At the moment governments are in the print-money phase. They have reduced the cost of borrowing, which has created the interesting situation where credit for purchase becomes irresistible. Just because you can afford more debt does not mean that purchasing can go on indefinitely even at zero percent interest you have to pay the principal and you can only pay so much of that on an income that is fixed.
There is a downward pressure on the costs of goods. I stood speechless at a Walmart store one day, looking at a CD player (old technology I know) which was selling for $19.00. I tried to imagine two to three dollars hours minimum wages in value required to design, produce, distribute, and market this item. We could not do that here in Canada or the US. That leads to the inevitable question, "why produce anything?" Production can only be afforded in countries facing extreme poverty, where regulation is weak or non existent, where there are no unions to get in the way, and where pennies an hour will find lots of willing workers who are happy enough to keep starvation away.
There are other important corollaries to the downward pressure on merchandise pricing. Low costs of merchandising are only affordable by big-box stores selling all we need and hiring low-skill staff at the lowest possible wages. At one time in every small North American town you could find someone who made leather shoes, now you can't even find people who will repair a television set. More and more of our merchandise is simply disposed of every five to ten years. I have had warrantied items simply replaced with new ones. Even the mail-in repair depot could not afford to have my GPS repaired, it was tossed and a new one returned.
Another corollary to downward pressure on merchandise prices is the increasing reliance on Internet sales. Glasses that a few years ago would have cost me $800 are now available on the web for under $60 from many sources. I was trying to buy CDs for my grand-daughter and found that only Target, Walmart, and Future Shop sold them in my area and that they pretty much had only garden-variety music, "best hits of" sort of titles that people always buy. I had to go to the web for three titles I specifically wanted. The extension of this trend will inevitably lead to three things: first our big box stores are going to specialize in right-now sales and give up on wide variety. Secondly, some of these big box stores are going to have to scale down in small towns and upscale efforts in larger centers. Jobs are going to continue to consolidate in larger and larger cities. Thirdly quality control is going to go out the window in the face of fly-by-night production designed for short-term low-ticket pricing.
Another trend is the concentration of wealth in a smaller and smaller number of pockets. Research on the US Economy will show that fewer and fewer people control more and more of the money. This is not just a trend for people with tens of millions of dollars worth, it is a trend in our small towns and cities. Young people are finding that education is fast becoming a way to extract "future dollars" from their wallets in return for no guarantee of substantial employment. The only jobs that will maintain some stability are government and professions, particularly positions in the upper levels of health care and education. Of course these will come under attack when the government finds it cannot afford to keep funding the high costs of health, education, and welfare. It will take longer for the layoffs to come but they probably will. I will go out on a limb and suggest that eventually doctor trips will be made over the Internet with a medical technician on hand to do essential tasks such as take blood pressure, temperature, etc.
There are areas of the economy that still function well. The low-cost-production centers are progressively overseas. However they have an insatiable demand for raw materials. Massive amounts of minerals, coal, potash, and food are required. Those industries will do well if they keep their costs low, but they still require the miners, equipment operators, supervisors, etc. The other part that will continue to do well are the personal-care jobs in areas where wealth is concentrated. People to give medical care to expensive dogs in LA and New York will flourish because that is where the remaining abundance of wealth is still concentrated. People with new ideas (future facebook designers) will still do well but the flair and skill level required will make this area unreachable for the average person. Basically the small cities will wither, the large cities will get larger.
The discerning reader should see that a trend has to emerge countering the price-reduction-wealth-concentration scenario. If prices and wages both go down how do you sell anything to people who can't afford them?
The solution that comes to mind of course is government. Democratic governments can tax the very wealthy and create jobs wherever they have voters in numbers. Unfortunately, having worked for and contracted for government agencies, my experience is that the bureaucracy is generally very happy. The only incentive is to regulate not produce. As a result making complex regulations and having meetings and policy discussions become the order of the day. Of course the 1% very wealthy are unhappy at being taxed to provide this kind of wealth distribution and they will tend to relocate or find tax loopholes. They will invest where such government services are not provided, and where they are taxed as little as possible.
Let us jump to trends in the investment of money. First of all the stock-market continues to grow more optimistically than they should. Experts have puzzled why we have not seen the bubble burst in a bigger way than its occasional "corrections." The answer is quite simple, where else can you put your money? Interest rates are low, and large concentrations of money cannot afford to invest in mom and dad enterprises in making better dog collars. They don't have the time to research such things. Instead they will invest in the S&P 500 companies. The big will get bigger. Money will continue to pile because it has not much of an alternative.
One alternative to the stock market is real estate. Government has built in an interesting incentive, tax protection on your family dwelling. People are now paying millions in big cities just because of the guarantee that prices will eventually go up. Any gains are not taxable on your primary residence, beautiful. This of course creates a paradox. The wealthy in the big cities demand excellent services, but those people may not be able to afford high-cost rents. Their wages will rise
There will be a trend towards more an more people sharing rented accommodation to provide them with a place to stay. A home of your own some day will cease to become a possibility for many.
This gloomy forecast can be avoided, but I doubt that government and our North American society will take the bitter pills. Here are some solutions that I don't seriously believe will be tried although I say that with regret:
- Trade agreements should factor in the need for local people in North America to be hired to repair and recycle goods when they wear out. If you are going to sell us your VCRs they must come with a guarantee of local repairability and recycling. This will of course increase costs, but will create local jobs where goods are consumed.
- Trade agreements need to reflect globally recognized standards for pollution. It is patently unfair to everyone to allow polluting industry to relocate to where it is unregulated.
- Industry and society generally needs to accept the need for international unions. The Bangladesh garment building collapse would never have occurred, no union worth its salt would have allowed workers to enter a building that dangerous. The universality of unions protecting workers would tend to level the playing field for industries. As a minimum workers need to bargain to obtain livable conditions and wages to suit the place where they live.
- Taxation levels need to be set realistically, perhaps a flat tax is the answer, and might actually give lower income folks more value for the tax they do pay. Right now accountants, lawyers, and the IRS/Revenue Canada folks are profiting
