The Western economy, under the Bush laissez-faire business and trade doctrine, has become a dragon eating its own tail. While the dangers of the Bush regime’s political extremism are already evident in the chaos and endless war and violence that the regime has imposed on the world, the dangers of the regime’s economic extremism are just becoming evident. The neocons’ strategy of oversimplifying everything to single, extreme principles is undoing the checks and balances that are the only hope for a peaceful and stable world, both politically and economically.
Bush’s economic extremism was best summarized by one of his own neocons, Grover Norquist, who said “I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.” Thom Hartmann explains this horrendously simplistic and dangerous philosopy here. This philosophy might be summarized as follows:
As Hartmann points out, the anti-abortion, pro-capital punishment, god-fearing components of the neocon agenda are merely window-dressing to “fill the tent”. They’re expedient but not essential to the philosophy.
With government control over big business largely eliminated, the economic system quickly becomes dangerously unstable. We have recently seen unprecedented whipsaw movements in stock markets and currency markets. ‘Free’ trade has bankrupted most third world economies. Small businesses have been crushed by the ever-increasing power of the oligopolies that now control almost every industry. More than half of us describe ourselves as ‘underemployed’ — doing work that is beneath our capabilities and underpaid accordingly. Most of us have our retirement incomes dependent on the continued prosperity of the Fortune 500, in which our pensions are invested. There is no alternative investment: fixed-income investments pay almost no interest (thanks to the successful corporatist campaign to brand inflation as ‘evil’, which it is not), and the housing market is so overheated that a bubble burst is inevitable. Because of the staggering and unprecedented US debt and trade deficit, interest rates are poised to spike, which will make repayment of mortgages and consumer debt impossible and force millions into bankruptcy, send stock and bond markets and the US dollar into a tailspin, and force abandonment of the US dollar as the global monetary standard in favour of the Euro. That in turn will force huge increases in tax rates in the US to repay the colossal debt.
The chart above shows the Price/Earnings (P/E) ratio of the S&P 500 (blue line). With the run-up in the last week since that chart, the P/E ratio stands at about 30. That means that the average price per share is thirty times the average expected earnings per share for the next year. Why would people pay thirty dollars for a share that is only earning one dollar per year? Would you give someone thirty dollars today with the promise of getting a dollar a year in return? Of course not. These stock prices are discounting anticipated massive increases in profits for the S&P 500 companies in the future. One rule of thumb suggests that the P/E ratio discounts what annual percentage increase in profits is ‘built in’ to the current stock price. By that measure, the profits of the S&P 500 will have to increase by 30% per year, more or less forever, to justify the current prices. If you gave someone $30 today with a promise of getting back $1 next year, plus $1.30 the following year, plus $1.69 the year after that, etc., it now looks like at least a reasonable investment.
So if the stock market (and your pension) requires the typical S&P 500 company’s profits to grow endlessly by 30% per year, how is that going to be achieved? Most of these companies are now global, so the increase is not going to be achieved by expanding into new markets. If they take over another company, they’ll have more profits but also more shares, so growth can’t come that way either. There’s very little innovation in the economy, and what there is tends to be more than offset by the inevitable drop in prices (and hence profits) once a product becomes ‘mature’. In short, there is no reason to believe that these 500 globally dominant companies can expect to increase revenues considerably in the future at all. Consumer debt is already at record levels, the little guys have already been squeezed out by the oligopolies, and spending on new products is simply replacing spending on older, obsolete ones.
How do you increase profits if revenues are flat? You cut costs. Material costs have already dropped in recent years, so the principal way you cut costs today is by reducing the cost of labour. That means offshoring, outsourcing, getting rid of the union, firing older workers to bring in cheaper younger ones, and lowering product and service quality. All of that means laying off and under-employing domestic workers, creating unemployment and underemployment. This of course becomes a vicious cycle, since this further reduces consumer spending power and forces yet more ‘productivity’ improvements (offshoring and layoffs) to keep profits rising, the ‘Wal-Mart Dilemma’.
Eventually you crash into a wall: At some point there are simply no further ‘productivity’ improvements to be had, even if you ‘win’ the treacherous Race to the Bottom. Then what? Then you realize that a reasonable P/E ratio for the S&P 500 is 10 to 15 (which is what it always was until a generation ago), not 30. After you’ve lost your job to ‘productivity’ cuts, and after you’ve been forced to buy stuff from Wal-Mart made and serviced by the third world people that took your job away, then you lose half or two thirds or more of your pension as stock markets tank.
Mind you, once the calamity of the Bush debt, the Bush trade deficit, the Bush tax cuts for the rich, the profligate Bush war spending, the Bush subsidies and handouts to corporate friends start to register on the ‘free’ markets, you probably won’t have to wait for the no-more-productivity-improvements wall to eliminate your retirement income. The ‘efficient market’ should wipe them out well before that. And watch for an interest rate spike to accelerate the decline further, and a housing price bubble burst to accompany the collapse.
Oh, well, there’s always reverse mortgages.
Other Writers About CollapseAlbert Bates (US)
Andrew Nikiforuk (CA)
Carolyn Baker (US)*
Catherine Ingram (US)
Chris Hedges (US)
Dahr Jamail (US)
Dark Matter Women Witnessing (CA)
David Petraitis (US)
David Wallace-Wells (US)
Dean Spillane-Walker (US)*
Deena Metzger (US)
Derrick Jensen (US)
Doing It Ourselves (AU)
Dougald & Paul (UK)*
Gail Tverberg (US)
Guy McPherson (US)
Jan Wyllie (UK)
Janaia & Robin (US)*
Jem Bendell (US)
Jonathan Franzen (US)
Kari McGregor (AU)
Keith Farnish (UK)
Kristinha Anding (US)
NTHE Love (UK)
Paul Chefurka (CA)
Paul Heft (US)*
Post Carbon Inst. (US)
Richard Heinberg (US)
Robert Jensen (US)
Roy Scranton (US)
Sam Mitchell (US)
Sam Rose (US)*
Tim Bennett (US)
Tim Garrett (US)
Umair Haque (US)
William Rees (CA)
Archive by Category
My Bio, Contact Info, Signature PostsAbout the Author (2016)
--- My Best 100 Posts --
Preparing for Civilization's End:
What Would Net-Zero Emissions Look Like?
Why Economic Collapse Will Precede Climate Collapse
Being Adaptable: A Reminder List
A Culture of Fear
What Will It Take?
A Future Without Us
Dean Walker Interview (video)
The Mushroom at the End of the World
What Would It Take To Live Sustainably?
The New Political Map (Poster)
Complexity and Collapse
Save the World Reading List
What a Desolated Earth Looks Like
Giving Up on Environmentalism
The Dark & Gathering Sameness of the World
The End of Philosophy
The Boiling Frog
What to Believe Now?
Conversation & Silence
The Language of Our Eyes
Cultural Acedia: When We Can No Longer Care
Several Short Sentences About Learning
Why I Don't Want to Hear Your Story
A Harvest of Myths
The Qualities of a Great Story
The Trouble With Stories
A Model of Identity & Community
Not Ready to Do What's Needed
A Culture of Dependence
So What's Next
Ten Things to Do When You're Feeling Hopeless
No Use to the World Broken
Living in Another World
Does Language Restrict What We Can Think?
The Value of Conversation Manifesto Nobody Knows Anything
If I Only Had 37 Days
The Only Life We Know
A Long Way Down
No Noble Savages
Figments of Reality
Too Far Ahead
The Rogue Animal
How the World Really Works:
If You Wanted to Sabotage the Elections
Collective Intelligence & Complexity
Ten Things I Wish I'd Learned Earlier
The Problem With Systems
Against Hope (Video)
The Admission of Necessary Ignorance
Several Short Sentences About Jellyfish
A Synopsis of 'Finding the Sweet Spot'
Learning from Indigenous Cultures
The Gift Economy
The Job of the Media
The Wal-Mart Dilemma
The Illusion of the Separate Self:
Did Early Humans Have Selves?
Nothing On Offer Here
Even Simpler and More Hopeless Than That
What Happens in Vagus
We Have No Choice
Never Comfortable in the Skin of Self
Letting Go of the Story of Me
All There Is, Is This
A Theory of No Mind
The Ever-Stranger (Poem)
The Fortune Teller (Short Story)
Non-Duality Dude (Play)
Your Self: An Owner's Manual (Satire)
All the Things I Thought I Knew (Short Story)
On the Shoulders of Giants (Short Story)
Calling the Cage Freedom (Short Story)
Only This (Poem)
The Other Extinction (Short Story)
Disruption (Short Story)
A Thought-Less Experiment (Poem)
Speaking Grosbeak (Short Story)
The Only Way There (Short Story)
The Wild Man (Short Story)
Flywheel (Short Story)
The Opposite of Presence (Satire)
How to Make Love Last (Poem)
The Horses' Bodies (Poem)
Distracted (Short Story)
Worse, Still (Poem)
A Conversation (Short Story)
Farewell to Albion (Poem)
My Other Sites
This work is licensed under a
Creative Commons License.