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Musings Report 2019-35 9-1-19 When High Expectations Are Dashed
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For those who are new to the Musings reports: they are basically a glimpse into my notebook, the unfiltered swamp where I organize future themes, sort through the dozens of stories and links submitted by readers, refine my own research and start connecting dots which appear later in the blog or in my books. As always, I hope the Musings spark new appraisals and insights. Thank you for supporting the site and for inviting me into your circle of correspondents.
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The first Musings of the month is a free-form exploration of the reaches of the fecund swamp that is the source of the blog, Musings and my books.
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When High Expectations Are Dashed
Back in March, I addressed "Unrealistically Great Expectations" (Musings 11) in light of the college admissions scandal that was unfolding. The basic point was the our society and economy can no longer support an elite that's expanding much faster than the real economy. The net result is an increasingly fierce competition for slots in the elite class.
Today I want to address the widening global disconnect between what the real economy can deliver and what people expect it to deliver. As a generality, expectations are unspoken and tacit: we expect to have an easier, more fulfilling life, a more financially secure life, better healthcare, a longer, healthier life than previous generations, technology that advances our conveniences and well-being, and so on. In sum, we expect the "positive growth" trends of the 20th century to continue unabated.
The 21st century has offered up a mixed bag. We can count some medical advances, but we can also observe a broad-based decline in well-being. We can see global stock markets have flourished, but we also observe that most of the gains have flowed to a tiny percentage of the populace, i.e. widening income/wealth inequality. We see debt exploding higher globally while "growth" stagnates.
When expectations are high, the disappointment when expectations are dashed is severe. Sociological studies have found that low-income people tend to suffer less disappointment than middle-class people because their expectations are low: they don't expect to join the ranks of the elite, etc.
Even as evidence piles up that the economy can't fulfill everyone's high expectations, the cultural messages are reassuring: you can be anything you want to be, the economy is strong, etc. Most middle-class young people in China, to take one example of many, have no experience of anything but a rapidly growing economy and greater opportunities. The possibility that the economy could spiral into a recession that crushed housing valuations and led to mass layoffs doesn't compute: it isn't even considered a possibility, much less an inevitability.
In Musings 23 I asked, "Why Is What Was Once Affordable Now Unaffordable to All but the Wealthy?" I began my response with a excerpt from a blog post by Ugo Bardi, an Italian professor, which described how he and his wife--both well-paid professionals--can no longer afford the suburban house his parents built in the 1960s.
Expectations are that we'll be able to afford the house our parents could afford, that our retirement/pensions will be at least as secure as the pensions collected by our parents, and so on, yet these expectations are in many cases being dashed on the unforgiving rocks of an economy in decline.
This decline has many systemic sources, and these sources cannot be reversed.
1. Demographics are no longer supportive: as Chris Hamilton has explained, the work force is no longer growing except in low-income African nations, while the number of retirees is exploding. This is the case not just in developed countries but in China and other developing countries.
2. Financialization--the source of "wealth" for 40 years--is inherently unstable. Much of the world's "wealth" is actually debt and asset bubbles inflated by exploding debt. Since we've borrowed this "money" and "wealth" into existence, interest is due on the principal. Our "solution" is to lower interest rates to zero (ZIRP) (or below zero, i.e. negative interest rates--NIRP) so we can keep expanding debt without increasing the interest due.
But this dependence on zero interest or negative interest rates destroys the core function of capital, which is to earn a return that is correlated to risk: the higher the risk,. the greater the yield. But central banks have removed risk by backstopping or guaranteeing speculative loans and asset bubbles, destroying discipline and price/risk discovery.
These are inherently destabilizing, and the global economy is fast approaching the end-game of ZIRP and NIRP's destructive impact on capital, debt and asset bubbles.
3. Energy. As many analysts have observed, the "glorious thirty" years of rapid, self-reinforcing growth from 1946 to 1976 was partly driven by the rapid expansion of oil production that generated abundance and low prices. As energy costs have moved higher while wages have stagnated, households can no longer afford to consume enough to fuel "growth" out of earnings; they must borrow money to consume.
4. System sclerosis: everything becomes more expensive even as the quality and quantity of the goods and services declines. This sclerosis has many sources: mission creep, the decline of accountability, the rising burdens of regulations, self-serving insiders protecting their livelihoods, the dominance of corporate cartels, and so on. These forces reinforce each other, making reform essentially impossible, as any reform threatens a powerful interest group or constituency.
To openly state that expectations are unrealistically high and we're going to have less of everything going forward is political suicide, so we have a range of promises from the Left and Right, all of which boil down to promises to keep incomes high so we can afford higher costs and still maintain our lifestyles.
But it's all breaking down. Even elites are killing themselves to outcompete others in their class. As author Daniel Markovits observed in a recent article, How Life Became an Endless, Terrible Competition:
"A person whose wealth and status depend on her human capital simply cannot afford to consult her own interests or passions in choosing her job. Instead, she must approach work as an opportunity to extract value from her human capital, especially if she wants an income sufficient to buy her children the type of schooling that secured her own eliteness.
She must devote herself to a narrowly restricted class of high-paying jobs, concentrated in finance, management, law, and medicine. Whereas aristocrats once considered themselves a leisure class, meritocrats work with unprecedented intensity.
A person who extracts income and status from his own human capital places himself, quite literally, at the disposal of others—he uses himself up."
Those in the lower rungs of the economic pecking order are also working harder, earning less and burning out from killer commutes, higher prices and the impossibility of winning the Red Queen's Race: we're running faster just to keep our current place.
Lowering our expectations to what's realistic increases our flexibility, well-being and our ability to execute plans to mitigate declines. If we believe the hype and platitudes, we have little motivation to plan how best to navigate decline and secure whatever we have now against loss.
If we expect global recession, financial dislocations and a drop in income, we're better prepared to make realistic assessments and plan accordingly.
From Left Field
Review of "Evicted" by Matthew Desmond: What if the problem of poverty is that it’s profitable to other people?
This is Water "Financialization is the zombiefication of an economy and the oligarchification of a society."
The Finance Curse: How global finance is making us all poorer (book)
The Next Recession Will Destroy Millennials: Millennials are already in debt and without savings. After the next downturn, they’ll be in even bigger trouble.
Why the humanities can’t be saved. -- Heretical....must be burned at the stake....
The Fed can’t rescue us from the coming supply-shock recession. -- Roubini as Dr. Doom....
"We're Taking No Chances" - How The Trade War Inspired One Company To Rebuild Its Entire Supply Chain.
'I Make a Six-Figure Salary But I’m Still Always Broke’
A Market Correction in the Humanities — What Are You Going to Do with That?
Foreign Capital Has Been Propping Up China’s Currency. Here’s What Happens When It Leaves. -- this is a very poorly understood dynamic....
In Unprecedented, Shocking Proposal, BOE's Mark Carney Urges Replacing Dollar With Libra-Like Reserve Currency.
The New Imperialist Structure: Political domination is now expressed through a new-style “political class” and a media clergy, both dedicated exclusively to serving the abstract capitalism of generalized monopolies. -- Lots of jargon but some nuggets...
"There are no separate systems. The world is a continuum. Where to draw a boundary around a system depends on the purpose of the discussion." Donella Meadows
Thanks for reading--
charles |
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