What Signs Would We See If The Economy Was Going To Be Okay?

“Martha’s polishing the brass on the Titanic.” – Fight Club

When I met The Mrs. I said, “Titanic.”  She said that was a terrible icebreaker.

I worry that sometimes I talk too much about the downsides of workings of the economy and was asked, “What does it look like when things start to look better?  What does it look like if it’s all going to be fine?”  I know this might seem like rearranging the deck chairs to keep the Titanic from sinking, but, hey, let’s go with it?

These are great questions.  Not as good as, “Would you like another beer?” but still very good.

These are also questions that could be political in nature (I might write more about that for Monday) but in this case I’m going to focus on the economy as much as I can, though it’s certain that political will slip in here and there – it can’t be avoided because we’ve got Joe all over the economy.

What will make things “fine” and how will we know when we get there?

If someone steals your booze, does that mean they’ve lifted your spirits?

First:  Stop the infinite debt spending.

Several years ago I wrote about Modern Monetary Theory.  In a nutshell, Modern Monetary Theory says that if you have a bill, pay it.  If you don’t have the money, make it.  The theory goes that there aren’t a set number of points in a game of football, so why should there be a set number of dollars in the economy.  So, if you have a bill, pay for it.

This is an awesome theory only for a person that has the I.Q. of a Kamala/AOC lovechild.  The worst thing about it is that it actually worked in the short term, which is the worst when it comes to an economic policy, because it gives lots of time for Bad Things to pile up.

What made it work is because the United States can pawn the piles and piles of dollars off to the world since everyone takes them because we have nuclear weapons and aircraft carriers and everyone knows what happened to Saddam and Qaddafi when they decided they’d start taking gold instead.

I asked a friend if he wanted to hear about the Russian victory parade.  He said, “No tanks.”

Eventually either the desire or ability to soak up the dollars goes away.  When that happens, even for a short time, the inflation inherent in the system feeds back.

Can this go on forever?  No.  Should we, you know, maybe consider stopping it before we totally wreck the economy?  If we do that, there will be a hangover and a tough political bill to be paid.

Will we?  Yes.  As Ben Stein’s dad said, “If something can’t go on forever, it won’t.”  That will be a very, very bad day if it’s not one of our choosing.

Also?  Fiat economies have a worse track record than Fiat™ cars for reliability.

Second:  Stop the Wealth Pump®.

I really enjoyed Peter Turchin’s book, End Times.  In it, he convinced me (he also has data to support this) that one of the biggest failures of my lifetime is the priming of what he calls the Wealth Pump™.  The really short version of this is that policies that would support concentration of capital in the billionaire class are enacted (for example:  open borders) while policies that benefit the average worker (for example:  strictly controlled borders) are ignored.

I dropped a piece of ice in the kitchen.  I was upset, but then it melted.  I guess it’s water under the fridge.

Turchin’s models have shown that the Wealth Pump™ everywhere and always leads to tremendous social turmoil.  Even without the economic misery for the common man that the Wealth Pump© implies, the turmoil from the hordes of teeming illegals will create turmoil that will last lifetimes.  But stopping the Wealth Pump™ is imperative.

Will Bezos and Soros owned Senators suddenly ignore the billionaire class they serve?  At this point, not voluntarily.  The bacon-wrapped shrimp and cool stock tips are pretty powerful to keep them in line.

Third:  De-financialize the economy by putting out the FIRE.

Finance, Insurance, and Real Estate is called the FIRE sector of the economy.  In theory, FIRE exists to serve the actual productive sectors of the economy that make actual things that people need like potatoes, beer, steak, PEZ™, shoes, rifles, books, and toilet plungers.

That’s the way it should work.

Instead, it’s a gambling economy filled with people who try to manipulate and tweak and profit without producing anything.  The big oil squeeze of 2008?  Rumor was that was a big investment bank trying to make a bet profitable on a short against a particular company.  The investment bank didn’t produce anything useful except for profits.  By manipulation.

I think FIRE might be more dangerous than fire.

Again, ask the Nancy Pelosi why her stock portfolio is so profitable, and ask why first term Senators do so well in the stock market.  Or don’t.  But it’s FIRE that’s the primary machine in the Wealth Pump™ and these create increasingly horrific schemes.

Examples?  Everything is a subscription because it increases revenue and profits.  Now it’s moving into video games:  design a game once, sell a subscription to it so that people can’t play it again for free, but instead have to pay a monthly fee.  It’s already moving that way for software.

And look into who is buying all the housing.  It’s on FIRE.

Fourth:  Rational housing valuations.

People need a place to live, and a pod won’t cut it, but houses are now big investments.  Why?  Because they need more profits to feed the Wealth Pump®.  Housing prices returning to something a guy with a high school degree working a manufacturing job can afford is crucial, since that’s where families come from.  Is it possible in San Jose?  No.  It’s possible in Modern Mayberry, but that’s because BlackRock© hasn’t started buying here.

Fifth:  Space for humans and A.I.

I know that some are skeptical, but A.I. is already making hundreds of thousands of jobs obsolete.  Running a backhoe?  No.  Writing articles?  Yes.  Things that are easy for humans, are hard for A.I.  Things that are hard for humans (and thus draw a higher salary), are often easy for A.I.

Are expert-level programmers still required?  Absolutely.  But not as many, since an expert-level programmer acting in tandem with A.I. will have a tenfold increase in productivity.

Who loses?  The “not as good” programmers who are now not required.

This has happened before in all sorts of industries.  DJs on the radio began voice tracking decades ago.  The average DJ makes minimum wage (average, some are highly compensated, most are not) but still the radio stations paid $20,000 to eliminate them because making the product cheaper is what they know.

ChatKGB:  it asks the questions.

Automation increases profits, but it doesn’t lead to some sort of techno-utopia where we have three hour work days.  People just lose their jobs.  As profits have gone up, pay has gone down (relative to inflation) and work hours have gone up for salaried folks.

A.I. hasn’t hit in a big way, yet.  It will.  Making space for people is unlikely, but necessary.

That’s a summary of how we can tell if we’re going to pull out from the looming economic catastrophe, what it looks like if things are going to get better.  I’ve started sketching out a few political things to show that things are going to be okay, and (like I wrote above) will likely show up on Monday.

So, like the Titanic, it looks like we might have a change in destination.  But we’re making good time!

Author: John

Nobel-Prize Winning, MacArthur Genius Grant Near Recipient writing to you regularly about Fitness, Wealth, and Wisdom - How to be happy and how to be healthy. Oh, and rich.

28 thoughts on “What Signs Would We See If The Economy Was Going To Be Okay?”

  1. A healthy economy has strong new business formation.

    The vast majority of new businesses fail. The economy needs 10,000 new Tech start-ups to find the rare Apple. The Japanese tried, and failed, to analyze their way to picking the super-rare winner and they failed. It is purely a numbers game. Roll the dice enough times and you will generate some winners.

    Currently, the Wealth Pump relies on choking new business formation to ensure the money flows into the coffers of established businesses. Established business secretly love regulation for that reason.

    It would be rational to grant new businesses relief from complicated and expensive regulations just the way that we don’t expect first-graders to buy their own health-insurance and have driver’s licenses. Once there is a robust ecology of business start-ups, various support functions can be purchased on the open market or traded with other entrepreneurs. This low-tech business incubator approach would be hated by the Venture Capital industry!

  2. I think Ben’s dad actually said “If something can’t go on forever, it wo….”

  3. The meme of the smirking girl standing in front of the burning house brings back memories (and makes me hungry). A coworker used to send out a slightly different version every year at about this time that read….”next time, just buy the cookies”. Her daughter was selling Girl Scout cookies and this was part of her advertising campaign to remind everyone the order form was going around. Her daughter always seemed to sell more cookies than anyone else….go figure.

  4. Here in our little west Tennessee communities BlackRock et. al. may not be involved, but home prices are still climbing like a cat up your chest when headed for a tub bath. Fast. And it hurts. Thanks for your work.

  5. Automation increases profits, but it doesn’t lead to some sort of techno-utopia where we have three hour work days. People just lose their jobs. As profits have gone up, pay has gone down (relative to inflation) and work hours have gone up for salaried folks.

    Look around your kitchen at all the labor-saving devices. Stove and oven with fuel delivered by wire or pipe instead of a wood campfire. Pressure-fed drinking water. Dirty water piped away. Refrigerator. Dishwasher. Microwave. Electric lighting. Which of these pieces of automation and technology have led to the opposite of a techno-utopia? Which labor-saving devices have not been lifestyle improvements for everyone including the lowest classes? Given this track record, why would you think the next labor-saving device will produce the opposite result? Lifestyle has decreased only because taxes and regulations have increased to take it away.

    1. OK.
      So why don’t we all have 40+ hours of free time per week due to all those labor saving devices?

      In medieval Europe there was a system of collecting taxes based upon a unit of land that could support a family. The more fertile the land, the fewer acres within that unit. In England it was called a ‘hide’ of land. Your family gets a hide, you pay ‘x’ in taxes. The whole country was divided into such units, much like the US was (and is) divided into sections of land after the Homestead Act.

      Agriculture kept getting more efficient, increasing the amount of surplus that each farmer would produce on a hide to be well beyond what was needed by his family. So the medievel PTB decided the peasants had it too good and simply reapportioned the entire nation into slightly smaller hides.

    2. Absolutely that’s part of it – in many ways we live like the kings of old thanks to modern appliances – which have replaced the maid while TV (and now iPads) have replaced the nanny but the maid and the nanny now have jobs on OnlyFans.

      One of the neighboring cities has an industry that rapidly replaced folks with control systems – employment dropped by half, the owners in New York made more money, and the city is now poorer.

      Wealth Pump. Taxes and regulations serve the Wealth Pump, too.

  6. In a healthy economy most workers would be engaged in adding value, rather than simply shuffling value added products made somewhere else from one place to another.

  7. I’ve watched smaller construction companies eaten alive by the increase in spending by those in charge. I’ve, also, seen a huge construction company extremely profitable by keeping their overhead down to a few dozen full-time employees, and shrewd management of their money. Those that were eaten alive found expensive homes, condominiums, Rolex watches, and a flashy lifestyles became unaffordable when a few large projects didn’t perform as expected. To make matters worse, they made the huge mistake of dragging suppliers beyond 90 days in paying, and even their successful supervisors were handicapped by the lack of materials. Their banks were next, and there was no money to be borrowed. I left when my cashing my paycheck required a trip to their bank right after it was received. Those that didn’t might have to go bargain with the owners, if they could find them.
    Our economy is a larger version of the smaller economy. Borrowing is necessary for necessary things. Borrowing for any other reason is a huge mistake, and I’ll feel better about our economy when the brakes are put on for borrowing and the debt is reduced by real numbers, instead of what we’re shown.
    Jess

    1. But that will require courage and pain rather than kicking the can down the road – and our politicians suck at that.

  8. Those are nice checkpoints you list. Too bad they’re all a fantasy that’s never gonna occur. The American economy is in a debt death loop. It only spirals down from here.

    From Zero Hedge, speaking on the Biden 2023 GDP announcement a few weeks ago:

    “The result, for better or worse, speak for themselves: while Q4 GDP rose by $329 billion to $27.939 trillion, a respectable if made up number, what is much more disturbing is that over the same time period, the US budget deficit rose by more than 50%, or $510 billion. And the cherry on top: the increase in public US debt in the same three month period was a stunning $834 billion, or 154% more than the increase in GDP. In other words, it now takes $1.55 in budget deficit to generate $1 of growth… and it takes over $2.50 in new debt to generate $1 of GDP growth!”

    The Federal debt interest payments went over a trillion dollars for 2023 and are only headed up as we issue a new $2 trillion in deficit bills to cover 2024 spending and roll over $7 trillion of old low-interest debt at the current higher 5% rates. If we can find somebody to buy and swallow this $9 trillion disaster.

    It ain’t gonna stop.

    1. Ricky-

      Agreed. The US is in a Doom Loop…lather, rinse & repeat. Not just Economic but Political. They will go hand & haand.

      Q: What is the most recent evidence? A: The Mayorkas “impeachment”. Thx, RINOs!

      The old Hemingway maxim will hit home one day within the next one to two years – “Gradually, then Suddenly.”

      Get out of cities now. Biz up north (3 hr. drive) in Charlotte today. Fun place to visit 2-3X/month. But, moved out in 2008, and it ain’t the same place anymore. Outside of Myers Park/Eastover/SouthPark, completely “Yankeeized”. The crappy apartments/condos in the “trendy, Gen Z” SouthEnd appear to be designed by 1970s grads of the Moscow State Skool of Architecture.

    2. The banks “good” customers are paying 2.5% on their loans the same banks are paying 5.5% on cd’s and that would be a GOOD situation for the fed LOL

      The “government” is borrowing HALF of what it is spending and 30% of actual tax revenue is needed to pay interest on existing debt. It’s all going to be fine!!!!!

    3. Exactly.
      It’s easy to come up with plans to fix things. The hard part is convincing those in charge to fix things, as they profit from it being broken. Which is why they intentionally broke it in the first place.

  9. None if this is going to be okay, because the constitution isn’t operating, and hasn’t been since around 1900 or so, when congress DECIDED ON ITS OWN not to reapportion congressional districts after the census. They continued to argue over this until 1929, when THEY decided for THEMSELVES to pass The Permanent Apportionment Act of 1929. THIS is the REDICULOUSLY unconstitutional Act of Congress that locked congress at 435 members.
    Article I states quite clearly that congressional districts shall be comprised of 30,000 persons. This can only be altered by Amendment. It wasn’t. There should now be 11,000 members in the house. This number is TOO LARGE FOR THE WEALTH PUMP OWNERS TO BUY. IT REFLECTS THE WISDOM OF THE FOUNDERS. Also, it means NOTHING that congress has done since it stopped constitutional apportionment is actual law. This would include THE FEDERAL RESERVE ACT.
    I mention all this because you brought up the Wealth Pump crowd’s ownership of the Senate, without mentioning either the fact that congress is also owned, or the necessary action to restore BOTH houses to The People. The House is easy: just overturn The Permanent Apportionment Act of 1929. The Senate may be less easy, but it needs doing: The Popular Election of Senators Amendment must be repealed, or better yet, found UNCONSTITUTIONAL.
    You see, making them popularly elected GUARANTEED they would be bought. To have one removed from office now requires signatures on petitions and a special election. Before, all it needed was a vote from the statehouse that appointed him. All it took to get him out was a threat of replacing one’s state reps if they DIDN’T replace the crooked so-and-so. We the people had more power BEFORE! And knowing this meant that State Representatives were more likely to approve only the most NOBLE, DIGNIFIED, HONORABLE, and UNIMPEACHABLE candidates for the office.
    Until the FED is ended, and both Houses of Congress restored to constitutional purity, things will not be FINE.
    Final note: the FED can’t be constitutional, as Congress does not have the authority to shed a CONSTITUTIONALLY DEFINED DUTY by its own action, said duty being the management of the coin of the realm.

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