Capitalism, The Best Solution to Poverty

[Brian Peacock]

Mark Blyth argues that austerity is a dangerous idea. Cuts in public provision and spending are a bad idea in times of high income disparity because agents at the top of the income distribution use their surpluses to buy the assets of govts and the middle class, only to rent them back to the people they bought them off. This creates greater surpluses for the wealthy while depressing the spending power of govts and the middle class - which in turn increases pressure on govts and the middle class to sell more assets, which supports the wealth growth and asset trading of those at the top of the income distribution. At some point the lower and middle bands become unable to meet the rents demanded by the upper band, briefly depressing asset prices and leading to a sell off to those with the deepest pockets which systematically shifts even more wealth (and thus power and influence) into the hands of a shrinking minority. Austerity isn't a solution to hard times but a symptom of the ongoing transfer of value from the bottom to the top of the income distribution.

[Sean Hayden]

Where is this happening?

Anywhere that is seeing a steady increase in wealth disparity...

I think we have a significant wealth gap, and consumer spending —with few exceptions— only ever grows.

[pErvinalia]

Debt fuelled.

[Brian Peacock]

One person's liability is another person's credit - plus interest. A 'debt fuelled' system isn't necessarily unstable or problematic, unless the level of liabilities outstrips the system's capacity to meet those obligations - as with sub-prime lending before the 2007/8 collapse. I mean, the clue was in the name really.

[Sean Hayden]

The majority of debt is in housing. But the kind of spending that is supposed to differentiate the wealthy from everybody else is the money spent after necessities are met. So it's probably not fair to look at the enormous amount of debt as the contributing factor to continued growth in the consumer spending we care about here. It definitely plays a part, credit card use is at all time high, and a lot of that has to be discretionary; but the bulk may still be used for essentials.

[Brian Peacock]

Indeed. In the UK from 2007-2020 the price of housing had risen by c.40% and rents by c.60%, and since the pandemic food inflation peaked at c.17%, rents around 20%, and energy costs doubled. All this during a sustained period of wage stagnation not seen since the Napoleonic war. On the bright side, until the pandemic borrowing costs and inflation were low. For a great many people debt is the only way they've managed to meet their basic needs, such that even though wage growth is now at c.5% that extra money is only lightening their debt burden and meeting their mandatory spending, and isn't leading to greater discretionary spending or the consumer growth associated with feeling richer than last year.
.

[Sean Hayden]

I don't know how families can afford to rent today.

[Sean Hayden]

Why the average American family's net worth increased 37% during the pandemic

https://www.npr.org/2023/10/18/12068309 ... fed-survey

A surge in wealth has boosted most US households since 2020 and helped sustain economic growth

https://apnews.com/article/economy-weal ... 72ef8d9394

Household net worth increased by $4.8 trillion in the third quarter of 2024

https://www.federalreserve.gov/releases ... pments.htm

Us Hiring Engine Kept Humming in 2024 With 2.2 Million Job Gains

https://www.bloomberg.com/news/articles ... -job-gains

[Brian Peacock]

Interesting. Do you feel better off than you did before the pandemic? If you take a stroll around your neighbourhood does it seem more economically vibrant or dynamic than before? What do people say when they talk to you about this stuff? Are they feeling more secure, positive, hopeful?

[Sean Hayden]

When they got it, they don't got it, and when they really don't got it, they don't got it. That's how normal people talk about money. Maybe the data isn't all that helpful either. But like you said, it's interesting. We know people received a lot of stimulus money. We know people are working again. We know that incomes have finally budged a bit in the right direction. We know the US managed inflation far better than most. And we know several other indicators point to a relatively strong economy. It would be surprising then if none of these facts--even assuming plenty of play in interpretation eg problems with averages--meant a lot of people's financial situation improved.

As for spending specifically, I was interested in the possibility of something counterintuitive being behind continued growth despite widening income gaps shrinking the middle class. Looking into it a bit I'm thinking the answer will be neat eg both higher and lower prices, but not surprising.

[Tero]

People "feel" inflation more than they feel the delayed pay raise after that.

[Brian Peacock]

When they got it, they don't got it, and when they really don't got it, they don't got it. That's how normal people talk about money. Maybe the data isn't all that helpful either. But like you said, it's interesting. We know people received a lot of stimulus money. We know people are working again. We know that incomes have finally budged a bit in the right direction. We know the US managed inflation far better than most. And we know several other indicators point to a relatively strong economy. It would be surprising then if none of these facts--even assuming plenty of play in interpretation eg problems with averages--meant a lot of people's financial situation improved.

As for spending specifically, I was interested in the possibility of something counterintuitive being behind continued growth despite widening income gaps shrinking the middle class. Looking into it a bit I'm thinking the answer will be neat eg both higher and lower prices, but not surprising.

Yeah. Averages and general measures of 'the economy' like growth or employment are one thing, how they relate to the experience of people in the wild is another. And there's no shortage of markers of course: the levels of business debt &/or surpluses, business startups and windups, internal and external investment, govt tax revenue, spending, borrowing and deficits, not to mention blessed share prices, bond and gilt yields, commodity prices etc. These kind of things are important indicators that important people tell us are important, but they're basically measures of the same thing..

This planet has - or rather had - a problem, which was this: most of the people living on it were unhappy for pretty much all of the time. Many solutions were suggested for this problem, but most of these were largely concerned with the movement of small green pieces of paper, which was odd because on the whole it wasn't the small green pieces of paper that were unhappy.

-- Douglas Adams, The Hitchhiker’s Guide to the Galaxy

How do these kind of measures relate to our everyday experiences? The graphs might have an upward trend and the arrows might point to the sky but how do they relate to the things we see around us; to the pot holes and cracked sidewalks, the weeds growing at the side of the road, the missing or broken streetlights, or the seemingly ubiquity of litter; that every third shop seems to be a charity/thrift store, every fourth is a vape or betting shop, and every fifth one is empty; that the motorway is always clogged and public transport is expensive and unreliable? How do those things relate to our access to and the quality of education or health-, social-, and child-care, to food security or the amount of excrement or heavy metals in the water, to levels of child poverty, to homelessness, to mental health, to people choosing between heating or eating, to the level of people living hand-to-mouth day-to-day? I could go on... like for ages !!

So, I see a disconnect between what important people tell us is important about 'the economy' and what we actually see around us and experience - in 'the real economy'. The health and utility of 'the economy' isn't found in upwardly trending measures and the amount of surplus value being generated and logged, but how growth and profit are distributed and invested - by whom and for whom. You'll guess I think the balance of that is way out of whack, to say the least! 'The economy' fundamentally plays out at the level of the community, so we have to think about 'economies' in the plural and how different economic paradigms and concerns play out for and influence different types of communities.

[Brian Peacock]

Discussion of degrowth.