This is still a work in progress. The old saying is money makes the world go ‘round. Spoken from a consumerist view, the conclusion I can understand. You want to eat, sleep, and shit in relative peace and safety you need coin. Lately I have been taken a harder look at my role in this political-economic ecosystem. I have concluded that we are merely extraction points for tax and sales revenues with intravenous tubing going into one side of our bodies and coming out of the other.
This may sound cynical but I suspect most heads of households feel this way as they try to balance their budgets with increasing expenses. Will I be able to send my son to college? Can I pay that medical bill? Will I meet my mortgage? The frustration stemming from increasing difficulty to obtain the basics is like a stroke, sneaking up on Americans. In a credit-driven economy, that heart attack may be on the horizon.
Forty-five economists surveyed by the National Association for Business Economics today have a less rosy outlook on the 2018 economy versus three months ago. Although expected growth in gross domestic product is still positive at 2.8%, the forecast is down from a previous forecast of 2.9%. Current trade policies, according to economists surveyed, will have a drag on future growth with 82% of economists expecting a recession by 2019.
As I discussed in an earlier blog post, data from the Federal Reserve and the International Monetary Fund are not holding out the sunniest expectations for the economy over the next two years. Inflation is expected to peak at 2.8% in 2018 but fall to 2.4% and 2.0% in 2019 and 2020, respectively. The years 2021 and 2022 will see inflation at 1.9% climbing slightly to 2.0% in 2023.
Also constraining spending will be the rise in interest rates as the Federal Reserve exceeds its targeted 2% federal funds rate goal. America runs on credit and the more expensive is to purchase, the less of it Americans have to spend. According to IMF data, the ten-year bond rate ended at 2.4% in 2017. The rate on a ten-year note sets the interest rates for lending in the United States. By the end of 2018, the rate on the ten year is expected to climb to 3.2%; in 2019, 3.7%; and in 2020, 3.8%. The rate will then level off to 3.6% in 2021 and 2022; and hit 3.7% in 2023.
If the last decade is any indication of how well household incomes keep up with inflation, then many American households are in trouble. Average annual growth in household incomes for the lower (.70%); second (.64%); third (.29%), and fourth (.90%) quantile of household income are all growing at rates lower than expected inflation. The top quantile is seeing growth in annual income at a rate exceeding inflation (2.8%).
Many Americans would be upset with this scenario. Why can’t we get ahead? Why this gap in wealth and income? As I mentioned earlier, we are extraction points. We sit, along with natural resources, at the start point of a conveyor belt. At the other end of the conveyor belt is capital made up of coin and credit. The conveyor belt is fueled or supported by a transportation, communications, and energy infrastructure. Riding on top of the belt are the components trade, government rules, markets, and money. They are to the conveyor belt as application programming interface is to a computer network; a go-between that enables work and income to be extracted from human resources and transported to the eventual owners of capital.
For example, human resources enter markets in order to sell labor or buy goods. Government rules determine the level of tax revenue that will be extracted from human resources. The amount of money held by a human resource transmits information about that resources economic and financial value; her spending power.
Communications networks provide the conduits for transmitting information about a human resources value. Transportation networks move human resources to areas of employment where human resources convert natural and other resources into goods and services. Transportation networks also move the goods and services produced to end users. The facilities that create goods and services and the vehicles that transport goods and services run on various forms and sources of energy, including coal, nuclear, oil, electricity, solar, wind, and geothermal.
The top 20 percent occupy the capital side of the belt. Social justice warriors who argue the use of politics in order to close the gap between the top 20 percent and everyone else are making a losing argument. Politics is ineffective as a wealth and income gap closer because of the grasp that capital has on the conveyor belt. Central bankers and treasury ministers derive their influence and prestige from ensuring the conveyor belt (which we can also call a tax and payments system) operates at optimal to deliver returns (income) to the conveyor belt’s bond holders. Capital invests resources in lobbying, advocating, and the electoral process to ensure there are politicians in place that will make rules that do not impede the conveyor belt.
Those who are fed up with being extraction points want to stay off of the conveyor belt. We want to limit or eliminate our use of the communications, energy, and transportation networks that power the conveyor belt. Use of unlicensed spectrum to create our own networks; use of renewable energy sources in order to remain off grid; avoiding the purchase of vehicles in order to avoid the taxes and surveillance that are attached to them should be a goal.
I do not endorse living like a hermit (although I have no problem with prolonged peace and quiet), but we should pursue self-sustainability in order to minimize the consumerism that pulls us into unnecessary trade and market engagement. We will free ourselves to accumulate more capital while starving the beast that created the imbalance in wealth and income in the first place.