4 February 2021
OF TWO MINDS — Please study these charts as a means of understanding the inevitability of economic stagnation and a revolt of the decapitalized middle class.
I’ve been covering the decline of America’s middle class for over a decade with charts, data and commentary on the social depression that has accompanied the decline.
While there are many mutually reinforcing dynamics in this 45-year decline — demographics, global energy costs, financialization and globalization, to name a few — one term describes the accelerating erosion of America’s middle class: decapitalization.
To understand decapitalization, we need to start with the fundamentals of any economy between labor (wages) and capital and between investment and speculation.
Although it’s tempting to oversimplify and demonize one or the other of these basics (speculators bad! etc.), they each provide an essential role in a healthy economy, one which is in dynamic equilibrium, a state analogous to a healthy ecosystem with constantly changing interactions of numerous species, individuals and inputs (weather, etc.). This variability enables the order of fluctuations (to use Ilya Prigogine’s profound phrase), a dynamic stability / equilibrium.
If labor’s share of the economy drops too low, the workforce cannot consume enough to support their households and the economy as a whole. If capital can no longer earn an attractive return, investment dries up and production stagnates. If speculators are not allowed to take on risk, liquidity dries up and risk crushes investment. But if speculation becomes the foundation of the economy’s “growth,” then the inevitable collapse of speculative bubbles will crash the economy. […]