Why The Status Quo Is Doomed: Income Stagnates, Costs Rise

Even if nothing else doomed the status quo, the widening gap between household incomes and costs will push the corrupt contraption over the cliff by itself. The status quo (whatever you wish to call it) requires “growth” to sustain itself–growth in consumption, spending, sales, debt, asset valuations, profits and of course taxes, and ultimately all of those “growths” depend on household incomes.

Incomes even for the most highly educated workers are stagnating:

Adjusted for inflation, median household income is down significantly in the ‘recovery”:

Some observers quibble that since this doesn’t include food stamps and other transfer payments, it isn’t accurate: in other words, it’s not so bad if we include social welfare.

If the status quo now depends on government payments to households to sustain “growth,” then the system is nearing the cliff edge.

Another trend that pushes the contraption closer to oblivion is income disparity:virtually all the non-welfare gains in income have gone to the top 5%, with most of those gains concentrated in the top 1%:

We all know what’s happened to major household expenses such as higher education, healthcare, rent/housing: they’re soaring to the moon. Here’s higher education:

The status quo views additional healthcare spending as an unalloyed good thing, but as this chart (courtesy of B.C.) shows, rising healthcare costs correlate to recessions: it turns out paying $500 for a medication that cost $10 a few years ago isn’t the kind of “growth” that the system needs to survive:

Here’s urban area rents:

Why are costs rising inexorably? The answer in most cases is simple: cartels.Cartels and quasi-monopolies create artificial scarcities by limiting competition (usually via regulatory collusion with the government). This artificial scarcity enables the cartels to raise prices because consumers have no choice: the “competition” (i.e. the other members of the cartel) have the same prices for the same services.

Take college as an example. The artificial scarcity is accreditation: if the institution isn’t accredited, the diplomas it issues are worthless.

Suppose (as I propose in my book The Nearly Free University and the Emerging Economy) that college diplomas were awarded on the basis of standardized exams and essay questions: the only thing that matters is what the student learned, not what bureaucratic hoops the cartel has erected to protect itself from real competition.

As for healthcare, the cartel hides behind opaque pricing and complex billing that is paid by insurers or the government; the consumer has no choice and no access to the real costs.

Many cartels are obscured by complex ownership arrangements. The majority of the mainstream media is famously owned by six corporations; this concentration of ownership (and thus of political influence) dominates the cartel-state-dominated American economy.

Cartels will fight to the death to retain their privileges and profits. The status quo works just fine for them, and they will never let reform reduce their privileges, power or profits.

But once the average household depends on government handouts just to remain nominally solvent, the slide over the cliff has already started.

This entry is drawn from my new book A Radically Beneficial World: Automation, Technology and Creating Jobs for All: The Future Belongs to Work That Is Meaningful. Get a 25% discount on my new book (offer extended to 11/22/15).

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  • Telesphorus

    Talking about China’s currency: the Yuan

    How Yuan’s inclusion in the SDR will affect US Dollar holders?

    Using Johnny’s retirement savings currently at $200000.00, we will examine the following scenarios:
    – Johnny right now can afford the purchase of a house if he decides to pay with full cash
    – By Spring 2016, Johnny still will be able to afford the purchase of a house if he decides to pay with full cash BUT he may need an additional $20K loan from a financial institution
    – By Summer 2016, Johnny still will be able to afford the purchase of a house if he decides to pay with full cash BUT he may need an additional $60K loan from a financial institution
    – By Fall 2016, Johnny still will be able to afford the purchase of a house if he decides to pay with full cash BUT he may need an additional $100K loan from a financial institution
    – By Winter 2016, Johnny still will be able to afford the purchase of a house if he decides to pay with full cash BUT he may need an additional $150K loan from a financial institution
    – By Spring 2017, Johnny still will be able to afford the purchase of a house if he decides to pay with full cash BUT he may need an additional $200K loan from a financial institution

    By Fall of 2017 Johnny’s retirement savings will be worth less than 30% from its current value.
    By Spring of 2018 Johnny’s retirement savings will be worth nothing.

    https://www.youtube.com/watch?v=AnSLiFd0fb4

  • jadan

    “Cartels will fight to the death to retain their privileges and profits. The status quo works just fine for them, and they will never let reform reduce their privileges, power or profits.” The wealth disparity is troubling to the rich and their cartels, not because of their keen moral insight, but because the masses must have the means to buy stuff. The rich are rich because the people are not destitute and can afford to support them. The rich will allow reform. Warren Buffet begs for his taxes to be raised. Its revolution they’re afraid of. The loss of control over the financial system is what scares them the most. They are reluctant to admit the scam of 1913 has failed. But they will make accommodations……the mass of common people is a fearsome beast when it panics.

  • diogenes

    Thank you for this. I do wish, though, that you would find and publish a graph of Real Median Household Income that goes back to 1950 and that uses something less distorting and deceptive than the CPI to “adjust for inflation” since, as most of us know, the CPI is grossly rigged. The median income in 1985, however expressed, would support an altogether different lifestyle than $52,000 does today. Similarly, in my part of the country, rents have increased since 2000 more like 250%, not “56%”. I realize that reliable figures are harder to come by, but I can also tell that the author is intelligent and resourceful. I wish he would apply these attributes to a published discussion of this basic statistical question. Thanks.

  • Sarastro92

    Would someone send this article to Paul Krugman and the Obamabots? Their Worker’s Paradise needs to be fully understood for the stark reality.

    When the NY Times just ran a cover story that 50% of New Yorkers are living hand paycheck to paycheck I posted the same suggestions. Need I say the comment was never posted?