Jeffrey Tucker

Growing up in the Cold War, we tended to look at Russia as a nightmare slave society that was utterly and completely foreign to anything Americans knew or could possibly know, absent some kind of invasion.

If I were to summarize the American propaganda message of the time it would be this: We are free, they are not, and that’s why we are rich and they are poor. And, man, did they look poor to our eyes. I could never understand it: How the heck does a once-great people put up with a government that is so obviously and apparently driving the whole population down, year after year?

Well, welcome to 2012 America. Have a look at the extremely scary Federal Reserve report, the Survey of Consumer Finance. If you have the stomach for it, read it yourself. The bean counters have put together the most broad and deep look at the finances of the median family. It turns out that the median American family is financially falling off a cliff, despite (or because of!) the trillions spent trying to prevent this from happening.

The short summary:

  • Two decades of seeming prosperity have been entirely wiped out since 2008, putting the net worth of the households at the same level it was in the early 1990s.
  • The housing crash is the main cause of the wreckage, but the actual income of the median family has fallen by 7.7% since 2007. The report compiles data from 2010 and would probably be worse in this respect if it included data from today.
  • Nearly all measurable increases in what the government calls economic growth actually come from consumers depleting what resources they have and not saving much, if any, income at all.
  • Meanwhile, 75% of households report that they are still holding an unchanged level of debt. Those households paying less in debt finance are doing so because they are deferring student loan payments and refinancing houses at subsidized rates.

It’s actually difficult to come up with a metaphor to fully capture the grim reality here. We could fall back on the farmer that is eating the seed corn held for next year’s planting. Or perhaps we could imagine a household that is feeding the fireplace with shingles from the roof. In short, this is not a sustainable pattern of family finance, and it is currently driving American wealth straight down.

To the extent we are not entirely aware of this, there can only be two reasons. First, the proliferation of debt finance is providing a temporary illusion. Second, the technological revolution came just in time to vastly increase the efficiency of just about everything industry and households do, thereby enabling more blood to be extracted from the economic turnip than anyone ever thought possible.

Take away those two factors and the true impoverishment of the American family would be undeniably obvious and produce a political reality that would be more revolutionary than anything we’ve seen in any existing lifetime.

We are surviving, and even somewhat thriving, despite the fact that we are getting ever poorer. This is an interesting economic paradox. The tools that we work with today — cloud computing, instantaneous communication, the time cost of operations reduced from years to minutes — have saved us from something that might have made the Great Depression seem miniscule by comparison.

Technology is so wonderful that it can actually serve as a kind of mask for underlying decline. Imagine a fisherman at a lake that has a systematically declining population of fish. He had been using a cane pole to fish, but one day, someone invents a digital fish finder and gives him a boat. This vastly expands his daily catch. It feels like prosperity, and it’s true that his time is much better spent, but the underlying reality is still there. Eventually, the fish population will die out.

Another feature of the world since 2008 is that government and the central bank has pulled every conceivable lever to prevent what has happened from happening. It has not only failed to accomplish that end. It has actually forestalled the necessary liquidation that would have created a clear path forward for the rebuilding of prosperity. All of the interventions have stopped the readjustment process, squandered trillions of dollars and cultivated a regulatory thicket that chokes the life out of all but the hardiest — or most politically connected — of capitalistic enterprises.

Imagine an alternative scenario: The bust of 2008 was permitted to happen. Bad banks and financial institutions were allowed to go bankrupt. No sector was saved. Housing prices plummeted. Fannie and Freddie took their lumps. Government slashed spending. The entire economy was deleveraged.

The effects would have been shocking, but temporary. Workers would have shifted from failed sectors to newly profitable ones. Consumers would have pulled back and had every incentive to save as never before. The poor could have afforded homes. Actually, homes would have become marketable as never before. The new savings would have funded investment, and the rebuilding of prosperity would have been massively aided by the great technological revolution.

Alas, this is not the reality we face. Instead, we are experiencing right now something very similar to what has always vexed, not just the Soviet Union, but every society burdened by a catastrophically large and intrusive government. We are getting poorer. And we are putting up with it. For now.

Regards,

Jeffrey Tucker,
for The Daily Reckoning

Jeffrey Tucker

I'm executive editor of Laissez Faire Books and the proprietor of the Laissez Faire Club. I'm the author of two books in the field of economics and one on early music. My main professional work between 1985 and 2011 was with the MIses Institute but I've also worked with the Acton Institute and Mackinac Institute, as well as written thousands of published articles. My personal twitter account @jeffreyatucker FB is @jeffrey.albert.tucker Plain old email is tucker@lfb.org

  • Robert

    There is one sector that benefits tremendously from the current situation and that is the federal government. I question whether they are “trying to prevent it” or whether it is actually the best of all possible worlds for them.

  • Le Petomane

    Excellent except to say that so many articles are written with the presumption that the Fed is doin’ it for the people.
    It is really quite obvious, given the history of fiat money, that the Fed is representing the Banksters.

  • John

    The Fed is doing it “to” the people!

  • gman

    “The effects would have been shocking, but temporary.”

    no, they would have been immediate and permanent. the two single biggest problems we face are 1) the top of the fiat debt currency ponzi and 2) citizen depopulation. neither of these problems have been addressed, or will be addressed any time soon, and they are both primary and decisive.

  • gman

    “I question whether they are “trying to prevent it” or whether it is actually the best of all possible worlds for them.”

    ah, someone is beginning to get it!

    two questions for you.

    1) what is the end result of all this?
    2) who would want that, and why?

  • Don Duncan

    gman: 1. Hyperinflation, panic, riots, martial law, more centralized control. 2. The rulers want to move us toward OWG. With the collapse of the $ they will create a new fiat currency used by North America but controlled by the International Banking Cartel.

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