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The Amazing Dollar

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Even if most people don’t believe it, the economy is certainly improving for some people. The Federal deficit has declined to $415B, or 3% of Gross Domestic Product (GDP), from a high of over 10% as recently as 2009. This has been fueled by a large increase in tax revenues combined with a drop in spending on unemployment insurance, mortgage assistance, and so on. Our trade deficit with other nations is also dropping rapidly due to lower imports of fuel, and now stands at less than $400B.

That’s good news all around. The only problem is that the US economy is borrowing money or sending it overseas at anywhere near the rate that the world needs it as trade expands. That is putting upward pressure on the US Dollar, meaning that while imports are likely to become cheaper there is little hope that US manufacturing is going to get a break anytime soon – despite remaining one of the big casualties of the depression so far.

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Enough Work?

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Income inequality is certainly the rallying issue for many progressives these days. Paul Krugman goes as far as to call it the one issue, the only important one. “Inequality is, indeed, the defining challenge of our time. Will we do anything to meet that challenge?” he asked last December.

Whether or not that is overstating the issue, the debate over inequality is not going away soon. Solutions are often elusive, largely because the root of income inequality is far from obvious. The free market system in the US has not always had high levels of inequality, after all. It’s a new feature to anyone who lived through the 1950s, for example.

What caused the problem? Perhaps it is the simple law of supply and demand meeting a limit to the paying work available in a developed economy.

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The Year Everything Changes

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2017 is still over three years away, but we can already say a lot about it. We know that there will be a new President, although it’s not clear yet which party has the edge this far out. It’s likely that whoever is elected she (as it well could be) will try very hard to take the partisan edge off of Washington and get things done. There may even be a new Congress by then with a completely different configuration. But as big as the political changes are likely to be, the real change will be away from Washingtoon.

That will be the year that the peak Baby Boomers, born from 1952-1959, hit 65 years old and start to retire. Ahead of them are at least 15 million Boomers who will have passed that threshold, with probably 10M or more retiring. With slow growth inflation should still be low and unemployment will suddenly and sharply decline. The Millenial Generation will hit the workforce (and the electorate) in a big way. Combine that with the rising optimism coming on slowly and the boom should fire up.

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The “Facts” are Failing

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Back in the 1950s, people who studied complex things like economies felt they were making real progress. The general belief was that by understanding how it all worked we could even things out and usher in a new era of continuous prosperity that would benefit everyone.

Some of the underlying “facts” that were identified at this time have been accepted as simple truths. Growth is always good, and economic growth always flows to workers, making their lives better generation by generation. There’s only one problem lately – some of the “facts” appear to not be as true as they used to be. That means that the underpinnings of modern economic theory are all being questioned and, perhaps, if we don’t keep our eyes open the new era of prosperity will be far more elusive than anyone thought.

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Resiliency vs Interdependence

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Long ago, most Americans lived as Laura Ingalls Wilder chronicled in the “Little House” series.  Pa Ingalls and family were out in the wilderness, living with the rhythm of the land and putting away what they could to survive long winters and perhaps beyond.  The family’s net worth was what they had around them.

That life has been replaced with interdependence based on a dollar value assigned to absolutely everything.  We all get by with any extra scratch, should there be some, not stored up to get through the winter but properly invested in convertible assets.  This means everyone is subject to  the “free market”, which determines the value of all assets including experience, talent, and work.

That interdependence has changed our world to one with much less hard work or struggles against nature, and yet to many it has become as hostile as any winter on the Great Plains.
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