By Charles Hugh Smith
Source: Of Two Minds
The Status Quo is in trouble if the bottom 95% wake up to the asymmetric gains that are the only possible output of our hyper-financialized economy.
The core dynamic of the U.S. economy in this era is asymmetric gains: the gains in income, wealth and power are increasingly concentrated in the top slice of the economy and society, while the income, wealth and power of the majority stagnate or decline.
The Status Quo must paper over this widening gulf with threadbare narratives that no longer match reality: for example, we’re an ownership society. We sure are: the vast majority of the nation’s productive assets are owned by the top 5%.
The U.S. economy has changed, but the transformation is largely invisible to the average participant and conventional economist. The previous iteration of the economy expired in the 1970s, an era of stagflation (stagnant growth and rising inflation that eroded the purchasing power of most households), higher energy costs and increasing global competition, an era in which the “external costs” of industrial-scale pollution finally came home to roost and the early stages of digital technologies began impacting human labor.
Stocks and bonds were destroyed in the 1970s. Investing capital in industrial production no longer generated outsized profits.
The 1980s ushered in a New Economy based on financial magic: the outsized profits flowed to those with access to credit and the tools of financialization: buying assets with borrowed money, selling the assets off in the global marketplace and reaping enormous gains by producing no goods or services.
We now inhabit a hyper-financialized economy in which the only way to get ahead is to speculate. For the middle class, this means speculating in housing: if you hit the jackpot and your house soars in value, then leverage this new wealth into the cash needed to buy a second property–or extract the equity to fund a more luxe lifestyle.
Entrepreneurs seek to generate “value” only as a means of cashing out via an initial public offering or selling their company to a global corporation. The “value” sought now is the perception of value–the magic of future promise that boosts valuations into the millions, or better yet, billions.
How many entrepreneurs are looking forward to owning their company ten years hence? Very few, as “the long haul” has no value in a hyper-financialized economy. If you don’t cash out in six months, your Big Idea might be worthless, leapfrogged by some other Big Idea.
In a hyper-financialized economy, hype is the most valuable skill. Those who can raise $100 million in capital for a fancy juicer win, as do those who sell the Big Idea to global corporations desperate not to miss out on the Next Big Thing.
In a hyper-financialized economy, future income is pulled into the present and monetized to benefit the top dogs. We borrow from the future to fund the inefficiencies of today. It’s a great system, and the Status Quo has the answer to everything: the government can never go broke because all it has to do is print more money.
What a swell idea. Isn’t that what Venezuela has done for the past decade? And how did that work for them? If you think that destroying the purchasing power of “money” is a winner, then by all means, go on believing that the government can never go broke because all it has to do is print more money.
Here’s my favorite chart of asymmetric gains. The vast majority of the gains reaped since the 2008-09 Global Financial Meltdown have flowed to the top .1%. This is not a bug, it is a feature of hyper-financialization. Indeed, it is the only possible output of the current system.
Meanwhile, the bottom 95% live in an economy where wages go nowhere and costs are soaring. The financial media cheers when wages (supposedly) rise by 2%, but nobody dares measure the impact of rising costs in services such as healthcare and higher education.
The Status Quo is in trouble if the bottom 95% wake up to the asymmetric gains that are the only possible output of our hyper-financialized economy. Hype and propaganda are the key tools of the present era, as these are required to disconnect perception from reality. How long the disconnect will last is anyone’s guess, but when the two reconnect, all that is solid now will melt into thin air.