13 ms·

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

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.

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.