but it didn't.
None of this would have been surprising to those following the MMT blogs. CHS is off the mark here.
There is no doubt empirically that fiscal stimulus works. The question is a normative one about whether it should be used to soften a possibly hard landing, risking debt deflation, or alleviate unemployment. Keynesians in general say yes. Others say no, that the economy should be allowed to self-correct as markets dictate since the market alone is capable of processing information of this complexity without introducing distortion exogenously.
I would agree that this is an argument worth having, but I would also caution that it is more normative than descriptive, so in the end it will be arguing down to normative criteria for assessing not only socio-economic effectiveness but also morality. But there are purely economic matters of difference also, such as the significance of monetary economics.
We've already done this, so we don't need to do it again.
I would agree with Mr. Hickey that just because a person is wrong about X does not make him/her wrong about separate argument Y.
Does MMT actually oppose the Austrian view that those getting the new funny money loans from banks first get to spend it before it raises prices for others who receive it later as it dribbles through the economy?
Does MMT oppose the Austrian view that the elite who actually get the new money funny money first are able to use it to speculate on asset bubbles and who thereby become rich at the expense of average people without actually producing anything?
Well, I can't speak for MMT, but regardless of the monetary system, bank loans go to the well-heeled and well-connected at the lowest rate, meaning that the wealthy have access more funds than others do and can take advantage of greater leverage, and they also have access to funds when others don't, for example, at market troughs where liquidation is taking place and assets over going for pennies on the dollar. Might this be more of an issue under a pure fiat system rather than under a fractional reserve system under a gold standard, or a bullion standard? Perhaps, but huge financial crises have happened regardless of the monetary regime. The same goes for government spending, which is inherently political and in interest-based politics some interests will be favored over other depending on the party in power. I don't see the monetary regime making a great difference here.
The question is over advantages and disadvantages of the different monetary regimes. All regimes have positive and negative features and advocates of each of them argue for the system they prefer based on criteria that they select. Those that prefer more policy space argue for a looser standard with the downside of inflation bias. The ability to offset downturns is is counterbalanced by the capacity for greater military expenditure, too. Those preferring a more market-based approach argue for a tighter standard with the downside of disinflationary bias and lower nominal growth,with the prospect of liquidation and debt deflation in severe downturns, with high unemployment resulting in social dysfunction and possible unrest.
It seems to me that the argument comes down to one over policy space, on one hand, and the market as an information-calculation system on the other. With global capital in charge now, the type of monetary system of the future will be determined by the masters of the universe, unless conditions change. Tighter money is usually considered to be in their favor since they are global creditors, but not so tight as to impede growth. They seem pretty comfortable with the possibility of rising social unrest owing to the establishment of an essentially fascist political regime of total control.
Charles Hugh Smith: Austrian MMTer?
Eliminate the 6.2% Social Security payroll tax paid by employees and employers, and print the money to pay Social Security benefits in the Treasury.
http://www.oftwominds.com/blogapr14/inequality-solutions4-14.html
Being able to clearly admit that printing funny money does not solve the problem of scarcity might go a long way.
MMT doesn't claim that the present non-convertible floating rate regime makes the issue of scarcity go away, only the issue of scarcity of funding for public purpose and productive investment.
MMT holds that the actual issue is availability of real resources, which recognizes scarcity of these resources. The challenge is to overcome scarcity of actual goods through productive investment that increases productivity (efficiency of labor time) as well as employing scarce resources such as materials and energy more efficiently and effectively. This is an innovation and management issue rather than a monetary one, once it realized that affordability is not an issue.
Glad to see Austrians and MMT'ers coming together on a number of matter. Getting rid of FICA are a regressive tax that inhibits demand has been an MMT policy proposal for some time.
The other issue is distribution. Austrians and MMTers seem to agree that one of the chief issues affecting inequality is valuation of real assets like RE and financial assets such as equities. Austrians emphasizing Cantillon effect and MMTers economic rent-seeking. I think that both would agree that monetary policy is not the way to address this issue and would prefer to see the roll of cb's minimized in managing the economy and finance.
While there is much disagreement, there are points of agreement to explore.
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