Living in a rich society

We, in the West, live in scarcity economies. The key bottleneck resources are scarce, and the decision has been made to keep them scarce. Our entire economic policy from about 1979 can be summarized as follows: ordinary people cannot be allowed to have a real raise which translates into spending on oil.

When Bush screwed up the second part of that, and oil went to 150, it was one of the major causes of the financial collapse.

In a rich society, like the one we had in the 60s and 70s, big projects get completed. The interstate freeway system; the moon shot; the huge build-out of the university system. Artists and musicians sprout everywhere, good jobs exist in abundance, it’s not hard to make a living, so you can do what you want most of the rest of the time, and you can tell your Boss to go screw himself if he treats you badly. (Even in the mid eighties, I could do this. I knew I’d be employed the next day, and I had no special skills, NONE.)

When you live in a scarcity society, it’s almost impossible to receive permission to do anything real, and you have to put up with how your boss treats you, unless you have a very in-demand skillset, because the next job isn’t a sure thing. Infrastructure isn’t maintained, new institutions aren’t built, and every old institution tries to create a rental stream (thus the huge increases in tuition and the huge decreases in grants.) You can’t build high-speed rail, heck you can’t even maintain the freeways properly. Bridges start collapsing, and so on.

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This isn’t just about resource shortages. A resource shortage may start the sequence, but it is the deliberate refusal to deal with the resource shortage which turns it from a challenge into an era, which turns a rich society into a scarcity society.

When America and the West turned away from Carter (as flawed as he was) and turned towards Reagan (a disciple of Thatcher), they made a choice not to deal with the oil bottleneck except through scarcity rationing. The deliberate policy of the 80s and 90s all centered around NAIRU – the non accelerating inflation rate of unemployment. The idea was that if the unemployment rate was too tight, wages would increase, spiking inflation. So unemployment had to be kept high enough so that inflation would not occur. This is one form of inflation – so-called wage push inflation.

So whenever ordinary people started to get raises higher than the rate of inflation, the Fed would say “this rate of unemployment is lower than the NAIRU” and crush the economy and wages.

This is because wages went to doing things which increased oil prices, and Fed wanted oil prices crushed and inflation in general crushed.

The unemployment rate is, thus, not a measure of how many people are out of work, it is a measure of how close the labor market is to being tight enough to allow ordinary people to get a raise that is higher than the inflation rate.

There are a bunch of concomitants to this policy, too many to go into, but just note that is part and parcel of creating the richest rich the world has ever seen and creating asset bubbles. Money can only be created IF it won’t do anything that really matters, because anything that matters will cause oil prices to spike.

(It is also for this reason that despite all the problems fracking causes, your Lords and Masters will despoil as much of the country as necessary to continue to do so, it’s another way around the oil bottleneck.)

Note that there were other choices: massive investment in renewable energy; massive investment in energy conservation; massive investment in public transit, and a move from the suburbs back to the cities, with walkable cities. In the 90s the move should have been to telecommuting. A national income which pays people not to drive to work every day, insistent carpooling and so on, could have mitigated this problem extremely. Call the early parts of this the “super analog future that never happened.”

If you do all those things, though, the rich don’t get insanely rich, and the middle class doesn’t get to run away from black people to the suburbs. Americans voted for suburbia and against black people (and don’t tell me otherwise, I remember Reagan’s campaign, and it was based on racism). The people who made those votes, the Reagan Democrats, mostly won their bet: their house prices went up, they didn’t have to live near people with melanin, and they retired wealthy and went to live in the south, where brown people wiped their butts.

But the price of this was the end of the rich society. The end of a society where you could tell your boss to go screw himself. And it was the end of a society in which big projects were regularly undertaken. Oil is wonderful energy: it is highly dense and easily transportable, and lets you do what you want, where you want. Using oil to make plastics, to enable suburbia, to be incredibly wasteful, meant that all the big things could no longer be done.

The concomitant of this policy was the creation of the super-rich, and that meant the destruction of real Western democracy, as country after country found its politicians more and more controlled by the rich. The rich do not want change unless they control the change. Any change that already rich people can’t figure out how to control and monetize is not allowed. The state is turned into a machine for giving money and preferments to the already rich and powerful, its oversight role is hollowed out and its taxation ability is scuppered.

The great projects of the past, even when done by private enterprise, were underwritten by government. Poor governments (and yes, despite the trillions, the US government is poor) cannot engage in these huge projects.

With money printing and low interest rate borrowing monopolized by the financial sector, and within the financial sector, by a rather small number of institutions, and with demanded rates of return at least in the teens, most new businesses and projects were not, and are not, viable, in the sense that they will not be funded. Can you compete with the returns of the housing market pre 2007 (leveraged) or the leveraged returns of the stock market in the past 30 years, a stock market backed up by the Bernanke and Greenspan Puts (the knowledge that if the market goes down, the government will step in to make sure it goes back up?)

You can’t. So money floods to the highest returns, which are financial paper returns, bubbling way off the surface of the economy, and instead of building a high speed rail system, or making every building in your country energy neutral, or going to Mars, or crashing solar technology much sooner and harder, or…. anything else you want, pretty much, you get financial bubbles and history’s richest rich.

Living in a rich society is different from living in a scarcity society. There is money to create big projects. There is money to tell your boss where to go. There are jobs. Ordinary people have pricing power in a tight labor market and can get their share of productivity gains.

No society is rich in everything, there are always limitations. But being rich, personally or as a society, is about freedom. When you have money you can do what you want, when you want.

We could create a rich society again. It is possible. The necessary technology is there. What is not there are the social determinants. As long as the public and private sphere are controlled by oligarchs, there will be no rich society.

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