Want Widespread Prosperity? Radically Lower Costs

Tyler Durden's picture

Authored by Charles Hugh Smith via OfTwoMinds blog,

As long as this is business as usual, it's impossible to slash costs and boost widespread prosperity.

It's easy to go down the wormhole of complexity when it comes to figuring out why our economy is stagnating for the bottom 80% of households. But it's actually not that complicated: the primary driver of stagnation, decline of small business start-ups, etc. is costs are skyrocketing to the point of unaffordability.

As I have pointed out many times, history is unambiguous regarding the economic foundations of widespread prosperity: the core ingredients are:

1. Low inflation, a.k.a. stable, sound money

2. Social mobility (a meritocracy that enables achievers and entrepreneurs to climb out of impoverished beginnings)

3. Relatively free trade in products, currencies, ideas and innovations

4. A state (government) that competently manages tax collection, maintains roadways and harbors, secures borders and trade routes, etc.

Simply put, When costs are cheap and trade is abundant, prosperity is widely distributed. Once costs rise, trade declines and living standards stagnate. Poverty and unrest rise.

These foundations characterize stable economies with widely distributed prosperity across time and geography, from China's Tang Dynasty to the Roman Republic to the Byzantine Empire to 19th century Great Britain.

The "Secret Sauce" of the Byzantine Empire: Stable Currency, Social Mobility (September 1, 2016)

The Lesson of Empires: Once Privilege Limits Social Mobility, Collapse Is Inevitable (April 18, 2016)

I have estimated the realistic cost of a conventional middle class lifestyle, and found that only the top 20% can afford a middle class lifestyle. Needless to say, this destroys the notion of being "middle."

The squeeze on households comes from both the soaring cost of big-ticket items such as childcare and healthcare and from the stagnation of wages/income.

Why the Middle Class Is Doomed (April 17, 2012)

Priced Out of the Middle Class (June 28, 2012)

The Burrito Index: Consumer Prices Have Soared 160% Since 2001 (August 1, 2016)

Inflation Isn't Evenly Distributed: The Protected Are Fine, the Unprotected Are Impoverished Debt-Serfs (May 25, 2017)

The Disaster of Inflation--For the Bottom 95% (October 28, 2016)

About Those "Hedonic Adjustments" to Inflation: Ignoring the Systemic Decline in Quality, Utility, Durability and Service (October 11, 2017)

So your new TV cost $100 less but your healthcare costs $10,000 more: the big expenses are soaring, costing households tens of thousands of dollars more while cheap TVs and clothing decline a few bucks.

Labor's share of the economy keeps stairstepping down: every boom/bubble benefits the financier and technocrat class, but labor's share of the economic "boom" flatlines for a few years and then tanks in the inevitable unwinding/recession.

The third dynamic is the dominance of anti-competitive cartels and state guilds which are no longer accountable or competent. (The two are related, of course; when accountability is lost, there's no way to identify or weed out graft and incompetence.)

This report on the causes of the decline of New York's subway system reads like a summary of the entire U.S. economy: the politicization of public services, corruption that evades the legal definition of corruption, self-enriching guilds, cartels and elites and gross incompetence enabled by zero accountability.

How Politics and Bad Decisions Starved New York’s Subway (New York Times)

As long as this is business as usual, it's impossible to slash costs and boost widespread prosperity.

*  *  *

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lester1's picture

If the Fed didn't print $4 trillion dollars we would be seeing DEFLATION and lower prices!

Nike sending production to low wage China and Vietnam didn't lower prices of their shoes. Just wanted to point that out. We are not seeing the benefits of "free trade" !!

east of eden's picture

THe 4 Trillion that the 'Fed printed' is a sham. The actual amount of new fiat that was printed comes in some where around 100 Trillion.

Now, if there is somewhere out there that is skilled in mathematics and willing to do the work, you tell me, in a fractional reserve banking system, that has seen 100 Trillion of new fiat introduced, how much that expands the 'potential' economic velocity. My best guess would be about 9,000%.

So, if you really want to value assets, properly, that is the number that you need to apply to any investment, in a world such as we have today.

Joe Davola's picture

OK, the TV price may be cheaper for a model with more features - but the $/lb to dispose of the old one gonna more than make up the inflationary cost.

Endgame Napoleon's picture

None of the main expenses in life, like housing, are cheaper. They are far more expensive, with housing consuming half or more of the earned-only income of many Americans.

I agree with most of this article, although I do not understand how Dickensian England fits into the merit-based model.

All of us have experiences with the rigged, non-merit-based system, with varying degrees of merit involved. I am not claiming to be one of the most merit-based employees on offer, but I do have a university degree, 4 licenses and have never had a job where I failed to meet a sales quota. I also work hard, coming to work every day and staying at work all day.

That is almost NEVER rewarded for anybody, not just me. I have seen a few hard workers, here and there, who also had stand-out management skills benefit from merit—VERY few.

The rigged welfare and tax-welfare system encourages this.

Example: In one of my many absenteeism-gang jobs, a mom who worked for a different company used to come frequently to my workplaces, leaving for half of the day with one of my colleagues to rendezvous on company time, saying you need to have the right manager when asked how she got all that time off.

A LOT of mommas have “the right manager.”

When that colleague left the workplace, it prompted a chain reaction, a mom-gang exodus starting at the top, leaving only me to keep the numbers up, exhaustively, serving our enormous volume of PAYING customers alone in that ultra-busy workplace.

My reward for doing this, day after day with a more-than-1-hour-commute home through thick school traffic, was a wage insufficient to afford the dignity of an apartment. As a single, childless woman, I do not qualify for one dime of monthly welfare, and my tax returns are $300 or less.

Since our tax-welfare code is tied to womb productivity and the appearance of working, the reward for the woman copulating and possibly conceiving even more children on the clock was a refundable child-tax-credit check that used to max out at $6,269. Congress just upped the amount to award maximum womb productivity and extremely low work productivity even more, making the child tax credit $6,318.

NONE of the moms who, in addition to their $6,318 child tax credits get monthly welfare (free or reduced-cost rent, free groceries, monthly cash assistance, electricity assistance, daycare assistance [$25 Headstart]), are working hard. They can’t. They must stay below the less-than-$1,000-per-month income limit for welfare. They work part time for low wages. They work the welfare-reform-stipulated 20 hours per week, helping to drive down wages for people like me with earned-only income, as do many affluent moms, holding part-time jobs at low wage levels to make a little extra money for luxuries, even when their spouses make plenty to support their households.

Because so many mommas have unearned income from spouses, ex spouses or government, hard work in many job categories does not pay when you lack unearned income from a spouse or government.

Politicians have also rigged the self-employment scene, including the 1099 contractor jobs that often offer pay just as little as the hourly jobs dominated by absentee mom gangs with unearned income. The 1099 [contractors] pay twice as much SS tax as mom [employees] who are rewarded with unearned income in the welfare AND “tax” systems in increasing amounts per birth.

The insurance industry is a good example, with its pyramid-style, straight-commission sales racket for most licensed agents who pay biannual licensing fees and take tons of state-required tests to maintain the legally required licenses and its plethora of low-wage back office and sales-related jobs for unlicensed, frequently absentee mom gangs with unearned income from spouses or government.

Or you can have a shop, trying to compete with the big boxes.

Try having a small, brick-and-mortar business, struggling to come up with twice-as-high SS taxes, high overhead and business loan costs, netting a third of your gross sales. See if hard work to build up a clientele is rewarded.

Every friggin’ $200 gig performed by a SELF-EMPLOYED American in this gig economy is taxed for SS at twice the rate, as with all of these other self-employment options.

But the EMPLOYED, welfare / taxfare-supported moms and immigrant households pay 7.65% in SS tax, while the self-employed with none of that unearned income from taxpayers pay 15.30%.

The Swamp keeps right on increasing SS tax at the bottom to DISCOURAGE merit-based hard work in self employment, and it keeps right on raising pay-per-birth monthly welfare and tax welfare to discourage hard work and hiring / retention of hard workers in employment settings, rewarding the mommas for copulating and conceiving more future workers to compete with robots for jobs with $6,318 child tax credits and kicking the hard-working employees with earned-ONLY income in the head via the tax and welfare systems, [which overlap].

https://www.ssa.gov/news/press/factsheets/colafacts2017.pdf

https://www.irs.gov/credits-deductions/individuals/earned-income-tax-cre...

runnymede's picture

"Government is the means by which one set of pockets steals ftom another"    Voltaire

 

All of this rigging MUST have the force of law. There's two ways to get wealth---

The economic means---whereby one applies capital and their labor in an activity that produces something someone wants

The political means---where one gains access to political power to advance their own interests from the production of another.

The law of efficiency dictates that humans will employ the political means first; exclusively, if possible. It's easier to take than produce.

With sufficient passage of time government by contract will benefit those at the top and those at the bottom, which are their political power. This is the true power of a representative parliamentary system for the 1%. Those who actually produce, and are without political power get squeezed until they are relieved of their wealth and either find a way to attach themselves to the political powers that be or become one of the dependent class. If you look at Chuck's charts, the industries that are entwined with .gov, healthcare and education, have risen the most. They are rife with monopolies, franchises, protections, etc, and are the embodiment of the political means. As are .gov pensioners. This is also why the uniparty is what it is. There is no difference between the two, other than a fight over who gets to be in control of the spigot. They both play both sides against the middle. Most are unfortunately in the middle, but those numbers shrink every day.

Law made property vs labor made property ------ it's what's for dinner

 

Antifaschistische's picture

It is possible to dramatically reduce the cost of many goods and services in the US by eliminating constraints.  the cartels exists because of governmental constraints that have been put onto all the smaller competitors.   The insanity in healthcare exists because the AMA has sucessfully used Washington and the FDA to eliminate all potential rivals in the "healthcare" world.  You would get arrested for opening up a clinic on your own to wash the feet of High School guys with an Athlete's Foot problem.  And don't even think about a clinic where you would actually clean an elbow scrape and put a bandaid on it.  Nope...these specialized services can ONLY be provided by someone with 12 years of "health care" education.  "Healthcare" is a racket run by Health Gangsters that are NO different than Drug Lords.   Health Insurers, AMA, Hospital owners, Washington...they're all in on the same gig to screw every single American out of a higher percentage of income.

ScratInTheHat's picture

Car prices are the same as they were in 1996? Who's zooming who?

Gorgeous's picture

That's true.  Fed "money" is just seed money for the commercial banks to multiply and loan, where it gets multiplied again.  What I would like to know is where is, why isn't the inflation of commodities even higher?  Why haven't PMs gone up 3X since 2008?  Where is the new money holding tank?

JibjeResearch's picture

Yes, You forgot to mention one thing:

We also would be seeing the 2nd Great Depression.

Offthebeach's picture

I. can build a nice, safe, long lasting starter house for......HALF.   But it IZ NEIN PERMITTED!  

The building DICTATIONS are insane.  Every framer, electrian, plumber, insulation knows this.

Young, modest income are getting crushed.

robertocarlos's picture

They are pushing on a string.

Iconoclast421's picture

They dont give a damn about a string. They are printing money. The theories they put out are simply smoke grenades designed to make gullible people put out their own theories about why its not working. Its not meant to work. Its meant to enrich cronies.

east of eden's picture

YEs, but ultimately, they either have to put that fiat to work, or throw in their chips. Otherwise, their 'businesses' go bust.

east of eden's picture

Umm. I don't think so. 'Radically lowering costs' is just mumbo jumbo for 'you take a hit on your income so that we can have more'.

No. That is not the answer. The answer is to put moar real wealth into the hands of the people most likely to spend it, i.e young families, eldery people and people with lower than median incomes.

That is how you make your god damned fiat system work again, not by demanding ever lower and lower returns to people who actually DO THE WORK.

Bemused Observer's picture

Love that last sentence. It's a keeper.

JibjeResearch's picture

You are so fucken dumb, deserved to be ruled.

I'll make a guess, you have never started a business.

And if you have, you don't understand the meaning of "buy low sell high".

STFU..

detached.amusement's picture

want widespread prosperity?

END every entity that's attached to the BIS, problem solved.

detached.amusement's picture

lol what kind of ignorant shitgum downvotes that?  oh, right...one who feeds at the trough of "fuck humanity over"

Gorgeous's picture

At the risk of prompting more of your prolixity, please explain how "ending every entity attached to the BIS" solves the problem.

dark pools of soros's picture

stop bleeding wealth to the international lizards

U4 eee aaa's picture

Think about this.

 

If 1% of the people own half the wealth, then they can afford to lower prices by 50% or increase salaries by 100% and pay these greed mongers a decent wage instead of an exorbitant one and no one would significantly suffer

perkunas's picture

Yes, but the useless eaters, will breed more.

Deep Snorkeler's picture

Only dirty people do the work.

We college graduates fake productivity

by manipulating digital symbols

on the flickering screen. 

We all know we are phonies.

But it is all America has left -

a purposeless economy of

ephemeral, faked digital values.

The Ram's picture

Largely true.  I have been in IT for many years watching the folks in the cublicle farms.  It's amazing how manu hours go into producing very little.  At some level, I have known it's largely a scam, but I have to admit, I did not want to give up my position to take a much lower paying 'blue collar' job.  Also, I have to admit that I really don't want to be out in the South FL sun or the northern cold all day on a construction site.  I admire blue collar workers.  They produce the real stuff while legions of cubicle farmed people peck away on their key boards in the 'information technology' sector.  Here's a thought experiment.  Fire 50% of the people directly involved in food production or 50 percent of the people in cubicle farms?

Angry White Guy's picture

Speak for yourself.  The servers and network infrastructure I've brought online during my career drives many businesses.  I don't consider what I do to be 'false productivity'.

I admire blue collar workers, but we are all equally important to keeping the 'real' economy moving...or at least treading water.

It's the FED, and the .gov that are creating misery for ALL.

Gorgeous's picture

You need to change your refresh rate.  And I don't mean your monitor.   So people that change engine oil do real work, but those who design the engine don't?

csmith's picture

Deflation (the true PURPOSE of a market economy) is bad for bankers and bureaucrats, but good for the average Joe.

perkunas's picture

This is all B.S.

  It's not the price of goods that's the problem, its the stagnant wages. If you factor in real inflation, since Min wage started, it would be over $27 an hour today. Poor people drive the economy, its not the rich, or a trickle down scam. Poor people spend their money locally, driving the economy. They save and start up new buisnes, and new ways of doing things locally. This is no longer happening, due to globalization. The globalist 1% would rather have you poor, so you do not compete with their monopoly system. They own those factories in china, where they can pollute and use slave labor, ensuring you will never compete with them. You can reduce Taxes to zero, and never ever, compete, with such a system. No one speaks for the common man anymore. If they did, they would be throwing china out of the WTO and any other communist country. They would be looking into ways to stop the 1% at every turn, we can all dream.

Bemused Observer's picture

Lowering costs, huh? Are you aware that what you call 'costs' are in fact the PROFITS from other businesses? Whatever it IS that you are producing, I guarantee you that YOUR profits are also considered a 'cost' to many others. You don't operate in a vacuum.

Lowering COSTS here means slashing PRICES and PROFITS there. And while I agree that this economy must deflate, I don't think that is what you meant...

But DO continue to encourage the cost-cutting. It may not be the direct route to deflation, but it will definitely head us in the right direction. At some point, unsold inventory has to be liquidated, and by tanking worker's pay, you have guaranteed yourselves a lot of unsold inventory at some point.

rf80412's picture

Lower costs without slashing wages, including and especially by sending jobs overseas.

Credit and welfare are what are taking the place of how much people used to be paid in real terms.

San Pedro's picture

The Global Warming / Climate Change hoax is real!! And it's designed to mitigate "growth" and greatly increase energy costs. Everything we use / make and create comes from the ground including all the chemicals / minerals / elements needed for all your "Green" novelties. 

 

 

44magnum's picture

Bullets are good at stopping things, well at least thats what they tell us in the movies.

JibjeResearch's picture

In business, prosperity comes when the business can buy low and sell high.

It doesn't take a genius to know this...

Drop-Hammer's picture

Hmmm.  All as the jews wanted to happen.  All wealth flowing to the Christ-killers and Israel, and a drained, exsanguinated husk left for the goyim.  Treacherous, wretched, deceitful kikes.  

gn28's picture

.. double post fix

gn28's picture

want social stability and prosperity?... well..

1. have just one 30% tax on any money received by a corporation... banks, stock market traders, NGOs, non profits and churches all included

2. remove all taxes on people other than a 65% death tax... you're dead so give back to the comunity

3. spread that money daily and equaly to all the country's residents

4. remove all social security programs because they will no longer be founded.

 

.. there you go... prosperity for all !!

naos's picture

For average wage earners the 800 pound gorilla are the landlords who have them by the balls.  Lower rents would allow people to spend more on stuff.

rickv404's picture

You want lower costs, you have to address the problem that's making costs higher - government. Obamacare, and so much else government is doing, needs to go. 

rickv404's picture

You want lower costs, you have to address the problem that's making costs higher - government. Obamacare, and so much else government is doing, needs to go. 

DrData02's picture

Chuck, Absolutely correct.

besnook's picture

two points. if i am in business i want the lowest cost of production and the highest price in sales. lowering my cost of production does not result in lower prices necessarily but will always increase profit margins, especially in a monopoly/oligopoly economy. phones and phone service are the perfect model for this assertion.

secondly, money floats. it doesn't sink. giving money directly to the moneychangers only enriches the moneychangers at the expense of everyone else by killing the multiplier effect and money velocity, the real drivers of an economy. making sure the bottom 80% have money to spend enriches the 20%(especially the .1%).

all one has to do is look at all the failed economies in the world to see the future of the usa if this continues. people barely have money to pay rent. they are not going to spend money on the extra stuff that makes the difference between a third world economy and a first world economy. the canary in the coal mine is the slow death of usa retail. detroitization is coming to your city soon.

Anon2017's picture

In the early 1980's, the wire house firm that I used to work for charged a commission of about $92 to buy or sell 100 shares of IBM and much more for a trade of 2,000 shares. Even institutions were paying around 10 cents per share. The discount brokerage business, which had been made possible by the SEC deregulating stock commissions in 1975, was still in its infancy. Fast forward to 2017 and one can now buy or sell 2,000 shares or more for a commission of under $5 from large discount firms. Most of the old line retail firms were eventually taken over by large banks or are out of business entirely. Sometimes government intervention does work. The NYSE cartel would never have relinquished its power to set commission rates voluntarily.    

adr's picture

The problem has been and always will be the Fed and their system of corruption and thievery, Wall Street Inc.

Thanks to publicly traded big box everything, including Waste Management a scam of selling your trash off to the Chinese for a healthy profit, end margins have been expanding exponentially while real producer margins are being cut to the bone.

Widget a costs $2.75 to produce and sells for $5 wholesale. It is not uncommon for Big Retail to put a price of $17.99 on that item. It should really sell for $7.99 if margins were equal, but they are not. Wall St adds a $10 premium to the end consumer for the privileged of selling it to you. The extra $10 doesn't add any productivity to the economy because it just goes to reward executives and major shareholders. The massive increase in end margin didn't increase salaries and ends up taking billion of dollars out of the economy that could be spent elsewhere.

It is becoming increasingly unprofitable to produce anything as a private company. Why bust your ass to design and manufacture a quality item when you are only likely to pull in a 10% gross margin and probably a net loss?

If someone tells you mass retailers only make 10% on product, punch them in the face. 35% is the bare minimum and 50% is normal, with 65-70% becoming increasingly common. There are exceptions like video games where the retailer makes around 15%, but they barely take up any space and sell quickly with many more units.

Your blue jeans didn't go from $25 to $70 because they went up in cost by $25. They may have been made in Botswana instead of Vietnam, but the production cost was still $3.50. It's just that Macy's needed to make an extra $45 per unit to make it look like they are still meeting sales goals. There are enough dumb women that think price jumps mean an increase in quality or desirability to make up for the unit sale decline.

How else to you explain a woman paying $450 for a Coach purse that was made in China for $20?

Which is why men's departments are disappearing altogether. Most men look at a pair of pants that used to cost $20, now retailing for $65, and say "Fuck that, I'll buy the pants at Walmart for $15."

Rik Haines's picture

Working as intended...

robertocarlos's picture

You think my fucking Jew landlord is going to reduce the rent! Oh well, at least my Mom does my laundry and cooks.

Easyp's picture

Athenian Constitution and talk of oligarchs  600 BC

"After this event there was contention for a long time between the upper classes and the populace. Not only was the constitution at this time oligarchical in every respect, but the poorer classes, men, women, and children, were the serfs of the rich. They were known as Pelatae and also as Hectemori, because they cultivated the lands of the rich at the rent thus indicated. The whole country was in the hands of a few persons, and if the tenants failed to pay their rent they were liable to be haled into slavery, and their children with them. All loans secured upon the debtor's person, a custom which prevailed until the time of Solon, who was the first to appear as the champion of the people. But the hardest and bitterest part of the constitution in the eyes of the masses was their state of serfdom. Not but what they were also discontented with every other feature of their lot; for, to speak generally, they had no part nor share in anything."

dunce's picture

Guilds is a somewhat archaic term but it is the modern form of government control of vast areas of the economy.