Musings Report 2018-10 3-10-18 The Problem with a Cartel Economy: Prices Rise, Wages Don't
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The Problem with a Cartel Economy: Prices Rise, Wages Don't
The problem with an economy dominated by cartels and quasi-monopolies is that prices rise (since cartels have no real competition, they can push higher costs onto the consumer) but wages don't (since cartels can either dominate local labor markets or engage in global wage arbitrage, a.k.a. offshoring of jobs or moving to lower-wage states, etc.)
Think about the major expenses of the typical household: Internet, telephony, cable and other digital services: cartel. Airlines: cartel. Healthcare insurance and providers: cartel. Higher education and student loan providers: cartel. Mortgages: cartel.
The economy now depends on two consequences of cartels:
1. High profits / high incomes for the owners and managers at the top who reap most of the gains of the cartel, as high-income individuals pay most of the income taxes.
2. Debt. i.e. low-cost, abundant credit for consumers, so they can continue to borrow more to pay the ever-higher costs of living.
But debt has a cost, too, and even at low rates of interest, eventually the interest due the ever-larger mountains of debt subtracts enough income from households that spending is crimped.
When consumers aren't earning more and can no longer borrow more to support additional consumption, consumption and the rate of new debt expansion both decline, and recession is the result.
Cartels don't really have competition, and so there is no pressure to find ways to lower costs. We see this most dramatically in healthcare and higher education, where costs just keep rising year after year.
If consumers can't borrow more to pay higher costs, then cartels lobby for government to pay their rising costs.
With no real competition, cartels have no real incentives to innovate in ways that radically reduce costs and improve their services.
Since competition would threaten profits and higher prices, cartels buy political influence to protect their rackets.
The only output of this system is higher public and private debt taken on to pay the rising prices imposed by cartels and stagnation as wages no longer enable the bottom 80% of consumers to keep up with ever-higher prices.
The vice of higher prices and stagnating wages will tighten until something breaks. It could be the currency, it could be the political status quo, it could be the credit/debt system--or all three.
Summary of the Blog This Past Week
Forget "Free Trade"--It's All About Capital Flows 3/9/18
The Death of Buy and Hold: We're All Traders Now 3/7/18
Should Facebook, Google and Twitter Be Public Utilities? 3/5/18
Best Thing That Happened To Me This Week
Homemade lunch at my sister's, with a split of champagne--a very civilized and convivial way to dine....
Market Musings: the S&P 500 and the "Trade War" Sell-Off
I'm posting two charts of the S&P 500 (SPX): the daily (short-term) and the weekly (long-term).
The recent 10% drop looks dramatic on the daily chart, but on the weekly chart, it's not very impressive.
The decline left two open gaps above 2800 that will eventually fill, and the surge on Friday left an open gap around 2750 that will also eventually get filled.
That suggests the possibility of a choppy future.
There's not much in these charts to give Bears much to go on. The daily chart shows MACD and the stochastics rising, and the weekly chart stochastics just crossed bullishly.
The SPX might backfill this month to fill the open gap left Friday, and then advance to fill the gaps above 2800.
It's hard to see much evidence of weakness in the weekly chart; the MACD would have to slowly decline down to the neutral line to set up sustained weakness.
Let's keep an open mind and see what happens by May-June, a time period that typically gives way to weakness through November.
From Left Field
Five Facts on the Discovery of the WW2 Warship USS Lexington (2 miles down)
EIA: U.S. Energy Abundance for Now — But Don’t Peek Behind That Curtain!
Soil-less garden in a 30 ft high warehouse
What the future of work will mean for jobs, skills, and wages (McKinsey report)
Switzerland votes overwhelmingly to keep its public broadcaster
Silicon Valley Is Over, Says Silicon Valley cheaper cost of living is attractive...
Facebook, Google & YouTube Censorship At An All Time High — What Ever Happened To Free Speech?
Japan Is Growing But Wages Have Barely Budged. Why?
Jetsonian Era Looms: Boeing Is Preparing To Launch Flying Taxis -- logistical nightmare in crowded cities. Might work well in rural areas...
An Anarchist Explains How Hackers Could Cause Global Chaos -- not really an anarchist-- just a fan of decentralization...
Unbelievable Renovation "Fails" -- some real classics here...
Why I Quit Google to Work for Myself -- very insightful essay on how corporate culture sabotages advancement...
"What type of 'resistance' worships state intelligence agencies and campaigns to put journalists in jail?" Julian Assange
Thanks for reading--
charles |
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