Uncharted territory

October 16, 2012

I recently came across yet another excellent article by Steve Randy Waldman over at Interfluidity, which led me to several erudite posts from Ashwin Parameswaran at macroresilience.com. I’ve got a lot more reading to do but first wanted to share a simple thought.

One significant difference between the Great Depression and the Great Recession is, during the Great Depression, we essentially stood by and let the wave of bankruptcies wash over the entire financial system. It was a tragedy. Many otherwise healthy banks were washed away along with the hopelessly insolvent. Credit froze, unemployment soared. Millions of people suffered without work and income, lacking the means to care for themselves and their families.

However, once the flood receded, all the gross financial excess and disparity that led to disaster had been washed away. The economic terrain was now clear for more stable, balanced growth to resume. We had to endure a very painful decade to reach that point, but once we did, the economic skies were much bluer than they had been before. This “new beginning” of sorts led to the most stable and productive generation the world has ever seen. The standard of living of the average middle class worker improved more than during any other period in history.

Fast-forward to today. At the outset of the Great Recession, our immediate focus was to prevent the pain of the Great Depression from happening all over again. And we did, for the most part. We stepped in and saved the biggest of banks – the pillars of the global financial system – while letting thousands of smaller ones fail. These measures averted panic. Unemployment rose, but not as badly as during the 30s. After a few scary months, the financial system returned to business as usual. Since then, unemployment has slowly but steadily recovered.

Now we are entering uncharted territory. This is where the paths of the Great Depression and the Great Recession diverge. We prevented the wave from wiping out the big banks, and yes, this partially averted a global tragedy. But by doing so, we also prevented the wave from flushing away the financial excess and disparity – two significant contributors to the crisis. Not only did we preserve the system and the institutions that led us here, but we kept them essentially in tact, if not made them bigger. There’s been no change in leadership. Only minimal new regulation. The message we’ve sent is: “don’t worry, this wasn’t your fault.” We have allowed, if not encouraged, those institutions to resume what they were doing before, attitudes unchanged.

By preventing this tragedy from painfully washing over all of us, we’ve also prevented it from flushing away the source of our infection. I fear we’ve merely bandaged over our problems. They’re still there, festering under the surface, potentially fomenting a greater tragedy for our future. And I don’t mean after another 80 years of prosperity – I mean, within the next decade. Or maybe tomorrow.

Think about it. Nothing has changed, really. So why should we expect the macroeconomic outcome to be any different?

(I guess I’m feeling awfully Austrian today).

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In the aftermath of the SCOTUS ruling that upheld Obamacare, Florida Governor Rick Scott is leading the revolt against the ruling and the law itself, by refusing to accept the $1.9 billion in federal medicaid subsidies allocated to his state by the Affordable Care Act.

It got me thinking about federal transfers to states, and about something Paul Krugman wrote (in his blog or his book, I forget where), about the reasons why the United States is not suffering the same type of regional economic malfunction as the EU, even though both the US and EU are large single currency zones comprised of mostly independent governments.

One reason, Krugman notes, is that labor mobility is more constrained in the EU than in the US, due to language barriers and cultural differences and nationalism and whatnot. Even though unemployment is sky high in Spain, it’s still a rather prohibitive task for a Spaniard to move to Germany for work, where the culture and language are vastly different, than it is for, say, an American to move from Nevada to New York.

The other (more relevant to this post) reason Krugman noted is that the EU does not have a federal fiscal union to help mediate severe economic imbalances, such as the imbalances the EU is suffering from today. In the US, when states like Nevada and Florida imploded from the housing collapse, the federal govt was still there to pay for things like entitlements, social safety net programs, unemployment insurance, and even stimulus. In the EU, on the other hand, there’s no fiscal union, so nation states like Spain and Italy, suffering from similar housing collapses, are on their own when it comes to funding their social safety nets. This is severely straining their budgets, forcing them to contract, which only further depresses their economies, causing more unemployment and, in turn, higher safety net costs (and the vicious cycle just goes on and on, with no end in sight). The EU as a whole could easily handle the budgetary problems that the financial crisis has brought about, but the EU as independent fiscal entities is proving that it cannot.

So, getting back to the US, I was curious to see which states receive the most in federal transfers, and from which states those transfers are taken. I found this chart from the economist:

The states in red are net “debtors” — i.e, they receive more in federal funds than they pay in federal taxes. The states in blue are the creditors — they pay more in taxes than they receive in funds. The darker the color, the more extreme the deficit/surplus (in terms of the state’s GDP). So for example, NY, NJ and Minnesota are big creditors, while Mississippi, West Virginia, and New Mexico are big debtors.

All this “red” and “blue”-ness got me thinking about political parties and election results. Here’s the electoral chart from the 2008 presidential election (via npr)

Notice there’s a bit of correlation between the red and blue election results, and the red and blue fiscal positions. In fact, of the 22 states that leaned republican, only 4 are net creditors: Texas, Nebraska, Arkansas, and Georgia (and they’re all the lightest of blue, so just barely in surplus). On the contrary, of the 28 states that voted democratic, 17 are creditors.

Oh, and Florida? A debtor state (tho it did go for Obama in 2008).

So Governor Scott claims that Floridians simply cannot afford the new medicaid provisions under Obamacare, and for his sake, he’s probably right. Because the fact is, over the last 20 years the people of Florida have never been able to afford their entitlement programs.

I suppose you could draw your own conclusions about the correlation here, but it seems like those states that express the most fiery contempt for our overly large and imposing federal union, so happen to be the ones that benefit the most from it.

I present you two charts on income inequality in the United States.

The first suggests that income inequality between 1994 and 2010 hasn’t changed at all. The chart presents the “Gini Coefficient”: a measure of income inequality. The data comes from a US Census survey of households.

In another post on the same site, it contends that the appearance of income inequality is created by the way people are grouping themselves into households (or something like that… I couldn’t really follow their point).

With a near rock-steady level of income inequality among individual income earners over time, it is only possible for income inequality to rise among families and households if the most successful income earners group themselves into families and households and if the least successful income earners likewise group themselves together into families and households as well.

If people with very high income earning potential join together to form families and households, and increasingly do so over time, perhaps because such people might have things in common that make forming themselves into families and households an attractive proposition, then income inequality among families and households will increase.

The same holds true for the opposite end of the income earning spectrum. If people with really low income earning potential join together to form families and households, or perhaps if they choose to split apart, and increasingly do so over time, then the resulting low income family and household will also make income inequality among families and households rise, even though there has been no real change in the amount of actual income inequality among individuals.

That last paragraph really stumps me. Apparently, whether low-income earners form households together or split apart, either way this results in increasing income inequality. Yet, according to the first paragraph, the illusion of inequality is merely due to the way we group together into households.

Perhaps I’m just too dense to “get it”. Either that, or this website is trying to coax bullshit down my throat, like trying to force a dog to swallow its medicine. You decide.

Fortunately, there’s a second chart, from the CBO (via Krugman), based on actual tax returns, which I can understand more readily:

…and a pretty easy to understand summary:

CBO finds that, between 1979 and 2007, income grew by:

  • 275 percent for the top 1 percent of households,
  • 65 percent for the next 19 percent,
  • Just under 40 percent for the next 60 percent, and
  • 18 percent for the bottom 20 percent.

So, according to tax data, income in the top 1% grew by 275% over the last 30 years, while the bottom 99% improved by an average of about 40%. But according to the first chart, based on US Census surveys, income inequality hasn’t changed at all. Which one feels like a more accurate depiction of reality to you?

I guess my point is that anyone can get you to believe almost anything, and have some sort of data or chart or fancy-sounding argument to back up their claims. But that doesn’t mean they’re giving you very accurate or useful information.

Unfortunately, the ideologues are out there in droves, deliberately spreading mis-information to anyone who will give them a perch, trying to convince you that black is white, up is down, the earth is flat, or whatever else suits their particular bias.

Peter Schiff – In Defense of the 1%

Peter Schiff recently visited OWS, in an effort to “understand what was motivating these protesters and try to educate them about what caused the financial crisis.” Schiff is an Austrian brand economist who strongly believes the roots of the crisis are found in big govt. But his argument tends to fall apart at the seams, when placed under close scrutiny.

(The protesters) might shout, “the banks have taken over the regulatory agencies, so we need more regulations!” Obviously, this is paradoxical. If they’re blaming government for causing this problem, why would they suggest more government as the solution?

This deductive logic seems to make perfect sense on the surface, but pragmatically it is useless. The German govt was taken over by Nazis. This doesn’t make govt, in and of itself, wrong or ineffective or inevitably susceptible to corruption to the point of being inappropriate for society. The solution post-WW2 wasn’t to create a Germany without a govt. The solution was to replace the Nazi regime with a new govt. Similarly in today’s world, it is indeed true that poor regulations delivered us to this economic debacle. But that doesn’t mean we dismantle or just give up on them. Instead, we replace them with new regulations, ones designed to prevent the general types of malfeasance that caused the crisis.

The vast majority of protesters I met did believe in capitalism – they’re just tired of being screwed over by crony capitalism. Noted school-choice activist Michael Strong calls it “crapitalism,” and that’s what it is. It’s a rotten deal for everyone, and they know it.

On this point, I think we all can (and should) agree.

The problem is that many of these people are under the mistaken impression that Wall Street banks are to blame for this state of affairs. That’s like blaming the dogs for getting into the trashcan. Sure, it’s bad behavior, but the ultimate responsibility lies with the authority figures – in this case, Washington.

This analogy is clever, but it is false and misleading. First, Wall Street is operated by humans, not dogs. We can and should hold them accountable for their bad behavior. Second, Schiff assigns “ultimate responsibility with the authority figures”. Schiff intends to make the point that govt itself is the problem. However, the analogy actually implies that govt needs to restrain misbehaving Wall Street types, lest they run wild due to their inherent impulsive reckless greed. The dog analogy suggests the owner should leash his dog to prevent it from tearing into the trash. Extending it this way, it suggest that Wall Street as well must be “leashed” — by proper regulations decreed by the authority figures. However, Schiff derided regulations in the previous paragraph. So his message here is a bit muddled and inconsistent.

And while wealthy New Yorkers have historically made their living providing essential financial services to the global economy, Washington has always made its living one way: at our expense.

I think it would be hard to convince most people that $600 trillion in credit-default swaps and interest-rate swaps and other financial derivatives currently hanging over the global economy are the bi-product of “essential services”. Meanwhile, govt provides services like school systems, paved roads, police and fire, which most people consider worthwhile. Schiff’s characterizations here are unreasonable and ignorant representations of reality.

I have trouble sympathizing with people calling themselves the “99%”, implying they stand in opposition to wealth no matter how it’s earned.

This is a manipulative and incorrect and flat out ridiculous implication of the “99%” and what they stand for. The 99% are not opposed to wealth. Totally absurd rhetoric from Schiff here.

I own a brokerage firm, but I didn’t receive any bailout money. In fact, I have to work twice as hard to compete with bigger financial firms that are propped up by the US government. The least I deserve is the ability to keep what I earn.

No bailout money? Good. You have to work twice as hard as govt-backed firms? This is bad. It’s part of the problem, and we should work together to fix it. The least you deserve? You don’t “deserve” anything, Peter Schiff. No one does. Remove “deserve” from all your arguments, because it’s entirely too subjective a term for rational debate.

The other tool the government didn’t have to use against us back then was the Federal Reserve. Even if we drastically reduce taxes, the Fed might decide to do what it has been doing: printing money to finance government profligacy. This acts as a secret tax on everyone with a bank account, and is critical in transferring wealth from hardworking Americans to politically connected elites.

Inflation is not a “secret tax”. Calling it such is just a manipulative technique to get people to think of it as some underhanded govt conspiracy to take your money. Nor is it “critical in transferring wealth from hardworking Americans to politically connected elites.” Inflation in and of itself negatively affects creditors — i.e. people with lots of money (i.e. the rich “politically connected elites”). On the flip side, inflation positively affects debtors — i.e. people struggling to make ends meet (i.e the bulk of “hardworking Americans”).

One common refrain I heard at the protests was that our problems result from the rich not paying enough taxes. Most feel that economy was better when marginal tax rates were higher, and that lower rates are a cause of financial decline. Forget about the faulty logic of this assumption, it ignores two key points. First, while it’s true that marginal tax rates were much higher after World War II, the tax code also used to contain many allowances and exceptions, such that very few people actually paid the nominal rate. Second, prior to 1913, the rich paid no income taxes at all; yet, lower- and middle-class living standards rose much faster in the 19th century than in the 20th!

A few misleading statements here. First, the tax code still contains many allowances and exceptions, even as the nominal rates have fallen significantly in the last 30 years. Due to these allowances and exceptions, many huge corporations pay 0% in taxes, and the top 400 earners in America pay an effective rate of 17%. I pay about 28% (and I’m nowhere near the incomes of the top 400). Second, Schiff has absolutely zero evidence to support his claim that “living standards rose much faster in the 19th century than in the 20th”. It’s a baseless statement, without context. Which standards, exactly? At the start of the 19th century, America was a mostly agrarian society with some industry. At the end, we were pretty much the same. At the end of the 20th century, however, we had cars, planes, cell phones, laptop computers, internet, and then some. All of these devices drastically improved the living standards of nearly every American. And they’re all 20th century inventions. So what, exactly, is Schiff talking about? Let’s just write this off as pointless nonsense. And even if he did have some obscure statistic, it’s an ideological leap to think that tax rates had anything to do with it.

Overall, I think there was a real lack of understanding of basic economic principles among the Occupiers. Protesters thought that the rich owed a duty to share their wealth with society. However, they failed to see that in true capitalism, the rich can only acquire their wealth by serving others. No one succeeds in a vacuum. Of course, the idea that Occupy Wall Street protesters have a right to share directly in the private profits earned by others is immoral.

True, no one succeeds in a vacuum. And the “others” that Schiff mentions, acquire the wealth that they eventually transfer to the rich, by serving the rich. We are all in service to each other. That’s a basic principle of an economy. Perhaps Schiff understands this, but he puts greater moral emphasis on the flow of “service” from the rich to the “others”, and on the flow of wealth from the “others” to the rich. This is merely his subjective ideological opinion. He has a right to that opinion, but it doesn’t make it an economic or moral principle (no matter how many times he states it so matter-of-factly using terms like “of course”). The basic economic principle that allows the wealthy to become wealthy is that they charge more for their services than what they’re worth, while the “others” are paid less for their services than what they’re worth. This is economic fact. Does it “deserve” to be this way? No (as I said before, nothing’s “deserved”). But it is this way, and economic advancement works well with this type of asymmetry (i.e. “incentives”). Most people are OK with that — so long as it doesn’t feel like the elites are squeezing the life out of the working class (which, for many people today, it does).

Consider the late Steve Jobs…

I’ll just stop right there. I think it’s fair to say, nobody at OWS has a problem with Steve Jobs. Steve Jobs created his wealth by creating wealth for others. Every reasonably minded person in the world should have no problem with someone getting rich this way. Steve Jobs did not work on Wall Street. It’s not “Occupy Cupertino”. Wall Street created its wealth by peddling financial derivatives that turned the investment world into a casino — one where the odds are heavily tilted in Wall Street’s favor. No iPhones were built thanks to a derivative. The only things derivatives produce are fees for Wall Street banks and big paydays for hedge funds who gamble right.

I’m calling for these protesters to educate themselves on the causes of the current financial decline and not to waste their time attacking the wrong target. They have every right to be angry, but also an obligation to be part of the solution. Yes, I am the 1% – but I’ve earned every penny. Instead of trying to take my wealth away, I hope they learn from my example.

It’s impossible for them all to “learn from his example”, because it is impossible for them all to become wealthy like Schiff. As I mentioned before, it’s a basic economic fact that in order for one to acquire monetary wealth, symmetric economic forces must deprive wealth from someone else. We can’t all be CEO’s for brokerage firms. Somebody’s got to take out Schiff’s garbage and make sure the dogs don’t tear into it. And those people will most likely be paid less than their service is worth, such that Schiff can become rich.

A recent foxnews.com poll:

It’s kind of scary. Foxnews has infected its audience with an astoundingly myopic view of the world. These viewers are utterly incapable of having any sort of reasonably informed intellectual discussion about anything. Everything is simply Obama’s fault. Everything he says is a lie. He’s just a dirty socialist hell bent on destroying the country. He’s trying to hoodwink us all.

It’s amazing. The President is agreeing to some $4 trillion in budget cuts, and yet foxnews.com viewers STILL think he’s fear mongering in order to get his way. If that’s the case, then what is “his way”? Getting the long term budget in control by making some cuts and raising some taxes?? Is that so unreasonable? Is it such a crime to close private-jet-tax-loopholes and let the Bush-era upper-echelon tax breaks expire? Must he instill the fear of economic calamity before republicans will give an inch? And if so, then what does that say about republicans? Are they so obnoxiously stubborn that they’ll refuse everything the President offers so they can stick to their ridiculous pledge not to raise taxes on the uber wealthy? Have they no willingness to compromise?

About the debt ceiling… no one really knows what exactly will happen if it’s not raised. No one can predict the market with 100% certainty. However, I’m fairly certain that the likelihood nothing bad will happen at all — that this is all just a political scare tactic by our devilish president — is much much lower than 88%. In fact, I’m fairly certain that the impact would indeed be calamitous, with the worst case scenario being absolutely catastrophic.

When you’re facing such a grave worst case scenario, it’s best not to tempt your fate – lest you follow down the path of ruined fools.

I think the more appropriate answer for foxnews viewers is (a) Not sure, I don’t know enough about how the economy works. Because clearly, they don’t.

The economic recovery turns 2: Feel better yet?

As pointed out in the above article, the economic recovery is going nowhere good. The working class continues to suffer, while most of the economic gains over the last 2 years have gone to the wealthy. Workers’ wages and benefits now make up only 57.5% of the economy, down significantly from the 70-year norm of 64%. Meanwhile, the wealthy are mostly back on track, as most asset classes have gained back all of their losses (and then some) from the financial crisis of 2008. Stocks are up 90% from the March 2009 lows, gold is up 100%, oil and other commodities are way up. Unfortunately housing — the last asset refuge of a withering middle class — is still down and continues to fall with no rebound in sight.

The problem, at a 30,000 foot level, is the lack of economic velocity. Velocity is the rate at which money is exchanged, from buyers to sellers. When velocity is high, the economy is good — lots of people employed (sellers), lots of consumer confidence (buyers). When velocity slows, so does the economy in general. Consumers aren’t buying, so sellers can’t sell anything. If we all bought and sold each others’ farming goods, then the slowdown wouldn’t hurt that bad — we could all just consume our own farmed goods, no need to sell to another. However, our modern economy doesn’t work that way. I think only about 1-2% of the population are farmers. The rest of us do some other job, and we rely on our income in order to have money that we can exchange for necessary goods, like food, clothing, and shelter. When consumption (velocity exchange) slows down, it’s a symptom of lack of money, which is a symptom of lack of income, which is a symptom of a struggling job market. And the stats support the thesis: unemployment is very high at 9.1%, and workers wages are down a troubling 7% from their stable historic norm.

This is why a healthy job market is absolutely critical to the health of a nation’s economy, and more importantly to the well being of its people. People without jobs lack the means to acquire money, and money is necessary in order to receive a share of the nation’s food supply. Way back in human history when mass food production began — when one farmer could not only support himself but also hundreds of his fellow men — governments were created in order to manage how food was distributed throughout the society. Other members of society, now free from cultivating food themselves, could branch off into other endeavors, like science, engineering, architecture, arts, etc. Efficiency improved, society thrived, technology advanced rapidly, and the rest of it is the history of human achievement…

(btw, advanced food production, thanks in part to the abundance of large domesticated animals, was one of the fundamental reasons why Europeans came to dominate the globe, rather than Africans, Asians, or Native Americans. Read Guns, Germs, and Steel to find out why (that book ought to be required reading for every high schooler, imo…).

Nowadays, in order to partake in the nation’s food production, you must have money, which means you must have income, which means you must have a job (unless you have disposable assets to sell, which most people don’t). When people are out of work, the economy (and the nation for that matter) is failing to do what it needs to do in order to support its people and distribute the goods.

Of course, if you’re rich, and you have lots of assets at your disposal, then the struggles of the lower classes may not bother you all that much. In fact, you’ve probably suffered a great deal of ideological capture, where you believe that you deserve your wealth, that it’s yours and yours alone, and as such the govt has no right to take it from you via taxation. It’s an easy argument to make logically; however it usually leaves out the part where your claim on those assets depends in large part on the govt recognizing that they are, in fact, your assets. Unless you have your own army to defend your home and your wealth, then you depend on the govt to do that for you. When you add that salient fact into the mix, the “what’s mine is mine” argument gets a bit weaker. Perhaps, in fact, the govt does have the right to tax you. And not only that, but perhaps they have a right to tax you more than they do others, in proportion to your wealth, given that you have so much more of it that needs to be protected.

So, in my humble opinion, the extreme conservative republican viewpoint that taxes on the rich are unfairly high, is deficient of a full and complete understanding of reality. And I won’t even bother to address their argument that raising taxes on the wealthy will stunt economic growth, as that argument is so devoid of economic understanding that it resembles the sputtering nonsense of a 1 year old. Perhaps if we were to raise taxes from the current rate of 36% to 70%, then yes, that might have an effect (tho not necessarily a bad one). But rolling back the Bush tax cuts, which would raise the highest income tax bracket from 36% to 39%, will do nothing to harm the economy. It will, however, go a long way in getting the govt’s budget in order, which will do loads to improve our outlook.

Basically, the way I see it, after thinking long and hard about it, breaking it down to fundamentals, shifting back and forth from Austrian philosophy to Keynesian, trying to grasp a comprehensive understanding of how it all works, this is what I believe we need to do to fix the economy:

1. Massive govt stimulus. We must get economic velocity moving again. The private sector is failing to do this. Corporations are awash in cash, their profits are up, however they’re not willing to take the risk of adding capacity in the face of a depressed economy. Only the govt is capable of taking on that risk (since the govt is the biggest not-for-profit org in the country). The FED can’t do it — they’re currently helpless, with interest rates at the zero bound. It’s serving little good to continue pushing money to private lenders, when there’s a severe dearth of worthy borrowers for that money (since the middle class is already under back-breaking debt that they can’t pay off due to significantly diminished income). The answer to this problem is govt stimulus. We need a massive govt works program, that will employ people and raise income. And we might as well do it now, while interest on US debt is at historic lows, and while the country’s infrastructure sorely needs it (just take a drive thru NJ traffic, at any hour on any day of the week, and you will soon be convinced of the desperate need to improve its public transportation options, which are essentially non-existent).

2. Raise govt income by raising taxes on the wealthy. If the govt is going to borrow 2 or 3 trillion dollars for a massive works program, then we must reassure the bondholder community that the govt won’t default on that debt. If bondholders were to lose confidence in US credit, that would be a financial disaster for America and the world (one that we’re unwisely playing chicken with by dicking around with the debt limit). Interest rates on govt debt would soar, making it virtually impossible for the US to continue borrowing. That would be followed by drastic Greece-like austerity measures, which would in turn be followed by Greece-like protests. If it gets really bad, we might see a tumultuous and possibly violent revolution of the lower and middle classes against the rich (not unlike the revolutions of serfs and peasants against the ruling lords throughout history).

3. Regulate the hell out of the financial industry. This is a must, if we are to avoid delivering ourselves right back to financial catastrophe. There’s something like $600 trillion in unregulated swaps currently outstanding in the market. The GDP of the entire world is only $70 trillion. This is a problem that has gotten way out of control. It’s like a big nuclear bomb, hanging by a thread over all of us, getting bigger and bigger and heavier and heavier, threatening to break loose and detonate the entire global economy. This monstrosity came into being thru the unfettered financial wizadry of investment banks run amok. We need to harness these careless financiers. They are setting us up for global economic meltdown, and they don’t seem to realize it, or care. Either way, they must be stopped. They will not regulate themselves. And we can’t leave it up to the free market to do it either, because ultimately that would mean leaving it up to bankruptcy to sort out the mess — and by then, the bomb would have already exploded.

It seems at times that our economy is inescapably doomed. However, in reality, these 3 solutions would be quite easy to implement. We just need the political will to do it. Well, actually, it doesn’t even require much political will, per se. It just requires obstinate, misinformed republicans to get out of the way and let the rest of us tend to the work that needs to be done.

From Paul Krugman: Degrees and Dollars.

The fact is that since 1990 or so the U.S. job market has been characterized not by a general rise in the demand for skill, but by “hollowing out”: both high-wage and low-wage employment have grown rapidly, but medium-wage jobs — the kinds of jobs we count on to support a strong middle class — have lagged behind.

The notion that putting more kids through college can restore the middle-class society we used to have is wishful thinking. It’s no longer true that having a college degree guarantees that you’ll get a good job, and it’s becoming less true with each passing decade.

We have a growingly disastrous dynamic in this country, where rapidly rising tuition costs are being met with a steadily declining pool of jobs for those degrees. We’re saddling kids with tens-to-hundreds of thousands of dollars of debt before they even enter the workforce, and then offering them fewer and fewer opportunities to earn enough income to pay it off.

I suppose this is one of the consequences of allowing vast amounts of the country’s wealth to collect at the extreme upper echelons of the pay scale. The only way to keep the economy moving is to lend that wealth back to the lower classes (a la housing boom) – since the lower classes can’t earn a wage to keep it moving themselves.

This dynamic is not sustainable. Eventually we’ll reach that tipping point (again), where debt load weighs so heavily on income that demand crashes and the economy enters a tailspin.

While I’m a libertarian at heart, I can’t deny that any economic system that funnels so much wealth to so few is doomed for disaster and, ultimately, revolution. This can’t be a good thing. So much societal wealth is wasted in the process. Perhaps we need to re-think our ideas about property and freedom, at least in an economic sense.

p.s. By the way, just to be clear, the problem is not that productivity advances (via technology) are putting people out of work (any more than it was a “problem” that early agrarian food production put hunters and gatherers out of work). Productivity improvement is always welcome — it represents increased wealth. A wealthy society is one that achieves a high standard of living while toiling less to maintain that standard.

The problem has more to do with fungible wealth (i.e. money) gravitating toward the few, while heavy debt is spreading over the many. Not only is this unsustainable, but it’s hindering our ability to fully utilize and improve upon the wealth we already have (i.e. insufficient aggregate demand).