I get the impression that a lot of people in the west fundamentally fail to understand what the purpose of an economy actually is.
An economy is a model for allocating labour and resources in a way that meets the needs of the people in the country.
The original argument for capitalism was that market economy with private ownership is the most effective way to allocate labour and resources in a way that benefits everyone.
Measures such as the stock market and GDP were meant to act as proxies for measuring how well the economy was accomplishing its stated purpose, which is to improve the standard of living for everyone.
Understanding that these metrics are simply proxies has been lost today, and they’ve been turned into goals of themselves. People have started treating the stock market and GDP as the economy.
This is why we’re seeing an increasing disconnect between the economy that people are experiencing in their daily lives and news reporting on how the economy is doing.
And that’s why we see absurd articles like this one arguing that the recession people are experiencing isn’t real.
https://www.wsj.com/economy/it-wont-be-a-recession-it-will-just-feel-like-one-1919267a
Glances at the last 400 years of human history
That can’t possibly be true.
A recession, strictly defined, is a reduction in GDP across two successive quarters. So, academically speaking, we’re absolutely correct in asserting that the recession isn’t real. Because GDP grew 6.1% in 2023 and 9.1% in 2022.
That said, I’m going to turn to a page in Thomas Piketty’s Capitalism in the 21st Century and note that we are experiencing an even faster rate of growth in the Return on Investment. Publicly traded assets grew on the scale of 15-30% annually, over these two years. So, we’re experiencing a period in which Rate of Growth (G) < Rate of Return on Investment ®. And when G < R, the disparity between wealth groups widens. This results in more relative poverty, as consumer prices (particularly in real estate and energy) rapidly outpace the median national income.
This deprives lay people of the fruits of economic activity and drives increases in personal debts, domestic poverty, homelessness, and other economic ills.
The problem is not that we are existing in a recession. The problem is that the surplus wealth we are generating through our labor is falling into fewer and fewer hands, resulting in a decline in the quality of life for the population at large.
well said
That’s the covid recovery. When looking at ROI trends, you need to look at 10 yr blocks.
Furthermore, ROI is measured as profit margin. Currently, there is a trend upwards, the start of which corresponds to the fall of the Soviet Union.
https://dqydj.com/sp-500-profit-margin/
We get a market crash / recovery cycle every 10 years. COVID just happened to be the thing that happened in this cycle. Trace the trajectory out over a 50 year window and you’re getting escalating rate of return decade-to-decade. The booms are bigger and the bust windows are tighter, now that we’ve figured out how to flood the asset markets with cheap lending after every downturn.
You can trace it back to the Volcker Shock from the mid-70s and the decoupling of labor income growth from overall economic growth. The fall of the USSR was not causal nearly so much as it was consequential. The mass export of American culture in the 70s/80s, combined with the boom in western-aligned consumer manufacturing and service industries, produced social backlash in the old Soviet Bloc states. That, combined with a bunch of CIA-based ratfuckery that involved splitting the hard-right social reactionaries and religious ideologues from the base of left-wing East European governments gave us a series of counter-revolutions that tore out the foundation of the Soviet movement.
Also, maybe Communism In One Country wasn’t a great long term strategy. But I’ll take that one up with Stalin when I next see him.
Or you can take a look at the link I posted.
Nothing in there about the USSR
As I said, look at the trend. There’s only one major inflection point throughout the entirety of the data, and that’s in 1990, corresponding with the collapse of the USSR.
The inflection is in 1983. '90 is just the first recession of the post-inflection era.
And the full collapse of the eastern block economies doesn’t hit until 1998. The '91 referendum is only the start of the balkinization process.
Again, this is a consequence of the Volcker shock and the boom in export markets from the prior decades.
If the inflection had happened in 1983, then the profit margin wouldn’t have fallen to all time lows in Jan 1992.
If the Soviet Union did not dissolve, then there would still be a bipolar world order, and profit margins would have stagnated due to a lack of opportunity for exploitation.
The profit margin of the early 90s was the after-effect of the Volcker Shock of the 80s. It reoriented the economy towards low inflation at the expense of higher unemployment. The decline in profit was temporary and quickly reversed as domestic spending surged in subsequent years.
That wouldn’t have changed the US domestic shift towards low-inflation / high-unemployment as national economic policy. US policy of exploitation has never been unpopular domestically, even as the imperialism returns to the core.