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The entitlement crisis is much deeper than is realized

October 17, 2012

As the US election season continues down its sorry path, everyone seems to agree that “entitlements” are unsustainable and must be reduced.  But the truth is actually far worse!  It’s not just entitlements; quality living standards in general are simply not sustainable for the average person – the system itself is logically incapable of providing them.  If the truly outlandish unsustainability of popular living standards were widely known, our politics would move in a much more radical direction.

Let’s look at the unsustainability of the “private sector’s” contribution to mass living standards.  I think a good way to start is to think of the economy as divided into two broad sectors, one providing luxury goods and services destined for the very top tier of society and the other providing things eventually destined for everyone else.  The volume produced by the later is what determines the private contribution to mass living standards.

There’s every reason to think the luxury sector is sustainable.  This is because we can think of the luxury consumers as the ones who own all major businesses.  What’s consumed as luxury flows out to the luxury production businesses but it’s then recycled back in the form of either profit or worker consumption at their stores.  It’s a closed and sustainable circulatory flow of funds.

But output destined for mass consumption is based on a completely different and totally unsustainable logic.  Such output occurs only if it can achieve a profit, i.e. a greater sum can be obtained than what’s spent on regular production wages.  This leaves us with the ludicrously unsustainable situation in which workers must pay more in price than they receive in wages.  If this were a government program, one can just imagine the screams from the right!

How can such an unstable situation maintain itself even in the short term?  Outside of ever rising worker debt or government spending, the only possible solution is to try to bring ever more workers into the system via expanded private “investment”.  But this is not a real solution if we’re interested in the sustainability of mass living standards.  The investment spending itself must also be divided into luxury and non-luxury sectors as we did above.  The luxury side is sustainable but we have the exact same problem as before with non-luxury investment: workers can’t afford to pay for it since the price is greater than the wage.

If this line of thinking is correct, we should be able to see strong evidence in the real world.  And we do.  The median wage, i.e. the very measure of how much is produced for the consumption of the median worker, is less today than in the 1970’s and entitlement benefits are also less.  Meanwhile, the share going to the very top is at robber baron levels.  We suffer unending crises of “demand” or “lack of investment”.  Poverty and near poverty levels are high everywhere in the world.  We should also notice that the industries which cater to things important to quality of life are particularly unsustainable.  And we do.  Public transportation was once private in the US but wasn’t able to sustain itself.  Roads and infrastructure aren’t profitable and are therefore public.  Parks are public.  Agriculture is chronically unprofitable and is supported everywhere by government.  Home finance is dominated by government and is an ongoing source of crisis.  The auto industry is undergoing massive consolidation in its desperate hunt for profitable sales.  Health care is dominated by government everywhere.  And so on and so on.

So, the real issue, completely unaddressed in our mainstream political debates, is the unsustainability of living standards in general.  Government “entitlements” are just one part of the wider problem.  The clear inability of capitalism to sustain quality living standards should be at the very heart of our political debate.  That our politicians and mainstream media focus like lasers only on government entitlements while letting the “private sector” escape notice for its failures tells us who’s in charge.  Capitalism works for them, the luxury consumer, but it fails for everyone else.

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