In an otherwise reasonable op-ed in the Financial Post regarding the current K-shaped economy, especially in the United States, an economist at some local credit union in Alberta, begins the statement, “the U.S. economy has been growing strongly since the pandemic, outpacing most developed economies.”
Certainly, at an apparent level, GDP in the U.S., as measured by aggregate demand, (not production), has outperformed most others. However, this is partly achieved by spiking fiscal deficits, and hence additional demand, to percentage levels which match the Great Depression. The deliberate purpose in the Great Depression was as means to spike aggregate demand (and break the viscious debt-deflationary cycle of the early 1930s). In this it largely succeeded, albeit at a cost. There is always a cost. So why would this not be the rationale and consequence now?
One of a league of failures in the discipline of contemporary economics is the failure to adjust true GDP of any nation by rationalizing the effects of fiscal deficits and lascivious monetary policy (or vice versa). What would be the true GDP if these were accounted for?
This is by no means an easy calculation, especially since the multiplier effect of such stimuli can be all over the map. Neverthless, in that the U.S. has been systemically priming their economy, far above the economies of their peers, it puts lie to the visage of relative economic outperformance.
A Major Cause of Economic Disparity and Class Schism
Moreover, the development of this so-called K-economy is many decades old. While caused by the ever increasing power and leverage that corporatists have, relative to labor, this increasing economic disparity has been abetted, perhaps deliberately so, by government and central banker policies of extreme fiscal deficits and loose money respectively.
Logically, such policies are inflationary by nature. However, in light of the economic leverage that corporatists have had over labor, wage rates have remained repressed. Global competition kept prices down, at least until COVID-19.
Nevertheless, that added inflationary air must go somewhere, which it did, namely into assets. Indeed, assuming that governments and central bankers would continue the madness of their loose policies, I anticipated back in 2011/2 (and told private individuals) that this very thing would produce a mother-of-all-asset bubbles.
My great irritation back in 2011/2 is that this lasciviousness would logically enrich the older generations at the expense of my children’s and grandchildren’s generations. Hence, while the present income of my youngest son and wife is equivalent in real terms to that of myself and wife back in 1991, the ability to purchase a home, the so-called North American Dream, is so beyond reasonable possibility that my son has lost even the aspiration and ambition to own one.
A one-bedroom apartment (low rise) set me back $140/month back in 1975. My weekly income was $140/week. The rent to income ratio was 23%. The ratio between that very same apartment, fifty years later, and the same job, albeit with better qualifications, is twice that now. Rentiers, not producers, are the chief beneficiaries of the present economy.
Whether deliberate or not, my father’s and my own generation have engaged in many facets of intergenerational theft. The scornful return, “OK Boomer,” is not without merit.