On the major network national news, the talking heads were sharing with glee the recent precipitous drop in the price of gas at the pump as a boon for consumers. They would have us believe this is really good news.
However, in reality, it is anything but. While there is some increase in supply, the overwhelming cause of the drop in oil prices is due to a flagging demand, and that portends a longer term problem, and a very large one that extends beyond the boundaries of the U.S., with no easy solutions.
While the so-called recovery in the U.S. is tepid, at best, being called by the Fed’s Janet Yellen “not a new normal, but a new mediocre,” the biggest shocker on the world scene has been the dramatic economic slowdown in China. There, the dizzying rates of growth have slowed to almost zero, and there is very little anyone is in a position to do about it.
China’s problems are only going to get worse, too. They’re faced with an aging population, a full quarter of which will be 60 and older in a dozen years, the consequence of their one child per household policy extending back to the 1970s. They were cautioned then that the population control policy would eventually be their undoing.
While China has gone overseas, in particular Africa, to find the auxiliary labor and other resources to fuel their growth, that was destined to flare out. The fundamental error is to blame population for blunting growth potential, rather than limits to production.
Growth is fundamentally connected to population growth, to the power of a population to advantage itself of the benefits of production with a rising standard of living that is intimately connected to educational and professional opportunity.
While wrong headed policies dating to the 1970s have begun to cripple China, in the U.S. a similar phenomenon has been operative since the Reagan revolution in the 1980s that has manifested itself in the grotesque imbalance that has developed, and is still growing, due to the wealth accumulated by one percent of the population at the expense of the remaining 99 percent.
There is now an elite class of Americans who feel caught, themselves, in the vicious cycle of accumulating wealth for its own sake, who fear that interrupting that process will bring down the whole economic house of cards like it did in 2008.
This is what all U.S. financial policy, the Fed’s desperate effort to create a false impression of economic health, is now geared toward. As a result, the stock market has grown entirely out of whack with reality, so much so that any whispers that the Fed might end its policy sends the markets into a tailspin, as happened last week.
But the Fed policy of maintaining record-low interest rates has an unintended consequence of its own, which involves setting in motion deflationary momentum that will be almost impossible to correct once it sets in.
What makes this especially problematic is the political chaos that has been unleashed in the recent years by Wall Street which is now spinning out of control to block any mitigating efforts to put more resources into the hands of the average consumer.
Right wing Republican Tea Party and other politicians are locked in on maintaining the “new mediocre” on the U.S. economic landscape, even though many of them are not be aware of the longer term consequences of their actions.
The precipitous drop in demand of the U.S. consumer in the wake of the Great Recession is the equivalent here to the drop in demand in China. Europe is following suit.
The U.S. consumer is simply not capable, for political reasons, of absorbing the amount of growth required to charge up the U.S. economy, much less to help Europe and China with their growth problems.
On the other hand, the U.S. population has begun to discover that it can get by quite nicely with a lot less of the conspicuous consumption that characterized pre-2008 America, and that is going to make it harder for any economic stimulus efforts to be effective. Americans are simply unwilling to go down that same road to ruin that triggered the 2008 recession.