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Two Worlds: So Much Prosperity, So Much Skepticism

237 points by loosetypes 6y ago

areoform 6y ago
The question is, can this capitalistic economy function without mass consumption? The development of the middle class was the best thing to happen for American capitalism. A billionaire won’t buy 5,000 pairs of jeans, but 500 middle class households would. Capitalism, as we know it doesn’t exist without a middle class buying goods and services at scale. What happens when the purchasing power of these households is curtailed and the middle class shrinks? What are the long-term effects on the sustainability of a vibrant economy?
- xupybd 6y ago
  Well yes it's based on trade. As long as there are things I want other people to create or do for me I'll be willing to do or create things in return.
  - selestify 6y ago
    Yes, but that relies on an implicit assumption that you will be able to do or create enough things in return for enough things from other people to sustain you. This is no longer the case for an increasingly large swathe of the population. What are they to do once what they have to offer is no longer enough to get them to survive? For now, a lot of these people go homeless. But this trend is not sustainable, or conducive to societal stability.
  - xenadu02 6y ago
    It seems self-evident there is an excess of capital seeking yield at the moment. Productivity is way up but wages haven't kept pace. That's the whole problem: if everything is just labor arbitrage and owners take all the surplus we wind up in a world with excess capital (which encourages malinvestment) and consumers without money to spend. Business don't hire or expand as a result of tax cuts. They hire when the marginal return is positive - aka when you have more customers with money to spend so hiring another employee leads to more sales or more profit. A billionaire isn't going to buy more widgets if they pay $200m less in taxes this year. They don't need the capital to expand or hire either - money is extremely cheap right now. That $200m will be invested in capital markets already awash with cheap money. I wonder if paradoxically we'd all be better off if wages were higher (and offshoring / labor arbitrage were mitigated). Labor would certainly have more dollars to spend across the board. That would give businesses more dollars to spend in turn.
    - xupybd 6y ago
      From Wikipedia: "Capital markets channel the wealth of savers to those who can put it to long-term productive use, such as companies or governments making long-term investments" So in theory those people are hiring? Yes inequality ii's something that needs to be kept low but I don't think we have hit the point that we will see our current economic system fail.
      - karpierz 6y ago
        His point is that there aren't long-term productive investments to be making. Hence why interest rates are so low; no one to loan to.
    - imtringued 6y ago
      >I wonder if paradoxically we'd all be better off if wages were higher (and offshoring / labor arbitrage were mitigated). Labor would certainly have more dollars to spend across the board. That would give businesses more dollars to spend in turn. People hate on CPI inflation because they simply don't understand supply and demand in the labor market. CPI inflation low = low demand for workers CPI inflation high = high demand for workers You want CPI inflation to be at least 2% and a small 5% spike for a year doesn't hurt if you have been stuck in a liquidity trap. Runaway inflation is extremely unlikely because we have spent a decade perfecting our economic deflation skills. CPI inflation generally reduces inequality because the price of goods is rising faster than the value of assets because the money is arriving in consumer goods first and only businesses that are productively investing into providing more goods or services are actually getting the inflation money. At current valuations you are hard pressed to find companies that can justify their current market cap let alone further growth that would track CPI inflation. If your wages rise from $15/hr to $30/hr the only one who is hurting is someone who owns a million dollars in stocks because their purchasing power just dropped by half. The answer? Demand side stimulus. This is nothing new. Just get your government to spend money on domestic industries. Renewables, electric cars, road maintenance, electric grid upgrades are the new Keynesian gold digging. No one is losing money except those who have too much of it already.
- magicsmoke 6y ago
  Consider the outsourcing of American manufacturing. Instead of 500 American middle class households buying 5000 jeans, we have 5000 global lower class households buying 50000 jeans, each pair cheaper than before due to economies of scale. The American middle class has slid down to the level of the global middle class, and the American upper class harvests profits from the entire world outside of America's borders.
  - ChuckNorris89 6y ago
    >The American middle class has slid down to the level of the global middle class Which is not true. The average American earns more than the average European, let alone the average global citizen. Heck, even construction workers in the US make way more than in Germany or Denmark. Americans still have the highest purchasing power in the world and, most importantly, the highest economic mobility in the world. Whether that leads to a higher quality of life is up to the individual but Americans are still some of the most priviledged workers worldwide.
    - cookiengineer 6y ago
      > The average American earns more than the average European The difference is that citizens of the EU don't die when the money stops flowing because there are multiple social insurances in place. So at least the reduction of income that is insurance should be considered a wrong measurement, because it's taken off before taxes.
      - SpicyLemonZest 6y ago
        EU countries have substantially better safety nets than the US, but you're overcorrecting if you see that as an ironclad guarantee that everyone can afford the necessities of life. Hunger and homelessness are still very real problems there.
        cookiengineer 6y ago
        > Hunger and homelessness are still very real problems there. I totally agree with you there. Here in Germany, most homeless people could not even start to work because you need a legal residence to get a bank account (getting paid in cash or via check is illegal in Germany), so they cannot accept the Arbeitslosengeld (Hartz IV). There are some initiatives in larger cities though where they provide shelters so that homeless people can have a legal postal address to get back on their feet.
- rorykoehler 6y ago
  There seems to be a concerted plan to economically disenfranchise the poorest of us. Quantitative easing where the money goes to the rich does one thing and one thing only. It dilutes the value of the dollar which is fine if you wealth is in assets but if you minimal wealth is in cash or even non-existent it makes you poorer.
- jtolmar 6y ago
  The capitalist economy can function as long as it can find new ways to expand profits. That's the core of capitalism - somebody owns the ability to decide what is produced, they use that ownership to choose production that is profitable. If some capital-holder chooses to direct production towards something other than maximizing profit, they end up with less capital than someone who does, and thus less of a say in future decisions, so in the long run production decisions are mostly owned by profit-maximizers. It's mostly worked for us since there's plenty of profit to be had by satisfying human needs and charging for it. But, if people run out of needs or money, then the capitalist system will find some other way to grow, whether or not that involves doing anything helpful to anyone.
- hagy 6y ago
  There is already a substantial inequality in consumption across different income bands. E.g., 2018 data shows that the "Bottom 40% of US income distribution account for no more than 22% of total consumption. Top 20% account for almost 40%." [0] I could see the capitalistic economy continuing to function despite a shrinking middle class if this consumption inequality grows. Going with the jeans example, the 500 middle class families buying 5,000 pairs of jeans at $40 each ($200,000 total) may be replaced by 50 upper middle class families buying 1,000 pairs of jeans at $200 a pair. I'm certainly not endorsing nor condoning such growing inequalities. [0] https://twitter.com/adam_tooze/status/1308013103855087618 https://twitter.com/adam_tooze/status/1308013103855087618
- imtringued 6y ago
  >The question is, can this capitalistic economy function without mass consumption? Well, it can and that is the fundamental problem. If you are a share holder in a public company you can earn more money from doing nothing productive than from actively doing productive work. The central bank stimulus enters the asset markets first. It's like having an oil funded authoritarian government. It doesn't have to care about what the rest of the population thinks. It can exist in isolation and benefit from the suffering of it's population because it provides a cheap and desperate workforce.
wombatmobile 6y ago
People can have such different lives. The opposite of anger is not calmness, it's empathy.
- xwdv 6y ago
  If you don’t have any empathy, does that mean you are angry?
  - wombatmobile 6y ago
    Next time you're angry, try seeing things from another person's point of view. When you achieve that, immersively, what happens to your anger?
    - inakarmacoma 6y ago
      A fair exercise to prompt, but also fair to note the direct question was dodged. Intentional, or?
      - wombatmobile 6y ago
        Fair observation! Thanks for the question. > If you don’t have any empathy, does that mean you are angry? I'm not sure how to answer that, except to acknowledge that it isn't directly the case. It's certainly possible to have zero empathy and be perfectly free of anger. In fact, a sustained state of bliss might necessarily involve an absence of empathy... Perhaps what I was trying to say would be better said by substituting "antidote" for "opposite".
        xwdv 6y ago
        So then empathy isn’t the opposite of anger. Personally I have little empathy but I don’t think I’m angry. But maybe I am and don’t realize it.
        salawat 6y ago
        I have been empathically engaged and still angry with someone, in fact, sometimes the empathy can make it worse when you realize the person just will not get with the program. When you understand what they are feeling, but know that to not get passed it will result un more harm for them in the long run. It's the ugly side of empathy. It can bring people together, and it can sadly reinforce that which splits us apart when communication and trust break down.
anewaccount2021 6y ago
FORBEARANCE Easy to save money when you aren't paying your biggest bill.
- deleted 6y ago
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Reedx 6y ago
Really interesting article. It's like a rollercoaster.
soared 6y ago
I like the brighter future. It does seem kind of weird to count increased income, lower debt, and higher savings as separate wins. Higher income makes sense, but the other two are caused by the first. People couldn’t really increase discretionary spending, so debt and savings would have to improve. I’d expect all of these metrics to not improve post covid. No more help from the government to increase income, no extra money to decrease debt (lower income, higher ability to spend discretionary), and same for savings.
tonyedgecombe 6y ago
I often wonder if by trying to flatten the economic cycle we are sowing the seeds for a bigger downturn further down the line.
- zzleeper 6y ago
  Same here. Feels like the forest fire stories. Every time the msrket throws a tantrum, central banks print money, and everyone is kept happy (for now). Oh, the wonders of what you can do in low inflation environments, at least for a few decades
- lotsofpulp 6y ago
  It’s not the flattening of the economic cycle, it’s the lack of wealth redistribution which causes those with the assets (the top few deciles) to keep accelerating their gains every time there are bail outs.
opportune 6y ago
To sum up the article: Some average (mean) economic indicators are up. The bottom several deciles of income are doing very poorly, and unemployment is up. I think the "visibility" problem actually mostly goes one way though. As one of the people WFH with simply reduced expenses, all I ever hear on the news are about the people who have been adversely affected, other than obvious winners like Zoom. Of course, "average savings rate is up" may not even be newsworthy, but I had no idea until recently this was the case. Also having talked to a few people adversely affected by the pandemic, I think a lot of people don't understand how not everybody is hurting. Everybody lives in their own bubble. Contrary to the author, I don't think the internet really demonstrates the vast swathes of white collar careers (nor blue collar, really) in a remotely representative way. So to a server, with lots of other young friends in the service industry, this is Armageddon itself, except for random ecelebs on instagram. To a tech worker, friends with mostly other techies or graduates of "good" colleges, this is a great opportunity to Work From Hawaii for everybody except the guy at the grocery store. Mai Tais anyone?
- guerrilla 6y ago
  Fruther, regarding visibility, as I understood the article, it's talking about people seeing individuals with more wealth than themselves, but I don't think this is the only factor. They may also consciously or intuitively understand that the gap between wages and productivity is still growing [1]. Crises like this only emphasize the difference. [1]. https://thumbor.forbes.com/thumbor/1280x868/https%3A%2F%2Fblogs-images.forbes.com%2Ftimworstall%2Ffiles%2F2016%2F10%2Fwagescompensation-1200x1093.png https://thumbor.forbes.com/thumbor/1280x868/https%3A%2F%2Fbl...
  - dfilppi 6y ago
    Waiters aren't any more productive than they were in 2000 B.C.
    - guerrilla 6y ago
      That isn't remotely true, especially with the invention of cash registers and credit card machines. It does grow slower than other sectors though. [1] [1]. https://www.brookings.edu/research/productivity-in-the-services-sector/ https://www.brookings.edu/research/productivity-in-the-servi...
nimbius 6y ago
Bullshit. I dont for a minute believe this prosperity gospel from the financial sector. here are a few sobering facts not mentioned in the article: >...what happens to that money once there’s widespread vaccination and the vacations, weddings, and mall trips that have been delayed are suddenly unshackled. It goes to paying down rent thats been placed on credit cards and payment plans. the article doesnt mention the fact that in most major cities in America, Americans arent being evicted. Once things go back to normal, the landlord gets their cut, and the average american household goes back to being...average. Banks have also allowed customers to stretch their credit until the pandemic ends, in some cases belaying interest by months. These pipers will be paid first, not to mention the student loan collection thaw. Its also worth noting that tens of thousands of pubs, clubs, bars and restaurants effectively no longer exist. They have been entirely foreclosed due to rampant mismanagement of government lending programs and the mass exodus of service workers from major cities like Los Angeles, San Francisco, and New York. >Student debt is still rising, though at the slowest rate in over a decade. Zoomers saw what happened to Millennials during the 2008 collapse. Even if they can afford college, few are excited to repeat the prospects of their predecessors given eerily similar "once in a lifetime" financial events. >Rising home prices have priced young buyers out because they require a growing and often insurmountable downpayment. The articles bold prediction of a roaring twenties full of homeless zoomers and opulent boomers is...frankly disgusting. Its the same garbage we've endured for the past ten years after the collapse of 08, so the author just flogs the sex appeal of untenably large mortgages which (surprise) landed us in the 2008 housing collapse.
- deleted 6y ago
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- PeterisP 6y ago
  "That money" is the money right now in savings accounts - it does not belong to the people who would use for "paying down rent thats been placed on credit cards and payment plan", it belongs to the part of population whose income was not harmed by the epidemic, but whose expenses were limited - or, as the article argues, postponed. As the article states, there are two worlds, and they don't really overlap. The amount of total household savings has greatly increased at the same time as most households are running out of savings; and it's not about the 0.1% magnates - as the 2/3 poorer households are becoming poorer, the 1/3 wealthier households are becoming even more wealthier. As the numbers show, one world has an unprecedented amount of available money, and they are going to spend it, kickstarting the economy - all while while the "other world" is experiencing all the things you describe. But since the gap between them is so large, it's counterproductive to talk about "the average american household" as in this bimodal distribution talking about the average is just as meaningful as saying that the average american has one testicle and one breast.
ruined 6y ago
a common joke in December was that the proposed $600 check was just enough to buy a gun, but not enough to pay rent. now look where we are. meanwhile, some individual members of the wealthiest class have seen their fortune grow an order of magnitude over the last year. you can't convince me that any particular ceo or investor has done much work every month since the beginning of the pandemic as they did in their entire previous life. you have to understand we've simply allocated them that money. at some point, everyone will realize we need to realign our economic priorities. i only wonder who is going to actually do that work, who will be dragged along, and who will be left behind.
- donw 6y ago
  Congress sent a dollar to the money printer last year, and asked for three trillion copies. Were that divided evenly among adults in the US, that would work out to something like a $12,000 check per person.
  - tsjq 6y ago
    why wasn't it divided equally ?
    - rorykoehler 6y ago
      because it was the largest theft in human history.
      - animal_spirits 6y ago
        A lot of this 3 million dollars went to business as well, did it not? Congress didn't ask 3 million dollars for individuals only. It was for individuals and businesses alike
        rorykoehler 6y ago
        The money going to business is the theft. It devalues cash but not assets. Poor people don’t have assets.
deleted 6y ago
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almost_usual 6y ago
I don’t see how this doesn’t boil over. People who don’t have anything to lose can easily be radicalized.
- aj7 6y ago
  I just saw it boil over.
  - deleted 6y ago
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  - failuser 6y ago
    Look at the profiles of people arrested. Those were not desperate people left without jobs.
    - idlewords 6y ago
      This is a common error in thinking. People act based on the perception (true or not) that their future is being taken away from them, far more than on current circumstance. People will endure shocking poverty if they are sure it means a better life for their kids, and people in very comfortable circumstances will rise up if they think they're headed for a decline.
    - scruple 6y ago
      They were not, no. My Dad and I spoke on the phone today. They live in a depressed town in rural Ohio. He said, "I can see 9 Trump flags from the front porch." _Those_ people cannot afford to fly to D.C. They are desperate and they do feel abandoned. I have a hard time not saying here that they are justified in that feeling. It really does look like they've been abandoned. This is how we ended up with Trump in the first place...
      - tonyedgecombe 6y ago
        It's difficult to see how to fix that though. A lot of the poorer regions in the UK had money pumped in from the EU yet they still voted for Brexit.
aj7 6y ago
Very thought provoking. I couldn’t figure out which 25% is true.
zyang 6y ago
On the flip side of income, I think the inflation indicators have also diverged to the point where the mean is no longer telling the whole story.
- mmazing 6y ago
  Can you expand on that some more? Thanks
  - ItsMonkk 6y ago
    If you have a constantly increasing money supply, everyone's goal is to spend as little as possible on their day to day costs(which is what the CPI tracks), and squirrel away as much as possible in assets. The net effect this has had over time is those who are really good at using leverage in a decreasing interest rate environment end up with exponential growth, and use that to buy more assets, which allows them to lever more... This leads to a bifurcation between the people who make money through labor and those who make money through ownership of assets. The greater the wealth inequality in a population, the bigger a percentage of this new money goes to an increase of assets as opposed to day-to-day expenses. This shrinks CPI inflation for an equal amount of money supply expansion, which in turn allows the money supply to expand ever faster and inequality to grow further.
flower-giraffe 6y ago
“A $500,000 mortgage now has the same monthly payment that a $300,000 mortgage would have with 2007’s interest rates, and what a $210,000 mortgage had at mid-1990s interest rates.” Isn’t this the elephant in the room? I’m assuming that the cost of housing is the single largest outgoing for most people. The low cost of debt (mortgage repayments) seems to continue to push the dollar value of homes exponentially higher so in real terms dollars are exponentially loosing value. So even if we have more savings and our investments are in good shape the actual value in real terms is actually declining rapidly.
- deleted 6y ago
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- r7r7yrddy 6y ago
  Wouldn't a more straightforward explanation be that increased access to capital amongst homebuyers leads to increased demand?
  - inglor_cz 6y ago
    At least here in the Czech Republic the share of people owning their home vs. the share of people renting has not changed dramatically. Low interest prices are likely to spur second home buying among people who already own.
  - jddjheh 6y ago
    In Poland for example prices are driven by cheaper credit (although offseted by downpaykent change from 0/10% to 20%). Most of it just young ppl moving to towns as old industries are dead/don't need ppl. The pharma company that my parents worked in almost don't have ppl in production anymore - it's all quite automated. Now good jobs are service industry, sales, marketing, software for all you need good education, so university cities are thriving. I myself moved and earn close to $60K which is good money in Poland. It's not upncommon for some parents to just buy kids apartments for $100K (in cash - for US would be $400K). Prices futher rise as owning apparment is much better than renting for anyone who can afford credit. This leds to russian oligarchs moving to property business futher increasing demand and prices. But in Poland we still have PLN not Euro so assuming growing economy properties can raise 4x (denominated in gold).
aj7 6y ago
We haven’t scratched the issue of how little value is added by labor in manufacturing. It is following an identical path as farming did.
- DebtDeflation 6y ago
  Yes, when people talk about "bringing back manufacturing" they mean bringing it back as it existed circa 1985, not the mostly automated factories of today.
deleted 6y ago
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failuser 6y ago
As much as I don't like the idea of describing economic trends as letters, but K-shaped recovery is a pretty accurate term.
throwitaway1235 6y ago
I think Western economic skepticism is highly dependant on where you live. I.e $100k a year in NYC = lower middle class. $100k a year in Kentucky = upper middle class. I wonder if economic skepticism skews upward the closer you live to an urban area.
- gen220 6y ago
  $100k household income puts you in the 9th decile in 2016 for NYC (about 85th percentile). One definition of the middle class is the 30 percentiles around the median (i.e. 20th to 80th percentile, or start-of-3rd to end-of-8th decile). In NYC, that would be 10k-82k (2016). $100k in NYC would be upper middle class by this definition. If these numbers are surprising to you, they should be! with a not-uncommon tech salary of 140k+ of nominal income, you are above the 90th percentile in NYC. It's kind of hard for our bubble to imagine that people survive on minimum wage (30k/year in NYC 2021), and yet literally 1.9 million did in 2016. source for 2016 data: https://www.bloomberg.com/news/articles/2018-10-16/snapshot-of-new-york-city-s-most-privileged-city-dwellers https://www.bloomberg.com/news/articles/2018-10-16/snapshot-...
  - lotsofpulp 6y ago
    > It's kind of hard for our bubble to imagine that people survive on minimum wage (30k/year in NYC 2021), and yet literally 1.9 million did in 2016. It’s easy to “survive”. It’s not possible to properly save for emergency expenses, retirement, and have access to routine dental care, or plan an upward path for your family.
yrimaxi 6y ago
tl;dr: prosperity + inequality. But for some reason “inequality” gets glossed as “skepticism”. It’s apparently all in their heads—comparing themselves to others on social media—even though getting laid off and having no short-term prospects as long as the pandemic is going on is something to worry about in absolute terms, not just in relative terms. I think that it’s good that we worry about how the economy is doing for all of us, not just the fictious average person.
mrwh 6y ago
Interesting article! War novels often involve the privileged finally meeting the poor for the first time in their lives, as commissioned officers. And finally respecting them. It's a trope I'm sure there was a lot of truth to. A lieutenant in WWI had it a bit better than a private, but not that much better (he might even have had a higher chance of death). He still had to live in the same hole in the ground. Classes which were entirely separated were brought together (as JFK must have been). Social media is not like that. There's nothing shared about it, nothing we go through together that could generate a fellow feeling.
- josephkern 6y ago
  The military is less like that now as well, mostly multi-generational military families. Reference: https://slate.com/news-and-politics/2017/08/the-warrior-caste-of-military-families-that-fight-americas-wars.html https://slate.com/news-and-politics/2017/08/the-warrior-cast...
Ballu 6y ago
As a layman, I am seeing coming inflation. We are seeing lowest credit card debt, lowest mortgage and more savings. Once economy will be reasonably open, people will try to go on vacation, have more parties, more flights, more clothes (fancy as well as official etc). Till now, people were putting money in stack, bitcoin and online shopping (whcih is replacement). I am saying this for some times. But in few months, people will try to use their co called created wealth.
- tonyedgecombe 6y ago
  On the other hand it could lead to a shift in thinking. In a recession people tend to save more because of a fall in confidence. I'm sure many people will have had their confidence in their economic future shattered. It could change their outlook permanently.
rhn_mk1 6y ago
This analysis seems to be restricted to the USA, which becomes apparent when the charts appear. I wish there was an established way on HN to mark titles which sound like they are general but actually only care about USA, at least for social and economic analyses.
leg100 6y ago
> A hard thing to wrap your head around in economics is the idea that two opposite things can be true at once. > Consumers are in the best shape they’ve been in, ever. > A huge portion of consumers think that’s bogus because they’re in the worst shape they’ve been in, ever. > Both are true. They're not. Workers, whether they've materially done well through the pandemic, or not, are sufficiently lucid to see that this all has to be paid for. And they're the ones who will pay for it. Unlike the author, who is blindsighted by, and even marvels at, the "huge" numbers, unable to see more than a few months down the line. A worker may be in a house that's booming in value with a tech salary and buying lots of nice things from Amazon and deliveroo but he can see the world outside. Workers aren't atoms spread apart in a vacuum. They know people friends and family who aren't doing as well as themselves, or vice versa. So there is no contradiction in terms. Things are bad full stop.
- julienb_sea 6y ago
  I'm not even sure what you are arguing. Things are not "bad full stop". The article pretty clearly points out that for large swaths of the economy things are absolutely just fine, that in aggregate things are just fine, that aggregate measures of debt and savings are both looking quite rosy. A few months down the line literally all of the economic issues will be better off as quarantines are lightened, as things reopen and new businesses are created to replace the old. The actual issue is going to be what society does with our national debt one day including the 3T we assumed as part of our stimulus for this one pandemic. This is not a "few months away" problem but a few decades away problem.
  - leg100 6y ago
    > The article pretty clearly points out that for large swaths of the economy things are absolutely just fine, that in aggregate things are just fine, that aggregate measures of debt and savings are both looking quite rosy. That's manifestly untrue. Aggregate measures of debt are at an all time high, measuring across government, households and non-financials [1]. Household savings have gone up but that has to be placed in the context of massive state intervention. Essentially you're not only taking money from one hand and giving to the other but a massive mortgage has been taken out too, to come due on future generations at the expense of future GDP. [1]: https://www.fitchratings.com/research/sovereigns/us-non-financial-debt-surges-to-record-high-more-is-to-come-07-07-2020 https://www.fitchratings.com/research/sovereigns/us-non-fina...
ur-whale 6y ago
What if, as an engineer, you were forced to work with a measuring tape whose graduations change all the time? As a matter of fact, what if you were ask to build things using a measuring tape with graduations that are increasingly far apart over time? I'd wager you would be a little upset and quickly ask for a proper measuring tape so you could do your job properly. Sounds reasonable, right? However, the exact same thing is happening in economics: everything is measured with a measuring stick whose length changes all the time. And this does not seem to worry anyone: economists merrily keep on measuring things like household debt in USD and everyone seem to agree it's the right way to work. A good and proper shared hallucination. Worse, the length of the measuring stick is changed, not in a random fashion, but in a way that makes the power that be look good on TV. Once in a while, people try to do the right thing and present inflation-corrected numbers, but that's far from being the norm.
- zefool 6y ago
  Worse even: the measuring stick for inflation suffers the same disease! The most used measuring stick is the CPI, which (1) does not include e.g. assets, and (2) whose definition also changes significantly over time. So it arguably does not even measure total inflation, and on top of that is not really the same metric every year. So not only does your measuring stick shrink and expand, it is not even possible to measure by how much.
  - gruez 6y ago
    >The most used measuring stick is the CPI, which (1) does not include e.g. assets Why does this matter? If your cost of living stays the same but TSLA/BTC jump up 10x why should that count as inflation?
    - zefool 6y ago
      Simple: this state of affairs is only possible when consumer products and necessities are not scarce. When scarcity comes into play, well, then it does not matter whether the dollars you are competing with come from the "real economy" or bitcoin. Prices will shoot up.
imtringued 6y ago
I honestly don't see any new insights. For example the stimulus money was used to buy stocks or pay off debt. Wealthy people get richer. People with college degrees are doing well financially. Water is wet. The Fed has been pursuing this strategy for more than a decade. Drive treasury yields down, people are desperate for investments. Everyone joins the stock market. If the less wealthy (middle class with good jobs) are joining the stock market you should be skeptical because that means even they don't know what to spend the money on. What we really wanted to see is people spend that money on consumer goods to drive underemployment down. Inflation is a very good indicator for underemployment. If it's slightly above 2% that means lots of people are employed and looking for even better employment opportunities. Inflation did recover from the crash to 0% but it's still only back at 1.2%. The only good news is that the economy doesn't have to care about viruses. Inequality is unsolved and still rising or at least staying the same.
- chrisamiller 6y ago
  The economy cares very much about this virus. The stock market does not. The disconnect between the two is yet another sign of how vast the inequality gap is at the moment.

237 points by loosetypes 6y ago

The question is, can this capitalistic economy function without mass consumption? The development of the middle class was the best thing to happen for American capitalism. A billionaire won’t buy 5,000 pairs of jeans, but 500 middle class households would. Capitalism, as we know it doesn’t exist without a middle class buying goods and services at scale. What happens when the purchasing power of these households is curtailed and the middle class shrinks? What are the long-term effects on the sustainability of a vibrant economy?

xupybd 6y ago
Well yes it's based on trade. As long as there are things I want other people to create or do for me I'll be willing to do or create things in return.
- selestify 6y ago
  Yes, but that relies on an implicit assumption that you will be able to do or create enough things in return for enough things from other people to sustain you. This is no longer the case for an increasingly large swathe of the population. What are they to do once what they have to offer is no longer enough to get them to survive? For now, a lot of these people go homeless. But this trend is not sustainable, or conducive to societal stability.
- xenadu02 6y ago
  It seems self-evident there is an excess of capital seeking yield at the moment. Productivity is way up but wages haven't kept pace. That's the whole problem: if everything is just labor arbitrage and owners take all the surplus we wind up in a world with excess capital (which encourages malinvestment) and consumers without money to spend. Business don't hire or expand as a result of tax cuts. They hire when the marginal return is positive - aka when you have more customers with money to spend so hiring another employee leads to more sales or more profit. A billionaire isn't going to buy more widgets if they pay $200m less in taxes this year. They don't need the capital to expand or hire either - money is extremely cheap right now. That $200m will be invested in capital markets already awash with cheap money. I wonder if paradoxically we'd all be better off if wages were higher (and offshoring / labor arbitrage were mitigated). Labor would certainly have more dollars to spend across the board. That would give businesses more dollars to spend in turn.
  - xupybd 6y ago
    From Wikipedia: "Capital markets channel the wealth of savers to those who can put it to long-term productive use, such as companies or governments making long-term investments" So in theory those people are hiring? Yes inequality ii's something that needs to be kept low but I don't think we have hit the point that we will see our current economic system fail.
    - karpierz 6y ago
      His point is that there aren't long-term productive investments to be making. Hence why interest rates are so low; no one to loan to.
  - imtringued 6y ago
    >I wonder if paradoxically we'd all be better off if wages were higher (and offshoring / labor arbitrage were mitigated). Labor would certainly have more dollars to spend across the board. That would give businesses more dollars to spend in turn. People hate on CPI inflation because they simply don't understand supply and demand in the labor market. CPI inflation low = low demand for workers CPI inflation high = high demand for workers You want CPI inflation to be at least 2% and a small 5% spike for a year doesn't hurt if you have been stuck in a liquidity trap. Runaway inflation is extremely unlikely because we have spent a decade perfecting our economic deflation skills. CPI inflation generally reduces inequality because the price of goods is rising faster than the value of assets because the money is arriving in consumer goods first and only businesses that are productively investing into providing more goods or services are actually getting the inflation money. At current valuations you are hard pressed to find companies that can justify their current market cap let alone further growth that would track CPI inflation. If your wages rise from $15/hr to $30/hr the only one who is hurting is someone who owns a million dollars in stocks because their purchasing power just dropped by half. The answer? Demand side stimulus. This is nothing new. Just get your government to spend money on domestic industries. Renewables, electric cars, road maintenance, electric grid upgrades are the new Keynesian gold digging. No one is losing money except those who have too much of it already.
magicsmoke 6y ago
Consider the outsourcing of American manufacturing. Instead of 500 American middle class households buying 5000 jeans, we have 5000 global lower class households buying 50000 jeans, each pair cheaper than before due to economies of scale. The American middle class has slid down to the level of the global middle class, and the American upper class harvests profits from the entire world outside of America's borders.
- ChuckNorris89 6y ago
  >The American middle class has slid down to the level of the global middle class Which is not true. The average American earns more than the average European, let alone the average global citizen. Heck, even construction workers in the US make way more than in Germany or Denmark. Americans still have the highest purchasing power in the world and, most importantly, the highest economic mobility in the world. Whether that leads to a higher quality of life is up to the individual but Americans are still some of the most priviledged workers worldwide.
  - cookiengineer 6y ago
    > The average American earns more than the average European The difference is that citizens of the EU don't die when the money stops flowing because there are multiple social insurances in place. So at least the reduction of income that is insurance should be considered a wrong measurement, because it's taken off before taxes.
    - SpicyLemonZest 6y ago
      EU countries have substantially better safety nets than the US, but you're overcorrecting if you see that as an ironclad guarantee that everyone can afford the necessities of life. Hunger and homelessness are still very real problems there.
      - cookiengineer 6y ago
        > Hunger and homelessness are still very real problems there. I totally agree with you there. Here in Germany, most homeless people could not even start to work because you need a legal residence to get a bank account (getting paid in cash or via check is illegal in Germany), so they cannot accept the Arbeitslosengeld (Hartz IV). There are some initiatives in larger cities though where they provide shelters so that homeless people can have a legal postal address to get back on their feet.
rorykoehler 6y ago
There seems to be a concerted plan to economically disenfranchise the poorest of us. Quantitative easing where the money goes to the rich does one thing and one thing only. It dilutes the value of the dollar which is fine if you wealth is in assets but if you minimal wealth is in cash or even non-existent it makes you poorer.
jtolmar 6y ago
The capitalist economy can function as long as it can find new ways to expand profits. That's the core of capitalism - somebody owns the ability to decide what is produced, they use that ownership to choose production that is profitable. If some capital-holder chooses to direct production towards something other than maximizing profit, they end up with less capital than someone who does, and thus less of a say in future decisions, so in the long run production decisions are mostly owned by profit-maximizers. It's mostly worked for us since there's plenty of profit to be had by satisfying human needs and charging for it. But, if people run out of needs or money, then the capitalist system will find some other way to grow, whether or not that involves doing anything helpful to anyone.
hagy 6y ago
There is already a substantial inequality in consumption across different income bands. E.g., 2018 data shows that the "Bottom 40% of US income distribution account for no more than 22% of total consumption. Top 20% account for almost 40%." [0] I could see the capitalistic economy continuing to function despite a shrinking middle class if this consumption inequality grows. Going with the jeans example, the 500 middle class families buying 5,000 pairs of jeans at $40 each ($200,000 total) may be replaced by 50 upper middle class families buying 1,000 pairs of jeans at $200 a pair. I'm certainly not endorsing nor condoning such growing inequalities. [0] https://twitter.com/adam_tooze/status/1308013103855087618 https://twitter.com/adam_tooze/status/1308013103855087618
imtringued 6y ago
>The question is, can this capitalistic economy function without mass consumption? Well, it can and that is the fundamental problem. If you are a share holder in a public company you can earn more money from doing nothing productive than from actively doing productive work. The central bank stimulus enters the asset markets first. It's like having an oil funded authoritarian government. It doesn't have to care about what the rest of the population thinks. It can exist in isolation and benefit from the suffering of it's population because it provides a cheap and desperate workforce.

wombatmobile 6y ago

People can have such different lives. The opposite of anger is not calmness, it's empathy.

xwdv 6y ago
If you don’t have any empathy, does that mean you are angry?
- wombatmobile 6y ago
  Next time you're angry, try seeing things from another person's point of view. When you achieve that, immersively, what happens to your anger?
  - inakarmacoma 6y ago
    A fair exercise to prompt, but also fair to note the direct question was dodged. Intentional, or?
    - wombatmobile 6y ago
      Fair observation! Thanks for the question. > If you don’t have any empathy, does that mean you are angry? I'm not sure how to answer that, except to acknowledge that it isn't directly the case. It's certainly possible to have zero empathy and be perfectly free of anger. In fact, a sustained state of bliss might necessarily involve an absence of empathy... Perhaps what I was trying to say would be better said by substituting "antidote" for "opposite".
      - xwdv 6y ago
        So then empathy isn’t the opposite of anger. Personally I have little empathy but I don’t think I’m angry. But maybe I am and don’t realize it.
      - salawat 6y ago
        I have been empathically engaged and still angry with someone, in fact, sometimes the empathy can make it worse when you realize the person just will not get with the program. When you understand what they are feeling, but know that to not get passed it will result un more harm for them in the long run. It's the ugly side of empathy. It can bring people together, and it can sadly reinforce that which splits us apart when communication and trust break down.

anewaccount2021 6y ago

FORBEARANCE Easy to save money when you aren't paying your biggest bill.

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Reedx 6y ago

Really interesting article. It's like a rollercoaster.

soared 6y ago

I like the brighter future. It does seem kind of weird to count increased income, lower debt, and higher savings as separate wins. Higher income makes sense, but the other two are caused by the first. People couldn’t really increase discretionary spending, so debt and savings would have to improve. I’d expect all of these metrics to not improve post covid. No more help from the government to increase income, no extra money to decrease debt (lower income, higher ability to spend discretionary), and same for savings.

tonyedgecombe 6y ago

I often wonder if by trying to flatten the economic cycle we are sowing the seeds for a bigger downturn further down the line.

zzleeper 6y ago
Same here. Feels like the forest fire stories. Every time the msrket throws a tantrum, central banks print money, and everyone is kept happy (for now). Oh, the wonders of what you can do in low inflation environments, at least for a few decades
lotsofpulp 6y ago
It’s not the flattening of the economic cycle, it’s the lack of wealth redistribution which causes those with the assets (the top few deciles) to keep accelerating their gains every time there are bail outs.

opportune 6y ago

To sum up the article: Some average (mean) economic indicators are up. The bottom several deciles of income are doing very poorly, and unemployment is up. I think the "visibility" problem actually mostly goes one way though. As one of the people WFH with simply reduced expenses, all I ever hear on the news are about the people who have been adversely affected, other than obvious winners like Zoom. Of course, "average savings rate is up" may not even be newsworthy, but I had no idea until recently this was the case. Also having talked to a few people adversely affected by the pandemic, I think a lot of people don't understand how not everybody is hurting. Everybody lives in their own bubble. Contrary to the author, I don't think the internet really demonstrates the vast swathes of white collar careers (nor blue collar, really) in a remotely representative way. So to a server, with lots of other young friends in the service industry, this is Armageddon itself, except for random ecelebs on instagram. To a tech worker, friends with mostly other techies or graduates of "good" colleges, this is a great opportunity to Work From Hawaii for everybody except the guy at the grocery store. Mai Tais anyone?

guerrilla 6y ago
Fruther, regarding visibility, as I understood the article, it's talking about people seeing individuals with more wealth than themselves, but I don't think this is the only factor. They may also consciously or intuitively understand that the gap between wages and productivity is still growing [1]. Crises like this only emphasize the difference. [1]. https://thumbor.forbes.com/thumbor/1280x868/https%3A%2F%2Fblogs-images.forbes.com%2Ftimworstall%2Ffiles%2F2016%2F10%2Fwagescompensation-1200x1093.png https://thumbor.forbes.com/thumbor/1280x868/https%3A%2F%2Fbl...
- dfilppi 6y ago
  Waiters aren't any more productive than they were in 2000 B.C.
  - guerrilla 6y ago
    That isn't remotely true, especially with the invention of cash registers and credit card machines. It does grow slower than other sectors though. [1] [1]. https://www.brookings.edu/research/productivity-in-the-services-sector/ https://www.brookings.edu/research/productivity-in-the-servi...

nimbius 6y ago

Bullshit. I dont for a minute believe this prosperity gospel from the financial sector. here are a few sobering facts not mentioned in the article: >...what happens to that money once there’s widespread vaccination and the vacations, weddings, and mall trips that have been delayed are suddenly unshackled. It goes to paying down rent thats been placed on credit cards and payment plans. the article doesnt mention the fact that in most major cities in America, Americans arent being evicted. Once things go back to normal, the landlord gets their cut, and the average american household goes back to being...average. Banks have also allowed customers to stretch their credit until the pandemic ends, in some cases belaying interest by months. These pipers will be paid first, not to mention the student loan collection thaw. Its also worth noting that tens of thousands of pubs, clubs, bars and restaurants effectively no longer exist. They have been entirely foreclosed due to rampant mismanagement of government lending programs and the mass exodus of service workers from major cities like Los Angeles, San Francisco, and New York. >Student debt is still rising, though at the slowest rate in over a decade. Zoomers saw what happened to Millennials during the 2008 collapse. Even if they can afford college, few are excited to repeat the prospects of their predecessors given eerily similar "once in a lifetime" financial events. >Rising home prices have priced young buyers out because they require a growing and often insurmountable downpayment. The articles bold prediction of a roaring twenties full of homeless zoomers and opulent boomers is...frankly disgusting. Its the same garbage we've endured for the past ten years after the collapse of 08, so the author just flogs the sex appeal of untenably large mortgages which (surprise) landed us in the 2008 housing collapse.

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PeterisP 6y ago
"That money" is the money right now in savings accounts - it does not belong to the people who would use for "paying down rent thats been placed on credit cards and payment plan", it belongs to the part of population whose income was not harmed by the epidemic, but whose expenses were limited - or, as the article argues, postponed. As the article states, there are two worlds, and they don't really overlap. The amount of total household savings has greatly increased at the same time as most households are running out of savings; and it's not about the 0.1% magnates - as the 2/3 poorer households are becoming poorer, the 1/3 wealthier households are becoming even more wealthier. As the numbers show, one world has an unprecedented amount of available money, and they are going to spend it, kickstarting the economy - all while while the "other world" is experiencing all the things you describe. But since the gap between them is so large, it's counterproductive to talk about "the average american household" as in this bimodal distribution talking about the average is just as meaningful as saying that the average american has one testicle and one breast.

ruined 6y ago

a common joke in December was that the proposed $600 check was just enough to buy a gun, but not enough to pay rent. now look where we are. meanwhile, some individual members of the wealthiest class have seen their fortune grow an order of magnitude over the last year. you can't convince me that any particular ceo or investor has done much work every month since the beginning of the pandemic as they did in their entire previous life. you have to understand we've simply allocated them that money. at some point, everyone will realize we need to realign our economic priorities. i only wonder who is going to actually do that work, who will be dragged along, and who will be left behind.

donw 6y ago
Congress sent a dollar to the money printer last year, and asked for three trillion copies. Were that divided evenly among adults in the US, that would work out to something like a $12,000 check per person.
- tsjq 6y ago
  why wasn't it divided equally ?
  - rorykoehler 6y ago
    because it was the largest theft in human history.
    - animal_spirits 6y ago
      A lot of this 3 million dollars went to business as well, did it not? Congress didn't ask 3 million dollars for individuals only. It was for individuals and businesses alike
      - rorykoehler 6y ago
        The money going to business is the theft. It devalues cash but not assets. Poor people don’t have assets.

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almost_usual 6y ago

I don’t see how this doesn’t boil over. People who don’t have anything to lose can easily be radicalized.

aj7 6y ago
I just saw it boil over.
- deleted 6y ago
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- failuser 6y ago
  Look at the profiles of people arrested. Those were not desperate people left without jobs.
  - idlewords 6y ago
    This is a common error in thinking. People act based on the perception (true or not) that their future is being taken away from them, far more than on current circumstance. People will endure shocking poverty if they are sure it means a better life for their kids, and people in very comfortable circumstances will rise up if they think they're headed for a decline.
  - scruple 6y ago
    They were not, no. My Dad and I spoke on the phone today. They live in a depressed town in rural Ohio. He said, "I can see 9 Trump flags from the front porch." _Those_ people cannot afford to fly to D.C. They are desperate and they do feel abandoned. I have a hard time not saying here that they are justified in that feeling. It really does look like they've been abandoned. This is how we ended up with Trump in the first place...
    - tonyedgecombe 6y ago
      It's difficult to see how to fix that though. A lot of the poorer regions in the UK had money pumped in from the EU yet they still voted for Brexit.

aj7 6y ago

Very thought provoking. I couldn’t figure out which 25% is true.

zyang 6y ago

On the flip side of income, I think the inflation indicators have also diverged to the point where the mean is no longer telling the whole story.

mmazing 6y ago
Can you expand on that some more? Thanks
- ItsMonkk 6y ago
  If you have a constantly increasing money supply, everyone's goal is to spend as little as possible on their day to day costs(which is what the CPI tracks), and squirrel away as much as possible in assets. The net effect this has had over time is those who are really good at using leverage in a decreasing interest rate environment end up with exponential growth, and use that to buy more assets, which allows them to lever more... This leads to a bifurcation between the people who make money through labor and those who make money through ownership of assets. The greater the wealth inequality in a population, the bigger a percentage of this new money goes to an increase of assets as opposed to day-to-day expenses. This shrinks CPI inflation for an equal amount of money supply expansion, which in turn allows the money supply to expand ever faster and inequality to grow further.

flower-giraffe 6y ago

“A $500,000 mortgage now has the same monthly payment that a $300,000 mortgage would have with 2007’s interest rates, and what a $210,000 mortgage had at mid-1990s interest rates.” Isn’t this the elephant in the room? I’m assuming that the cost of housing is the single largest outgoing for most people. The low cost of debt (mortgage repayments) seems to continue to push the dollar value of homes exponentially higher so in real terms dollars are exponentially loosing value. So even if we have more savings and our investments are in good shape the actual value in real terms is actually declining rapidly.

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r7r7yrddy 6y ago
Wouldn't a more straightforward explanation be that increased access to capital amongst homebuyers leads to increased demand?
- inglor_cz 6y ago
  At least here in the Czech Republic the share of people owning their home vs. the share of people renting has not changed dramatically. Low interest prices are likely to spur second home buying among people who already own.
- jddjheh 6y ago
  In Poland for example prices are driven by cheaper credit (although offseted by downpaykent change from 0/10% to 20%). Most of it just young ppl moving to towns as old industries are dead/don't need ppl. The pharma company that my parents worked in almost don't have ppl in production anymore - it's all quite automated. Now good jobs are service industry, sales, marketing, software for all you need good education, so university cities are thriving. I myself moved and earn close to $60K which is good money in Poland. It's not upncommon for some parents to just buy kids apartments for $100K (in cash - for US would be $400K). Prices futher rise as owning apparment is much better than renting for anyone who can afford credit. This leds to russian oligarchs moving to property business futher increasing demand and prices. But in Poland we still have PLN not Euro so assuming growing economy properties can raise 4x (denominated in gold).

aj7 6y ago

We haven’t scratched the issue of how little value is added by labor in manufacturing. It is following an identical path as farming did.

DebtDeflation 6y ago
Yes, when people talk about "bringing back manufacturing" they mean bringing it back as it existed circa 1985, not the mostly automated factories of today.

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failuser 6y ago

As much as I don't like the idea of describing economic trends as letters, but K-shaped recovery is a pretty accurate term.

throwitaway1235 6y ago

I think Western economic skepticism is highly dependant on where you live. I.e $100k a year in NYC = lower middle class. $100k a year in Kentucky = upper middle class. I wonder if economic skepticism skews upward the closer you live to an urban area.

gen220 6y ago
$100k household income puts you in the 9th decile in 2016 for NYC (about 85th percentile). One definition of the middle class is the 30 percentiles around the median (i.e. 20th to 80th percentile, or start-of-3rd to end-of-8th decile). In NYC, that would be 10k-82k (2016). $100k in NYC would be upper middle class by this definition. If these numbers are surprising to you, they should be! with a not-uncommon tech salary of 140k+ of nominal income, you are above the 90th percentile in NYC. It's kind of hard for our bubble to imagine that people survive on minimum wage (30k/year in NYC 2021), and yet literally 1.9 million did in 2016. source for 2016 data: https://www.bloomberg.com/news/articles/2018-10-16/snapshot-of-new-york-city-s-most-privileged-city-dwellers https://www.bloomberg.com/news/articles/2018-10-16/snapshot-...
- lotsofpulp 6y ago
  > It's kind of hard for our bubble to imagine that people survive on minimum wage (30k/year in NYC 2021), and yet literally 1.9 million did in 2016. It’s easy to “survive”. It’s not possible to properly save for emergency expenses, retirement, and have access to routine dental care, or plan an upward path for your family.

yrimaxi 6y ago

tl;dr: prosperity + inequality. But for some reason “inequality” gets glossed as “skepticism”. It’s apparently all in their heads—comparing themselves to others on social media—even though getting laid off and having no short-term prospects as long as the pandemic is going on is something to worry about in absolute terms, not just in relative terms. I think that it’s good that we worry about how the economy is doing for all of us, not just the fictious average person.

mrwh 6y ago

Interesting article! War novels often involve the privileged finally meeting the poor for the first time in their lives, as commissioned officers. And finally respecting them. It's a trope I'm sure there was a lot of truth to. A lieutenant in WWI had it a bit better than a private, but not that much better (he might even have had a higher chance of death). He still had to live in the same hole in the ground. Classes which were entirely separated were brought together (as JFK must have been). Social media is not like that. There's nothing shared about it, nothing we go through together that could generate a fellow feeling.

josephkern 6y ago
The military is less like that now as well, mostly multi-generational military families. Reference: https://slate.com/news-and-politics/2017/08/the-warrior-caste-of-military-families-that-fight-americas-wars.html https://slate.com/news-and-politics/2017/08/the-warrior-cast...

Ballu 6y ago

As a layman, I am seeing coming inflation. We are seeing lowest credit card debt, lowest mortgage and more savings. Once economy will be reasonably open, people will try to go on vacation, have more parties, more flights, more clothes (fancy as well as official etc). Till now, people were putting money in stack, bitcoin and online shopping (whcih is replacement). I am saying this for some times. But in few months, people will try to use their co called created wealth.

tonyedgecombe 6y ago
On the other hand it could lead to a shift in thinking. In a recession people tend to save more because of a fall in confidence. I'm sure many people will have had their confidence in their economic future shattered. It could change their outlook permanently.

rhn_mk1 6y ago

This analysis seems to be restricted to the USA, which becomes apparent when the charts appear. I wish there was an established way on HN to mark titles which sound like they are general but actually only care about USA, at least for social and economic analyses.

leg100 6y ago

> A hard thing to wrap your head around in economics is the idea that two opposite things can be true at once. > Consumers are in the best shape they’ve been in, ever. > A huge portion of consumers think that’s bogus because they’re in the worst shape they’ve been in, ever. > Both are true. They're not. Workers, whether they've materially done well through the pandemic, or not, are sufficiently lucid to see that this all has to be paid for. And they're the ones who will pay for it. Unlike the author, who is blindsighted by, and even marvels at, the "huge" numbers, unable to see more than a few months down the line. A worker may be in a house that's booming in value with a tech salary and buying lots of nice things from Amazon and deliveroo but he can see the world outside. Workers aren't atoms spread apart in a vacuum. They know people friends and family who aren't doing as well as themselves, or vice versa. So there is no contradiction in terms. Things are bad full stop.

julienb_sea 6y ago
I'm not even sure what you are arguing. Things are not "bad full stop". The article pretty clearly points out that for large swaths of the economy things are absolutely just fine, that in aggregate things are just fine, that aggregate measures of debt and savings are both looking quite rosy. A few months down the line literally all of the economic issues will be better off as quarantines are lightened, as things reopen and new businesses are created to replace the old. The actual issue is going to be what society does with our national debt one day including the 3T we assumed as part of our stimulus for this one pandemic. This is not a "few months away" problem but a few decades away problem.
- leg100 6y ago
  > The article pretty clearly points out that for large swaths of the economy things are absolutely just fine, that in aggregate things are just fine, that aggregate measures of debt and savings are both looking quite rosy. That's manifestly untrue. Aggregate measures of debt are at an all time high, measuring across government, households and non-financials [1]. Household savings have gone up but that has to be placed in the context of massive state intervention. Essentially you're not only taking money from one hand and giving to the other but a massive mortgage has been taken out too, to come due on future generations at the expense of future GDP. [1]: https://www.fitchratings.com/research/sovereigns/us-non-financial-debt-surges-to-record-high-more-is-to-come-07-07-2020 https://www.fitchratings.com/research/sovereigns/us-non-fina...

ur-whale 6y ago

What if, as an engineer, you were forced to work with a measuring tape whose graduations change all the time? As a matter of fact, what if you were ask to build things using a measuring tape with graduations that are increasingly far apart over time? I'd wager you would be a little upset and quickly ask for a proper measuring tape so you could do your job properly. Sounds reasonable, right? However, the exact same thing is happening in economics: everything is measured with a measuring stick whose length changes all the time. And this does not seem to worry anyone: economists merrily keep on measuring things like household debt in USD and everyone seem to agree it's the right way to work. A good and proper shared hallucination. Worse, the length of the measuring stick is changed, not in a random fashion, but in a way that makes the power that be look good on TV. Once in a while, people try to do the right thing and present inflation-corrected numbers, but that's far from being the norm.

zefool 6y ago
Worse even: the measuring stick for inflation suffers the same disease! The most used measuring stick is the CPI, which (1) does not include e.g. assets, and (2) whose definition also changes significantly over time. So it arguably does not even measure total inflation, and on top of that is not really the same metric every year. So not only does your measuring stick shrink and expand, it is not even possible to measure by how much.
- gruez 6y ago
  >The most used measuring stick is the CPI, which (1) does not include e.g. assets Why does this matter? If your cost of living stays the same but TSLA/BTC jump up 10x why should that count as inflation?
  - zefool 6y ago
    Simple: this state of affairs is only possible when consumer products and necessities are not scarce. When scarcity comes into play, well, then it does not matter whether the dollars you are competing with come from the "real economy" or bitcoin. Prices will shoot up.

imtringued 6y ago

I honestly don't see any new insights. For example the stimulus money was used to buy stocks or pay off debt. Wealthy people get richer. People with college degrees are doing well financially. Water is wet. The Fed has been pursuing this strategy for more than a decade. Drive treasury yields down, people are desperate for investments. Everyone joins the stock market. If the less wealthy (middle class with good jobs) are joining the stock market you should be skeptical because that means even they don't know what to spend the money on. What we really wanted to see is people spend that money on consumer goods to drive underemployment down. Inflation is a very good indicator for underemployment. If it's slightly above 2% that means lots of people are employed and looking for even better employment opportunities. Inflation did recover from the crash to 0% but it's still only back at 1.2%. The only good news is that the economy doesn't have to care about viruses. Inequality is unsolved and still rising or at least staying the same.

chrisamiller 6y ago
The economy cares very much about this virus. The stock market does not. The disconnect between the two is yet another sign of how vast the inequality gap is at the moment.