A universal truth of life is that pressure reveals character. This is not only true in individuals, but it is also true in societies. When times are easy, all sorts of undesirable things can be overlooked. The petty corruption in government is not a big deal in a booming economy. Inequality is ignored, maybe even celebrated when times are good, because people think their time will come. It is when things turn down that all of a sudden, those issues rise up and take up people’s attention.
For the American economy, the good times have been rolling for such a long time now that it feels like the natural state of affairs. There was the very minor recession in the early 1990’s, but that was a blip. The dot-com bust at the end of the 1990’s and the mortgage crisis in 2008 were serious, but they did not impact most people. The stock markets went down, but they recovered. Some people suffered for sure, but the system seemed to right itself and for most people it was a non-event.
In fact, the two big economic crises of the last forty years are a proof that the system and the people running are just fine. This was why many middle-class people were angry at the lock downs initially. They thought it would harm the economy. When the Fed flew in on its magic carpet, showering the economy with magic fairy dust, those people relaxed and trusted the system. Those initial protests that popped up all around the country faded away in a fog of economic stimulus.
Good times do not last forever, even in an honest economy. The signs are everywhere now that this economy is headed for some tough times. Food prices are jumping like we have not seen since the 1970’s. There are strange shortages of products like beer and plastic goods. There is plenty of beer. The issue is the containers. Aluminum shortages and problems in the supply chain mean certain brands are not on the shelf. This leads to greater sales of other brands until they run low.
Inflation is one of those things that everyone feels. Even if you are a rich guy, you notice that steak is more expensive. The money is meaningless to you, but the price hike does not go unnoticed. Poor people, of course, feel it straight away. As a result, everyone starts to notice things in the market, like the shrinkflation, for example. A pint of ice cream is 14-ounces now. The potato chip bag is much larger, but there are fewer chips inside the bag. This stuff gets more obvious in bad times.
The thing is, prices going up because of demand or shortages is an honest result that people may not like, but they can accept. Changing the shape of containers to make it look bigger, but reducing the contents is dishonest. It is a fraud. Inflation will bring new scrutiny to this practice that has become common. This sort of institutional fraud is everywhere, but it has gone unnoticed for decades. With inflation, people will start noticing and they will not like it.
The institutional fraud is not just a retail phenomenon. It is everywhere. The hot new scam on Wall Street is the SPAC. This is where a company wants to go public, but their financials are not good enough for an IPO. A group of insiders then creates a shell company for the purpose of making acquisitions. It raises a bunch of money, then it goes public and soon after buys the company that wished to go public. It is how we end up with $100m sandwich shops in New Jersey.
Of course, the elephant in the room for close to a generation now is the gross inequality we see in modern America. The gap between the rich and the middle has never been larger, and it is growing quickly. Unlike the robber barons of the industrial age, these new oligarchs operate like pirates. They steal everything. Worse yet, they have unleashed a well-funded army of radical harpies to hound decent people in their work, their entertainments, and their private lives.
In good times, no one cares about billionaires. If your life is good and getting better, why should you care if some other guy is doing better? That flips around quickly when your life is suddenly under economic strain. The Democrats can yack about taxing the rich and the Republicans can lecture about class envy, but class consciousness is always a result of tough economic times. Everyone starts feeling working class in bad times, even when they are well-equipped to weather the storm.
The point is a lot of bad things have crept into the system over the last forty years of relatively stable times. As long as material concerns were met, people overlooked the fraud, the corruption, and the inequality. That long run of good times has meant the stock of these things is higher than ever. When bad times come, those problems will come roaring to the front of people’s minds. In other words, the sticker shock we are experiencing can quickly give way to a culture shock.
There is one other item to consider. The middle-class is older than ever. Those Baby Boomers on fixed incomes, checking the stock market every day are not going to take inflation very well. They will not handle the necessary correction in the stock market to ring out the fraud. Inflation and what is required to tame it will bring with it the wrath of the angry Boomer. The generational divide that has been nursed by the usual suspects will suddenly get very real if the economy goes south this summer.
Similarly, the political class is old now too. Will those angry Boomers passively accept the leadership of Joe Biden in a crisis? Can a generation of politicians selected for their mendacity and obsequiousness gain the trust of the public in a crisis? If the economy tanks this summer, the incompetence and corruption in Washington will become the only thing that matters in politics. In other words, bad times will bring all of these problems to the front in a time of dwindling tolerance for it.
The American empire is old now and that means a lot of bad habits have been normalized over the years. Shrinkflation, SPACs, media mendacity, inequality and political corruption are all troublesome alone. Over the decades, we have an abundance of all of them. They remain in the background as long as the markets are up, and we have cheap goods on the shelves. The pressure of bad times, however, will inevitably reveal the character of the empire. It will not end well.
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