Economic Decline: the receipts
Post #1237
Disagreeing with your heroes feels heart-wrenching, so when Reason Magazine interviewed Senator Rand Paul and Rand said things are rosy, my heart dropped. When disagreeing with one of your heroes, you had better bring the receipts. Let’s visualize a spreadsheet I made with powerful economic indicators:
[click image to enlarge]
The green cells will mean “good times” and the orange cells are for “not-so-good times.”
Private Sector Workers vs. Government
In 1929 (cell E4), we discover that government spending was 19% as large as wages paid out, using the Wage & Salary Accruals for Domestic Private Industries found in cell E7. For each $1 earned, government spent 19 cents. All levels of government spending were found with the FRED series titled AFEXPND and ASLEXPND.
In such a situation, workers do the lion’s share of resource allocation, because they make over 5x more than the sum of all levels of government spending (federal + state + local). At top right, things get bad. In column P (2023), for each $1 earned by private sector workers, government spent $1.03 — allocating more than all private workers.
That — i.e., when government allocates more than the citizens — then that is what is called a “Command Economy” and history has proven it to be something which does not work out well for the people involved, even if it superficially “works well” for the top 10% of the people for several years before the nation goes bust.
Economies should be powered by wages, not by government transfers.
Net Savings vs. Private Investments
There are two types of financing, equity financing and debt financing. When engaging in equity financing, you “earned it” (your prior productivity, sitting in the form of held equity, pays for your new borrowing). When savings of others covers most of the borrowing, it is like the nation-as-a-whole is engaging in equity financing.
Someone else’s prior productivity, sitting in the form of saved dollars, pays for your new borrowing). In column J (1963), there were 74 cents saved up for every dollar borrowed. Most of the borrowing was “paid for” out of prior savings. That cell is green, showing that that is what “good” looks like. But check out column P (2023).
In 2023, there were only 4 cents saved up for every dollar borrowed (orange cell). That is what “bad” looks like. A nation cannot sustain itself if 96% of all financing (96 cents of every dollar borrowed) is by way of “debt financing.” This means that foreign money or government money is required — selling off our future income to others.
To stress the point, we didn’t borrow from ourselves or our neighbors, like in the past — and it means that part of the stream of future domestic income is leaving the country, our nation-as-a-whole “debt financing” is diverting it away from us. Foreign nationals eventually gain control over domestic companies this way: they “own us.”
If everyone on Earth was a rational utility-maximizer, it might not matter if foreign nationals acquired majority ownership of all of our companies, by buying our debt. But Game Theory research proves that not everyone acts rationally to maximize utility. Some sacrifice long-term prosperity in order to live high-on-the-hog today.
Some do not even have personal success as their top priority, and are instead motivated by an ideology which is not necessarily rooted in peace and progress, or does not necessarily value the importance of human life. Being “owned” by them would not make for a nice future. The world isn’t as neat-&-clean as in textbooks.
Non-financial Debt-to-GDP Ratio
Cell G18 shows that total nonfinancial debt used to be 128% of GDP back in 1953, but rose to 283% of GDP in 2022 (cell O18). Total nonfinancial debt is mostly comprised of Households, Businesses, and Government — a type of debt that is meant to pay for “things.” When banks draw debt, they borrow in order to pay for “money,” not things.
In 2022, 2.83 years of GDP would be required to cover the debt. By now you should see the pattern, in every economic metric that matters, things have gotten worse now.
Private Sector Wage Share of GDP
In cell E21 (1929), wages earned in the private sector were 44% of the GDP. In 2023 (cell P21), they were only 36% of the GDP. Private workers are a large part of the adult citizens, and their share of GDP should not be so small. It means that there is too much concentration in the allocation of resources: too few are allocating too much.
Income Inequality (Mean/Median Ratio)
In cell I25 (1959), the mean income was 10% higher than the median income, indicating a small amount of income inequality. But in 2022 (O25), it was 36% higher, indicating a high amount of income inequality.
Feudalism Index (Wages/Capital Gains)
When living in Medieval times where the local baron owns all of the land and if you are lucky, you will be allowed to work on it in order to afford some bread for your hungry children, the wages earned will be much smaller compared to the capital gains which can be had. Back then, “owning the castle” meant everything.
Wages would be subsistence wages but if property is ever sold, then its price would be sky-high (because “owning it” means “everything” under feudalism). In 1954 (cell H28) the sum total of all wages paid were 23x the capital gains of that year. But in 2018, they were only 8x — indicating a drift away from capitalism and toward feudalism.
Services vs. Durable Goods
When poor, more of your spending goes toward services than toward goods. You cannot afford to own things so, if you need a car or something, you’ll rent it. Klaus Schwab of the World Economic Forum thinks that the whole world can get by without owning things, but merely paying for services, instead.
In 1959, the amount spent on services was 3.2x the amount spent on durable goods. In 2018, that amount had risen to 6.4x — indicating that we might, if trends continue, eventually “own nothing, and be happy” — according to WEF elites, at least.
Homes Price in “Wage-Years”
In 1963, you could buy an average home with 3.6 years of wages. In 2022, a home required 6.7 years worth of wages. The middle class is being “priced out of” the housing market — while firms like BlackRock snatch up the homes at 20% above the market price.
The evidence suggests that there has been a hollowing out of the middle class, even if Reason Magazine — along with otherwise-heroic figures like Sen. Rand Paul — say differently.