I read today what I think might be a somewhat original, and definitely fairly unusual, take on the question of what drives American growth – David Atkins on the question of wage-driven versus asset-driven growth. While you may take issue with the (pretty leftwing) political stance of the author, as an analytical stance it has some strengths. Basically, his suggestion is that the policies of the last 30 years have focused on keeping the value of financial assets intact by preventing inflation at all costs. In monetary terms, the lodestar has been “opportunistic disinflation“. In policy terms, this has meant keeping wage growth stagnant but supplementing consumption via ensuring wider holding of financial assets, enabling use of revolving credit, and so on. Basically, wage growth leads to inflation, so in order to allow the middle class to continue to grow their quality of life they’ve been allowed to lever themselves up.
Now, wages and assets are not the same thing – “growth” suggests GDP growth, or a flow of income – whereas assets represent a stock of wealth. However, as assets are shared more widely and as their value inflates, that allows middle-class asset holders to devote a greater share of their income to consumption and spending and to devote a smaller share to saving, thus improving their quality of life. One of the major downsides to levering oneself up with investment in housing is that the value of your assets can suddenly collapse, as happened to so many households in 2008.
I do think the lede is buried here – that a great deal of the policies of the last 30 years have served to make capitalists out of laborers. The rise of the 401(k) and the fall of defined-benefits pensions, Bush’s attempt to do the same for Social Security, the move towards more heavily subsidizing homeownership, even Obama’s push for the health-insurance exchanges as part of Obamacare – the state has acted fairly relentlessly to push individuals into taking a greater and greater role in running their lives like small businesses, fully immersed in the market logic of all their choices. Of course, unlike big Wall Street banks individual homeowners can’t get bailed out of their “toxic assets” – underwater mortgages.
Regardless of the economic wisdom of this approach, I’m really curious whether the political economy of this theory has played out. The relative popularity of Medicare versus the private insurers suggest to me that the public has little interest in having to make complex, expensive, and potentially life-altering personal decisions whenever it can be avoided.