onlooker wrote:Evil, can I ask you what you believe will be the prime catalyst to initiate the next Great downturn in the Economy?
I think the prime catalyst will be interest rates. The move upward is a a move to halt inflation, which has been low. I know, you can always find somebody who has a lot to say about how they are paying more for everything. About a year or two ago I started to actually watch what was happening at the grocery store. I didn't write things down, but I deliberately kept a lookout, to see how much things were actually going up. Prices went up some, but not as much as the ranting. In fact, Kroger stock tanked during that time because they were not perceived as having much pricing power.
We could use some inflation, especially of wages, in the United States. It's sad that the same $10 per hour 'good enough' wage has maintained its dominance amongst the lowest paid for decades. There was a huge fight over paying fast food workers $15 per hour partly in a battle over people's perceptions. Those who work for little money mostly just want to survive. It's telling that many of those who work at those places where the push for $15 per hour took place didn't want it because it would probably screw up other things they relied upon for survival, winding up costing them more out of their own pockets to live their lives. But I don't bring this up to highlight some social justice issue. I bring it up to highlight how locally it impedes demand. The fewer people there are in a local economy with discretionary income, the less money local business has to market toward.
In the absence of inflation there is a perception that it exists. I assert that perception is a symptom of low local money supply rather than inflation. People work harder and make less than they used to when they worked less. There is some inflation, even if the level is low, and its effects are cumulative. The obvious solution is higher wages to match inflationary pressure, but that hasn't happened. I'll step out on a limb and tell you who the real culprit is, a misidentification on the part of the lower classes based upon an emotional understanding of how America works. People in America believe in supply and demand. As such, they see things like unions as artifice. They want the pure version of supply and demand to be true, so they deny the viability of those constructs, like unions, designed to achieve results because of power in numbers. Likewise, people want principles of management that promote nut cutting to be true over those which support empowering employees. It hasn't been hard for the rich to bring about legislation helping this along. Unions are messy. They are run by others and the focus is not on the individual. Americans love any tale where the individual triumphs. To that end, the struggle to survive is not one that people engage in alone. They also have to constantly fight the judgment of others. When people fail in America there is always a wagging finger saying they deserved it close by. And that wagging finger probably belongs to someone who is just as close to failure. The wagging finger easily mistakes chance success for virtue. The wagging finger most likely stands upon the pure version of supply and demand as it utters its pronouncements. Meanwhile, the rich live in a completely different world. They have the power to create demand. They mold what people think, rolling it out to them in complex marketing schemes and campaigns which are highly effective. Too much of everything is focused toward the top. And too many people suffer under the illusion that they can get there. People simply discount luck too much. Likewise, they discount the power of those at the top to ensnare them into their schemes. They can't see how much their own biases help the rich get richer.
Into this mix comes higher interest rates. The thing that these rates are most about doing is keeping local wages low. Milton Friedman taught them to watch for that, so, by God, they will. The rich have no idea what sort of boat the non-rich are in. They don't know that Uber drivers sleep in their cars as they work 12-14 hour days. Their statistics don't catch sleepy bus drivers because they don't follow them through their other jobs. They have no idea how many homeless people there really are. They just want to keep a good thing going. The good thing of the rich almost doesn't need the rest of us. It has foreign investment to bolster it. It has US dollar dominance to ensure a certain amount of money flow into the system that helps the rich stay rich. Higher rates encourage investment by those outside the US in US treasuries. High rates also take advantage of the natural financial barrier to entry into being rich, destroying the positions of those who are over leveraged. The top can't remain the top if too many are at it. They think they can keep milking the poor for what part of them, some form of consent and a vast structural consistency to their marketing devices, that they really do need the poor to provide. Little quarter point moves are only going to drive prices up, as the system realigns itself after each stage. Rent isn't going to get any cheaper. Crucially for the entrepreneurial poor, gas prices are going to go up. The poor aren't going to offer any mercy to the other poor. They won't organize. The homeless ranks will grow. People will keep doing what has worked, even if it works less well. At some point it will quit working for enough people. The structure that the rich use to stay rich will quit working. No one will be able to figure it out, even though the answer is quite simple, because everything has always been made more out of what people want the world to be like rather than what it really is like. There is room for compassion over dog eat dog, but not in the system of virtues which America's pure version of supply and demand engenders.