Thursday, October 8, 2009

Understanding the prosperity gap

I've had a lot of articles on why the prosperity gap is growing less
quickly than presented - non-wage benefits like healthcare (rising in
cost because of new technologies) have gone up a lot and two wars
sapped a huge amount from middle class incomes (2% annually if spread
across everyone equally; closer to 6% annually if focused on the lower
and middle class)

There's another point, however: the middle and lower class are
affected more by a weaker dollar because they have less savings to
invest in hedges against rising costs.

David Malpass addresses this in a very insightful article:

Agreed entirely, but there's a problem he misses, though. There is no
way to consistently strengthen the dollar at the current level of the
Federal Budget. You cannot have a strong dollar for any sustained
period of time when the national debt is growing as rapidly as ours
is. Inflation is almost inevitable.

Thus, a lot of government spending on redistribution, and protections
for the lower class actually exacerbate the problems the lower-class
faces. We're getting closer to an inflection point (if the US dollar
loses some status as an international reserve currency or as the
currency of oil), this would exacerbate quickly. The budget deficit is
also twice the size it's ever been excluding world war 2, so that's
gonna be drastic, as well.

No comments:

Post a Comment