Some of my best friends came from a post-college two year stint in the publishing world, before I went to grad school. One friend weathered the storm of publishing company consolidations. At her last job, she worked 80 hours a week, because so many co-workers had been downsized and somebody had to do all that work. She finally quit, because she had no life outside the office. Now, she’s a freelance editor. She works from home at a lower salary than she made 15 years ago. She said that she couldn’t find a full-time job right now, even if she wanted one. Publishing companies are barely holding on. One way that they are saving money is by skipping the editing process all together. Grammatic errors and typos are the product of the new economy.
And so are hastily written and rambling books it seems.
After much urging from friends, I read Average Is Over: Powering America Beyond the Age of the Great Stagnation
I’m not going to do a full book review, because the book doesn’t lend itself to a proper book review. The book isn’t really one thesis that is explained and expanded on in 300 pages, as much as lots of ideas and predictions taped together. Some predictions are thrown out there without any support. Tangents go on for way too long. That’s not to say that I don’t like many of Cowen’s ideas. I do. This could have been a really, really good book with some guidance of my friend the editor.
Alright, let me see if I can sum things up. Cowen thinks that the economy never recovered after 2008, and probably never will. The cause of these changes isn’t outsourcing, but technology. In the new economy, there will be some winners and more losers, but the losers will make adjustments and figure out how to live on less.
I will keep adding updates to this blog post throughout the day…
UPDATE: Review from the Daily Beast,
“Cowen predicts a situation where 10 percent to 15 percent of Americans are “extremely wealthy” with “fantastically comfortable and stimulating lives.” Most of the rest will see stagnant or falling wages but will benefit from plenty of “cheap fun and also cheap education.” For those wondering, this vanishing middle ground is where the book gets its catch-phrase title.”
UPDATE2: One of most interesting part of Cowen’s book is his discussion about what’s going to happen in the vast majority of people who don’t prosper in the new economy — those that don’t have technical or managerial skills. They are going to learn how to live on much less and settle in parts of the country that have lower standards of living. He points to Mexico and Berlin as places where people know how to live quite happily on little money. He says that others will simply go “off the grid” right in the United States. They will reshape their tastes and learn to live in a post-consumption society. There will be less wasteful spending. The hardest off will be single women with children, because kids are expensive.
I think Cowen’s right here. People are learning on how to live on less. Check out the popularity of the Alaska and survival shows on the Discovery channel. Check out the popularity of distopian novels and movies for young adults.
There is also a return to bartering through Internet websites. As a weekend hobby, I sell old books on the Internet. With my profits, I buy other products online. I sold a set of Dickens books for $70 this weekend and turned the money around for a new purse and a pair of earrings.
UPDATE3: Cowen says that in the future, there will be opportunities to make money by providing services to the uber-rich. Like Nanny Consultants. I also think that there are opportunities in teaching middle class people how to live on less. And make meatballs.
Apt. 11d 
Does he spent any time at all trying to work through the likely interaction between a democratic form of government and 85% of the population experiencing falling wages? Or is he an economist.
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Yes, a bit at the end. He doesn’t think that it’s going to lead to a big liberal revolution. There will be more tea-party types. Conservatives who want less taxes and less government. We’ll have a different kind of democracy.
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He says that there won’t be a revolution, because envy is local, and wealth will be geographically located in certain zip codes.
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Leaving aside envy (and I think he’s wrong about the envy because the one thing the modern wealthy have completely failed at is keeping a low profile), I think the issue is more of how a society shifts from mass market to an elite-dominated market without crashing the whole economy through demand destruction.
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I was going to say he’s an internet pundit, but apparently he is actually an economist.
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Really, in the days of the internet and facebook and media, envy is local? It could be, but producing that down-sizing really requires people moving to enclaves of less wealth. Is it happening, outside of anecdotes? Is the middle recognizing that they can’t live in NJ, NY, bay area, . . . . and moving to Bakersfield and Spokane?
And how will the 15% elite in the Bay area get services that are usually associated with middle-class pay (nursing, teaching, policing, retail, . . . )?
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Interesting map: http://www.forbes.com/special-report/2011/migration.html
Compare Suffolk County, Massachusetts to Harris County (Houston), Texas.
Playing around with the map for a while, it’s remarkable that the middle of the country does not move much. A few people in Nebraska counties might move to other Nebraska counties. On the coasts, though, there can be huge movements.
I’ve read mentions of the Google bus effect in San Francisco. Perhaps the elite Xwill formX are forming bubbles which are served by surrounding communities.
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Well, and then those being bussed in on the Google Bus to serve the elite in their bubble will have lots of opportunities for local envy. Kind of reminds me of the scene from The Princess and the Frog when Tiana takes the bus home from the house where she works in New Orleans.
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I guess we can get retail & teaching on the big box model. But, nursing and policing?
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That’s one of the weaknesses of Cowen’s book. He throws out big ideas – like geographic moving and sorting – and doesn’t show us any evidence that that is actually happening.
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I think a premise of the idea of the 15%/85% has to include support through technology and not by other people (in order to prevent the revolution).
We may be moving there — technology changed the job for Tiana, who wasn’t needed to sweep the floors or do the laundry in the same way. It could change the job for teachers, if we rely on online/tech based learning more. It’s already changed the world for retail. It might change the need for some service workers (more automation of home/cooking/driving/etc.). So we could be left with security forces (though maybe some of that can also be teched up, by using surveillance, automated security gates/responses) in gated enclaves.
Hmh, sounds like a fair number of dystopian futures, though usually the 85% in those dystopias is living like rats on the street while the 15% live in their skyrise cities. Could such a system be developed with the 85% living simply, doing their own laundry and driving in the rest of American?
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I think Abu Dhabi is kind of like the description above. Except that the 85% actually live in a different country, or think of themselves as living in a different country (so, they are flown in for multi-month shifts, and then return to their lower cost of living life in another country). The political division — the 85% workers do not participate in the government of Abu Dhabi — is a necessary requirement in that case.
Cowan’s model seems to depend on the 85% being content with their lot, in a democracy like ours. Could that happen? Would the family living in CA be content with never breaking into the “front office” if their life met some threshold? What would that threshold need to be for each of us?
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Growing inequality and income stagnation is the new normal. What happens in a world where there is great disparities of wealth and fewer roads to middle class lilfe? I wish that Cowen had written that book with lots and lots of charts and graphs that show us how inequality has grown in a chapter or two, and then the rest of his book could have tackled his theories about the future in neat chapters. Instead, he goes into long descriptions of chess games on the computer.
There is geographic sorting going on just my little area of Northern Jersey. We live on a very wealthy street. Our neighbors hire people to hang their Christmas lights for them, plant seasonal annuals twice a year, clean their homes, make their dinners, watch their children, tutor their children, and drive their cars to Florida in the winter. Those workers live in nearby towns with smaller homes and less taxes.
I suppose that there are limited number of jobs to service rich people. Not everybody is going to be able and willing to string Christmas lights on the roofs of McMansions. So what happens to everyone else?
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And here’s another article about how everyone is managing their expectations in journalism and academia… http://www.aljazeera.com/indepth/opinion/2013/03/201331116423560886.html
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And here’s more stuff that the uber-rich are buying…
“Since the doldrums of the early nineties, the market for contemporary art, which has various definitions (work created after the Second World War, or during “our” lifetime, or post-1960, or post-1970), has rocketed up, year after year, flattening out briefly amid the financial crisis and global recession of 2008-09, before resuming its climb. Big annual returns have attracted more people to buying art, which has raised prices further. It is no coincidence that this steep rise, in recent decades, coincides with the increasing financialization of the world economy. The accumulation of greater wealth in the hands of a smaller percentage of the world’s population has created immense fortunes with a limitless capacity to pursue a limited supply of art work. The globalization of the art market—the interest in contemporary art among newly wealthy Asians, Latin Americans, Arabs, and Russians—has furnished it with scores of new buyers, and perhaps fresh supplies of greater fools. Once you have hundreds of millions of dollars, it’s hard to know where to put it all. Art is transportable, unregulated, glamorous, arcane, beautiful, difficult. It is easier to store than oil, more esoteric than diamonds, more durable than political influence. Its elusive valuation makes it conducive to extremely creative tax accounting.”
http://www.newyorker.com/reporting/2013/12/02/131202fa_fact_paumgarten?currentPage=all
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We’ve had concentrations of wealth in the past, and we’ve had revolutions in the past. I’m not sure why Cowan assumes that this concentration of wealth is different from all other concentrations of wealth. The two most dangerous elements WRT revolutions are a destabilized middle class and the formerly destitute class who now have a tiny bit more. I don’t see it happening in the near future, but destabilizing America’s middle class could lead to some sort of violent rebellion if people feel like they have little to lose/have lost too much.
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Here’s a thriving job for the new economy:
http://www.cnbc.com/id/101225830
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What I would expect is (as in the case of the Industrial Revolution), first a lot of disruption and unemployment, but then the gradual reabsorption of workers back into the economy. (I’m sure it’s possible to screw that up, though.)
My dad tells me that after mechanization arrived in the part of wheat country where my mom is from, only 10% of the farm families were left farming in the area.
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Tyler Cowen is an economist, but one with a history.. As a libertarian and faculty member at George Mason U, he is part of the school of ‘freshwater economists’ who have been wrong in general, in detail, and in particular, about all of the consequences for economic theory of the crisis of 2009.
See for example
http://krugman.blogs.nytimes.com/2011/10/05/tis-the-gift-to-be-simple/
His salary as a member of this community depends on his not understanding how income inequality can be a problem.
See
So, I would interpret “Average is Over” as an attempt to frame the debate, rather than a descriptive account of reality.
MH, ” the likely interaction between a democratic form of government and 85% of the population experiencing falling wages”
Wages have been stagnant since the 1970s, that is going on forty years now. The demos has responded by establishing the Tea Party to work against their interests.
The question is, why does our notionally democratic form of government have no response to the continuing immiseration of many of its constituents ?
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also, I can assure you from both experience and data that technical skills are not in any way a protection, in this brave new economy.
See for data,
http://www.epi.org/publication/technology-inequality-dont-blame-the-robots/
Consider this post from Ezra Klein,
“A software engineer sensing competition from Bangladeshis knows a couple salient facts: He knows they will work for a tenth what he will. He knows they will work longer hours than he will, and demand fewer rights, and less time with their families. He knows, on some level, that this isn’t a competition at all, that it’s a choice, and it will not be made by him. Either his boss will choose to outsource his work to a cheaper foreign laborer, or he won’t. Within this decision exist many variables, ranging from the cost of communication to the language barrier, but the characteristics of the employee are really not the issue. Assuming basic competency at a job that can be outsourced, there is no worker good enough to outwork the eight Bangladeshis willing to occupy the position for the same price. And the native worker knows that.”
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Ezra Klein wrote:
“Assuming basic competency at a job that can be outsourced, there is no worker good enough to outwork the eight Bangladeshis willing to occupy the position for the same price. And the native worker knows that.””
Isn’t outsourcing that sort of technical work kind of a pain, and companies are finding that the savings are oversold?
http://www.pcworld.com/article/257897/is_it_outsourcing_worth_it_.html
This is a different field, but there was a story recently on Slate by a guy who tried to outsource various tiresome clerical tasks to overseas South Asian assistants and found it a bust. I can’t find the story right now, but as I recall, he did not find that it saved him time or energy and in fact caused him a fair amount of anxiety when he had to hand over sensitive personal information.
Just imagine how much worse the Obamacare website issues would be if it had all been outsourced to Bangladesh. There’d be no way to make the VA people drive over to Baltimore for progress reports on the weak parts of the project, because the employees in question would be in Dhaka. What a nightmare that would be to do via Skype given the language, accent and time zone issues. It’s been bad enough doing all of this locally.
I’m not saying that overseas workers are worse, just that it’s hard to coordinate and manage employees half a world away who are doing finicky technical projects (rather than just sewing jeans or assembling iPhones). People really aren’t that fungible for that sort of project. Could we really replace Steve Jobs with 8 Bangladeshi software engineers?
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By the way, why can’t Ezra Klein be outsourced? There are hundreds of millions of perfectly adequate English speakers in India, among them many brilliant people, and with a little training in American orthography and a boot camp in Ezra Klein verbal mannerisms and reading stats, we could hire 8 of them to turn out Ezra Klein articles for a noticeable increase in output and quality.
Why hasn’t this already happened?
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Ezra could of course be outsourced, in just the same way that coding can be: if your metric is a set number of words on a web page that hang together approximately well and can be parsed into a sort of sense. If you want good sense made with an elegant economy of words, perhaps Ezra is better. In the same way it’s noticeable that Google doesn’t outsource anything – they want good quality code, not something that in a bad light looks almost like good code.
The backlash against code outsourcing makes a good story, but it is not yet happening in the field. In the companies that do outsourcing, the driver is purely and simply cost. Since no-one has figured out how to count the costs of outsourcing in management overhead, coder turnover, and code that misses the point: it’s not counted, only the salaries count: and the calculation is always in favour of the cheaper salary.
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You can’t replace Steve Jobs with anyone. But, you can replace many programmers with their equivalents from countries that are much poorer. Some of them will continue to work in the source country; others will come here for month+ long stints; some will immigrate here permanently. One of the guarantees in the immigration law hanging around in this congress is a guarantee of eventual permanent residency for any STEM graduate (from a US school, and a PhD from anywhere, in any field) who can find a job in the US. No more H1B’s, or return to country of origin after J/F visas. You can get a job at Microsoft and stay. If we value the US residency in monetary terms (oh, say, like the 2 million+ investment requirement), that’s a big bonus we give to the market that wants to hire that labor.
Ezra Klein is being outsourced, to bloggers, who don’t get paid at all. The extent to which he hasn’t yet lost his job is that he got himself into the 15%, at least until the NY Times dies.
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“No more H1B’s, or return to country of origin after J/F visas. You can get a job at Microsoft and stay. If we value the US residency in monetary terms (oh, say, like the 2 million+ investment requirement), that’s a big bonus we give to the market that wants to hire that labor.”
H1B’s could only work for the initial hiring company, right? If the new system eliminates the H1B status, that’s arguably a big step forward for worker welfare.
Visas that only permit employment with a single employer are very ripe for abuse. As I recall, there have been some very shady practices with nannies by World Bank, IMF and diplomatic families.
http://www.foxnews.com/politics/2011/07/03/diplomats-abused-workers-get-visa-breaks-to-pursue-lawsuits/
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Yes, I hate the H1B and any visa program that requires a particular employment (though the J1’s working in research labs face that issue as well).
And the new system would undoubtedly be good for foreigners who came to the US for STEM degrees — they would compete on an equal playing field for jobs with American workers, here in the US. But, for the American worker, the foreign STEM worker is getting the job (and the pay associated with that job) + the compensation of a immigrant visa (which I’ll value at 2 M to the employee, but which costs the company nothing). Practically, the company should be able to attract the foreigner to work at a much lower wage (since they get the extra bonus of the immigrant visa) than the American worker. I believe tech wages are already depressed (say, compared to legal wages for comparable employees) because the labor force is quite close to being international.
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The current H1-B program is essentially indentured labor. The main difference is there is a possibility of escape after a decade or so.
http://prospect.org/article/high-tech-migrant-labor
H1-B wages are in fact much lower than prevailing wages, since there is minimal enforcement of the laws related to the program. When I got a green card and left the H1-B job, my salary doubled..
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One of the things that is really annoying about this book is the chipper tone that he uses to describe life among the 85%. He said that they will have drastically reduced spending. They might live like people in Mexico. People will adjust and modify their tastes and everyone will be happy.
Or not.
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Spoken like an author from the 15%!
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C’mon guys, where’s the Middle Class Panic? I myself have the cold clammy fear that Shirtsleeves to Shirtsleeves in 3 Generations is going strong, and it is going to be my kids in the shirtsleeves unless I Do Something, and I gots no clear ideas what the hell to Do.
Send them to a local college which is plugged into the market where we somewhat know people? HVAC school at the local JC? Pay zillions to send them to a mid-tier private (I don’t think my guys are HYP material, sorry for that)? What’s gonna keep them out of the poor house?
Rich people like Pelosi and the Koch brothers and Mark Zuckerberg – and libertarians like Cowen – want to let in the world, and I see the teeming hordes as mostly competition for my kids.
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My sympathies for having to wade through this poorly produced mishmash. Like several other commenters, I’m wary of the libertarian assurances that all is for the best in this best of all possible worlds. The overlords may be just fine with their outsourced utopia but they might find that they’ve created more problems than they’ve resolved. You’ll remember that the dystopia of “The Hunger Games” ended with a civil war and overthrow, however messy and muddled the results. Maybe they will, too, eventually?
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Thanks for reading it so that I don’t have to.
I think the middle class would learn to live on less and that some things will be available with less (say, TED lectures, which allow you to learn from many people) and Wikipedia, which allows you to have an encyclopedia for the price of your internet connection and your data. But, I think what really panics the middle class is not doing with less (I can and would do with a lot less if I didn’t happen to have money) but the insecurity of having anything at all. I think there are lots of people out there who would trade significant wealth for less risk, but we are moving towards an economy where you don’t get to make that trade.
I think the world is coming in, whether we want it to or not. If not by people actually moving here, by work moving away from here. Interestingly, this same panic concerning the future of our children occurs among the equivalent population in India, China, Japan, and Korea (from my personal experience). My European friends don’t seem to be engaging in the panic yet.
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Really? We have a lot of friends in Spain. Things don’t look so hot for their kids.
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Mine are Belgian, Italian, English, Dutch, . . . and, though I’ve read the news stories about lack of opportunities, they don’t seem to have the level of panic that I see around me. I attribute their lack of panic to the belief that they are going to continue to have their safety nets. There are no safety nets in India & China and I think many Americans are feeling there will be little for our children, too.
(Mind you, I’m not making a statement about my Europe — I know that Italian unemployment is terrible and that there are few opportunities, but I don’t see the personal panic)
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My perceptions of our social situation are different from those of our hostess, and many of the other commenters. In my view, middle-class status is mostly a frame of mind. That is why I can say we have a middle-class kitchen. (Linoleum, butcher block and white enamel instead of tile, granite and stainless steel.) That frame of mind is associated with a certain income level, say $40,000 to $100,000 in today’s dollars. That income level is readily available to anyone who follows certain basic rules. (Finish high school. Go to college or trade school. Get married and stay married. Work, work, work. Don’t gamble. Don’t drink to excess. Don’t take drugs, at least not to excess. Don’t waste money on flashy cars, jewelry, etc. Don’t buy more house than you an afford. Do buy insurance for anything you can’t afford to lose.) That is why our Ecuadorean housekeeper (who, to be fair, only followed about 80% of the above rules), is leading the good life.
People who don’t follow those rules have trouble staying in the middle class. Such people also don’t have the discipline and fortitude to make revolutions, but they sometimes riot and, in a democracy, they often vote for populist candidates. Expect to see more of the latter (and maybe the former), but, I suspect, a la James Madison, that competition among elites in a large diverse country will ensure that populist candidates end up coming from all points on the political spectrum and produce no systematic change.
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40% of the households in the U.S. don’t make $40,000. There aren’t that many drunk people doing drugs or buying fancy houses. Or, at least not once you count all the drunk people who are high earners.
What you say was probably true thirty years ago, unless you weren’t white, As for “don’t buy more house than you can afford,” what do you think somebody with an income of $40,000 is supposed to do with what they can afford? Even by generous standards, that would give them $1,200 a month for housing. That’s going to be tough to rent in a middle class area in Pittsburgh and impossible in lots of places. And leaving aside “flashy,” wouldn’t leave much money to keep any car at all running.
(For a $1,500 mortgage payment, you could do O.K., but you’d need to get a down payment from somewhere.)
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Working full time at federal minimum wage gets you to $15,080 ($7.25 x 40 hours/week x 52 weeks/year). Even if you have two adults working full time, you don’t get to $40,000. With current trends in wage depression, minimum wage jobs are the future for a large sector of our workforce. All the answers by those who don’t advocate for raising the minimum wage are basically “let them eat cake.”* Not to mention all the people who play by the rules, but for whom life just doesn’t work out. You don’t choose to have your spouse die or walk out on you. You don’t choose to lose your union factory job at 40 that you thought was secure at 18 when you started working, and be too old for the labor market. You also don’t get to pick your relatives, and often times leaving them is not only cruel but also impossible if you need their support. In the US it appears we require poor people to be paragons of Calvinist virtue and held to standards wealthy people don’t apply to themselves.
*I’ve heard: 1) Move to where the jobs are (Great. They’re in high cost metro areas. Now your rent has gone from $500 to $2,000/month, and mom can’t provide childcare, which is another $1500/month. Now you need to make $42,000 to not be homeless and get CPS called on you, but Target only pays $10/hour.) 2) For God’s sakes poor person, don’t live in a high cost metro area, move somewhere affordable. (Ok, great. Maybe the Walmart 50 miles away is hiring. Maybe not. Luckily meth club will provide after school opportunities for you kids.) 3) Don’t have kids with a loser. If there are no options, don’t have kids. If you can’t get BC, don’t have sex. (Besides being cruel and inhuman to ask poor people not to have human emotions or desires, it’s not always easy to tell who’s a “loser” ahead of time. Plenty of wealthy people pick losers too, but wealthy people generally don’t face consequences.) 4) go to college, but don’t go to college if you have to take out loans (let’s not even pretend to give people helpful, non-conflicting advice.) 5) don’t be lazy: work! but don’t work at a job that doesn’t cover your expenses (same as 4). 6) Give up any “luxury” not necessary for immediate survival, because otherwise you deserve nothing. (If you’re spotted at a bowling alley or movie theater, it’s a sign that you can probably afford healthcare and just being a lazy cheat. Or if you have an iphone plan that was prepaid before you lost your job, you should probably pay cancellation plans worth more than the plan so that you don’t look undeserving to people judging you.) Relatedly, 7) delay gratification, and save up. (Never mind that you cannot and never will be able to save for a middle class life, since you only make $15,000/year, and it costs $25,000/year to raise kids in your metro area.) 8) Accept patronizing advice from people who have never had to even contemplate what it is like to live in poverty, and for whom working relatively hard has gotten them cushy, high paying jobs because the upbringings their parents provided for them.
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I’m not trying to be an asshole, but I feel like it’s a lie to say that it’s still the case that if you play by some sensible rules, you can be middle class. For a growing number of people, they’re finding they played by the rules, but the game has changed and it’s no longer possible to get into the middle class.
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And it ignores the factors that are out of your control that are dominant/subdominant group issues. The myth is that it’s easy to change economic and social classes (and it’s all up to the individual) but the reality is that it’s very difficult.
An analogy is the social determinants of health. An individual’s health is influences just as much by their circumstances as their own choices.
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A very important fact to bear in mind is that very few people actually make minimum wage or less (interestingly, more workers make less than minimum wage than earn minimum wage).
“Perhaps surprisingly, not very many people earn minimum wage, and they make up a smaller share of the workforce than they used to. According to the Bureau of Labor Statistics, last year 1.566 million hourly workers earned the federal minimum of $7.25 an hour; nearly two million more earned less than that because they fell under one of several exemptions (tipped employees, full-time students, certain disabled workers and others), for a total of 3.55 million hourly workers at or below the federal minimum.
“That group represents 4.7% of the nation’s 75.3 million hourly-paid workers and 2.8% of all workers. In 1979, when the BLS began regularly studying minimum-wage workers, they represented 13.4% of hourly workers and 7.9% of all wage and salary workers.”
http://www.pewresearch.org/fact-tank/2013/07/19/who-makes-minimum-wage/
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So, the total number of minimum wage-or-under workers in the US is 3.5 million.
For comparison purposes, 4.8 million people just had their insurance policies cancelled under the ACA, and we’re not supposed to think that’s a big deal.
http://www.forbes.com/sites/theapothecary/2013/11/12/the-obamacare-exchange-scorecard-around-100000-enrollees-and-five-million-cancellations/
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I think those rules are just fine, y81. But I think that it’s harder and harder for families to pay for the basics, even if they follow those rules.
In your turf of NYC, a family of 4 has a very hard time getting by on the low range of your scale. During the last mayoral debate, the candidates (including the Republican) said that middle class in NYC starts at $60 -80 K for a family of four.
With decreasing salaries, more people need dual incomes to reach the middle class. With two people working, expenses go up mostly in the area of childcare. And everybody is exhausted, which doesn’t have a particular dollar amount associated with it, but it has a mental cost. Too many 20-year olds are floundering around trying to figure out how to have a solid job with benefits. Living at home after college. Saddled with loans. People in my age bracket are worried that their jobs won’t last until retirement. Middle class families aren’t living like Mexicans right now, but they aren’t happy either.
I give Cowen credit for thinking about the long term implications of a world with permanent income inequality, but I don’t think his vision of the world is particularly sunny.
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Related — Paul Krugman talks about how we may be living in a permanent slump. And that frugal living might be making everything worse. http://www.nytimes.com/2013/11/18/opinion/krugman-a-permanent-slump.html?src=recg
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Yes, this makes lots of sense and I don’t get why policy makers are unwilling to act on this. Economies work, and people get paid and keep jobs, with the circulation of money. If people earn money, then they can live within their means and still spend enough to keep the economy going. If people are underpaid, then they either have to ‘overspend’ to keep the same cash flow in circulation, or the cash flow dries up, which leads to further contraction and creates a negative feedback cycle.
There is clearly a political class that benefits from hoarding all the money at the expense of everyone else, and they are in positions of power. I just don’t understand why everyone has let them get away with this.
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“There is clearly a political class that benefits from hoarding all the money at the expense of everyone else, and they are in positions of power.”
Where exactly are these big pots of money that are sitting, doing nothing? Do all of these billionaires have Scrooge McDuck style money swimming pools?
http://en.wikipedia.org/wiki/Scrooge_McDuck
Out in the real world, people who have money make it work as hard as they can. They don’t have big piles of money just sitting around in bags–it’s out there working. And yes, a lot of it is out there paying wages. Given the dangers of inflation, there’s really no other choice but to put money into the economy and pray.
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I think the technical way to put it is that the money supply has been constrained on fears of possible inflation instead of expanded to fight the very real unemployment crisis.
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Some of it is being spent on trading indeterminate value, low labor goods like Art. Classic hoarding.
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bjag said:
“Some of it is being spent on trading indeterminate value, low labor goods like Art. Classic hoarding.”
Percentage-wise, I expect that the amount of net worth tied up in art is not huge. Would a guy with one billion dollars in assets really have even half a billion in art, as he might easily have half a billion in stocks or real estate? Would he have even a quarter billion in art? For another thing, how much really amazing art of indisputable long-term value is available, out on the open market, outside museums for truly rich people to buy? There are only so many Rembrandts.
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I was just looking at an online catalog of Rembrandts. I only looked at one page of them, but you have to page down pretty far before you get to the first painting in private hands (that’s something like one out of several dozen).
http://www.rembrandtpainting.net/complete_catalogue/start_self_portraits.htm
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Some books are sold on the strength of an essay. This one appears to have been sold on the strength of the title. Thanks for reading it, though, so we don’t have to.
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