America measures her prosperity by her ability to consume. Consumption makes life more full. It extends our health and comfort, and expands our experiences. While consumption is not the essence of our happiness, it does define the extent to which we can overcome the harsher limits the world imposes on our pursuit of happiness.
Our nation’s choice since WWII to embrace throw away consumption will now have to be questioned as we acknowledge the post cold war world that is competing for limited commodities. Yet our desire to consume as a nation is destined to increase. So a critical question facing America is how we will meet the future consumption needs of all of our citizens.
For the longest time up until the last 30 years, America’s consumption needs were met by a marriage between our businesses and our nation. We assumed that our businesses‘wealth and nation’s wealth shared the same checkbook and that America’s businesses would take care of our consumption. Our economy has since forever changed, the marriage has dissolved, and our checkbooks have been separated, but in many ways, our politicians and economists still consider this obsolete national comparative economics marriage to still exist.
To suggest a way forward, I ask that you first consider the analogy that America could initially be compared to a balloon in which America’s wealth, both of its businesses and its citizens, was the air inside. More air (wealth) in the balloon expanded its size and America’s total wealth. At some point in time, however, some businesses decided to remove their air from America’s balloon. Now America’s balloon depends upon a different set of stakeholders to keep it inflated. This analogy is presented further.
During America’s rise, for prosperity to reach all our citizens, the size of America’s balloon had to expand in proportion. What added air into the balloon? Land, commodities, long lived assets like buildings, and infrastructure, and intellectual achievements, are examples of items which added value and took a long time to deplete. Services and quickly obsolescing products like live stock and produce added value for a short time before being consumed. Wealth was measured in real achievements and assets.
What took air from the balloon? Consumption…The very consumption that we use for our pursuit of happiness. However, if we consumed more than we produced, air left the balloon and deflated it, making America poorer and less capable of meeting our future consumption needs. If all Americans stopped producing and simply consumed, our stores would soon be bare, our fields barren, and our housing dilapidated. To maintain the air in our balloon, we had to at least produce as much real assets as we consumed.
America’s objective was to create a positive flow of air into the balloon. Every American’s goal was to produce more real assets than each consumed. This was not always possible during troughs of business cycles as we experienced short bouts of unemployment. However, as our economy recently contracted, we found that 30 million Americans were left under employed and consuming more air than they produced for a protraction unlike any since the Great Depression, because no productive jobs existed to allow them to produce more.
The business of creating productive jobs typically falls on the entrepreneurs, businesses, capitalists and bankers of America. Together, they collaborate to determine how best to invest existing wealth, and to consume it to produce even more wealth. Capitalists, owners of wealth, and bankers, lenders of wealth, provide businesses and entrepreneurs the means to pursue business ideas that can produce more wealth. They do this as a means to increase their own wealth within our capitalist system.
The American capitalist system allows:
• Americans that earn more wealth than they can consume to own wealth
• Wealth to be stored as physical inventory or as currency
• Owners of wealth to earn a return on investment (ROI) for using their wealth as a risk buffer for wealth lenders.
• Banks to lend wealth to others in exchange for an interest return.
• For ROI and interest to concentrate wealth into the hands of wealth owners.
• For Americans to bequeath their wealth to their offspring, who accumulate it, further concentrating wealth for generations.
Important to the concept of our American monetary system is that the owners of wealth receive return on investment (ROI) and interest for letting their ownership of wealth to be used by others, for if they do not, they hoard their wealth and the American balloon does not expand.
As important as ROI and interest are to expanding our balloon, consumption is just as important. For it is in consumption that ROI and interest are earned, and in which more wealth is transferred to wealth owners and lenders. With each act of consumption, more wealth is transferred and concentrated to wealth owners as the price of their collaboration in growing America’s balloon. This is the construct of capitalism in America. Flawed as it is, it is the best system that the world has created for expanding economic balloons.
The flaw of capitalism is that once concentration becomes too great, the collaboration between wealth owners, businesses, entrepreneurs, workers, and consumers within the balloon begins to break down until we enter into a cycle of monetary collapse such as we are experiencing today. How does wealth concentrate and how fast does it occur?
From WWII, average return on equity and debt has averaged 10 and 8 percent per year respectively until recently. With a total market capitalization and debt of $100 trillion, worldwide wealth transfer to American capitalists and bankers of $9 trillion per year would occur if it were not for wealth redistribution to mitigate its effects. Even with mitigating effects, wealth inside America’s balloon has become so concentrated about every 50 years or so that it precipitates a crisis that requires a major redistribution of wealth just to restart the collaboration cycle once again.
After the Great Depression, America thought it fixed the concentration problem through regulations imposed as part of the New Deal. From WWII until 1970, it seemed that New Deal impositions combined with the rising power of American unions stalled wealth concentration and all quintiles of income rose together. For a brief generation, wealth concentration halted and the business cycle quieted.
But globalization rose to offset the New Deal and to quash the power of unions. Like an aggressive cancer, globalization rapidly reversed New Deal regulations and forever annulled the marriage of business and America. The national balloon had sprung a leak. Beginning in the late 1970s until the most recent monetary collapse, wealth began to concentrate once again in our upper quintile and most aggressively in our upper 1 percent of Americans. And this wealth concentration cycle was different than all previous wealth cycles in that for the first time in history, wealth was no longer constrained by national borders.
The age of the Multinational Corporation and international financial fiat money arbitrage had arisen. Now air could easily leave America’s balloon, as “free air” in the hands of its owners. From the 1980s onward, as America’s government and unions attempted their inevitable redistribution efforts, America’s businesses’ air flowed easily to reaches beyond their grasp. The abstract idea of “free air”, free from national balloons, became the mantra of its “owners” as capital flowed to countries that could provide a greater return.
Why did our nation not react even as the greatest exodus of wealth ever known occurred in front of us? Because during this thirty year Great Extraction of air from America’s balloon, our balloon kept the illusion that it was still inflated. Even as productive, wealth creating air was being sucked out of our balloon, for awhile the balloon maintained its rotundness through the wild speculative debt money being created by baby boomer loans. We bubbled through three separate booms as boomers borrowed historic levels of dollar debt to offset our depleting productive air. All the while, China fed low interest loans into the balloon to maintain its appearance as the Fed printed money to fill out the soft spots. Yet this historic debt was built upon a Ponzi mountain that eventually would come crashing down leaving our balloon limp and lifeless.
America’s balloon collapsed because of excessive concentration, excessive consumption, and excessive extraction of “free air” from our balloon. More importantly, the balloon collapsed because of our denial of the changing dynamics between business and America, and America’s failure to respond accordingly. America’s balloon no longer represents the marriage between all businesses and the nation. It no longer can count on the owners of “free air” to willingly do their part to subsidize the expansion of America’s balloon.
Instead, America’s balloon now excludes the wealth of capitalists, bankers, multinational corporations and other owners of “free air”. America can rent their air but only at international “free air “ rates. America must now count on and support those that are fully invested in our balloon, including those businesses that by virtue of their geography or purpose are tied to America’s future.
We cannot, however, be beguiled by the idea that we do not need “free air” Americans. We need elites’ capital and we need their investment in America. We just cannot expect it to subsidize America’s growth at their expense, as though it is an unmentioned, unmeasured, and unrepresented “tax”. On the other hand, we cannot continue to give our elites sweetheart deals that subsidize “American businesses” below international “free air” rates just because their lobbyists wear the false allegiance of the American flag upon their lapels.
America’s excessive consumption must be purged and replaced with a productive mindset. Government acceptance of the hubris of borrowing 43 cents of every dollar to fund the world’s largest government must be expelled along with any politician that accepts it as the norm. The baby boom mindset that believed America was blessed to live beyond our parents’ means even as we failed to create real, productive output to keep pace with our consumption must be replaced with the work ethic of our parents and grandparents who made America great.
Our 30 million under employed workers cannot be sidelined because international businesses that are not part of our national balloon do not hire them. They must be given a new hope to work on behalf of those businesses that fully partner in America’s 21st century balloon expansion. And businesses that fully embrace their role as partners in America’s growth going forward must be given the support to compete with the behemoth international businesses and international banks that now hold power in Washington.
Ultimately, America must replace our throw away consumption patterns with longer lived assets that fulfill consumption. The energy and commodity footprints that support our economy must be transformed to sustain a world growing more interdependent on the same commodities. America can commit to lead the world and to sell our newfound conservation consumption to ready consumers.