The Prosperity Paradox

(This post originally appeared on LinkedIn)

Something stubborn and senseless stands between us and a golden ‘Age of Abundance’. Surprisingly, it’s not gun lovers, Koch brothers, or Honey Boo Boo’s mother. While working on my next book, I stumbled across some powerful ways to solve America’s Prosperity Paradox, which keeps every citizen from basking in Botoxed bliss, like a Bravo housewife.  It’s within our grasp to eliminate debt, end income inequality, and fuel free enterprise.  But like Rocky or Karate Kid, abundance requires a training montage and at least one sequel. So today, we start with five brutal truths about money, technology, and prosperity. In Part Two (next week), I’ll cover six ways to end the Prosperity Paradox.  Hint: It’ll require a dash of Disney magic and a financial innovation so radical, that’ll make Bitcoin seem like paying with Parmesan.

(Get notified when Part II is out by signing up for the IdeaFaktory newsletter below.)

Brutal Truth #1: Shrinkage & The Prosperity Paradox

In my book, Econovation, I noted America’s great irony:

“The country that invented or perfected electricity, mass production, flight, cars, and the Internet should be filthy rich. Everyone in the U.S.should live like an oil sheikh—sitting on billions, looking for investments, deciding which headdress to wear. Unfortunately, that’s not what happened.”

Years after the recession, the US remains a bundle of contradictions.

In many ways, we have plenty. We’re knee-deep in gadgets, soaring stocks, and Gwenyth Paltrow’s wondrous wisdom. And it practically rains cheeseburgers in the Midwest.

At the same time, there are 47 million on food stamps, 48 million without health insurance, and 76% living paycheck to paycheck. Even our shrinking unemployment rate masks the millions who gave up looking for work and the tip jar wages of many McJobs being created. Ironically, the ones with jobs seem miserable. Only 13% care about their work. (Surely, the other 87% prefer reading my articles…)

Why is this happening?

Shrinking pains.

You know how kids suddenly feel their shoes get too snug or pants too short? Citizens of mature economies are experiencing the exact opposite.

In an economy built for growth, we’re confronted with a trim new reality of high debt, low growth. It’s a pattern that runs through everything:

  • Lower birth rates and aging population
  • Over 40 years of stagnating incomes
  • Growing corporate profits without growth in revenue, employment, or income
  • Decline in consumer and business lending
  • Ludicrous increases in the cost of education, housing, and healthcare that eat away at all other types of consumer spending
  • The finance industry, which doesn’t produce a single futon or cupcake,consumes more and more of the economy. Soon the only stocks left in the S&P will be banks and Starbucks.

It’s not just the US. Even European governments are struggling to pay their au pairs.

Much of our problem lies with the financial system.

Brutal Truth #2: Money Is Infinite, Biased & Flawed

When the recession began, naturally our government stepped in to comfort those hit hardest: mega-banks.

To this day, the Fed (a committee of bankers chosen by government) magically adds numbers to bank balances. Banks use them to buy government bonds (and other assets) that earn interest. The dollars created by this incestuous loop of “money printing” never see the light of day in the real economy.

In the past, Fed money became bank loans for cars, equipment, homes, and businesses. This created jobs and stuff beefy guys named Sal piled on trucks. Today, they’re just numbers that cover past losses and pad gimpy balance sheets. It’s a macho form of welfare built for bragging over T-bones.

To achieve the original stimulative effect, the Fed would need to dump cash directly into individual and small business accounts – where it would actually be spent. Hell, we’d be better off injecting it directly into the veins of Dr. Drew’s army of celebrity junkies.

But that’s not the crazy part. This is: The way money is created reveals a fundamental truth – money is free and infinite. BUT only one class of institutions (and their patrons) gets to experience money for what it really is.

The rest? They must play Hunger Games for their scraps. They must treat money as a rare and precious commodity and pray the checks clear – or that Angelina Jolie adopts them.


Why?

Our financial system is built entirely on creating and expanding debt. The only way tocreate new money is through borrowingThat means every new dollar incurs interest and everyone must be a borrower, forever. Take that, Liberty Lovers.

The good news is that whether it’s dollars or Bitcoins, money is just a belief system. A currency exists only for as long as people believe it can be traded for goods and services in the future. And there are many other ways to finance trade without compromising competition or capitalism. We have the power to change our beliefs anytime – and to experiment. More on that in Part Two. Bet you can’t wait.

Brutal Truth #3: Almost nothing that matters is scarce

From Groupon to mobile data to baseball cards, we’re conditioned for scarcity. Everything is a “limited time offer”, “special edition”, “last chance”, or “invitation-only”. But almost all scarcity is manufactured. Does anyone think Chanel won’t make 10,000 more bags once the first 1,000 sell out on Gilt.com?

Truth is we’re well on our way to abundance. Food, clothing, housing, even energy are abundant, if not instantly accessible. (See: fiery yellow ball.) Sure, some things are finite, but many have substitutes within scientific reach.

For example, food (even lobster) is cheaper than ever but 40% of it is wasted, makinghunger a matter of will and logistics, not capacity. Agriculture technology is saving the world through incredible crop yields and unbelievably tasty snacks. Same goes for real estate. Wisconsin, Canada, and Australia are empty. Go nuts.

Even health (but not healthcare) is abundant. The developed world has contained diseases that used to ravage continents…and NBA stars. Other breakthroughs promise to reverse aging and re-grow severed limbs. Go ahead and run with those hedge clippers, friend.

Software, entertainment, global communications – anything digital, is approaching zero cost to store and transmit. Each additional copy of Gangnam Style or each new Gmail user adds negligible marginal cost. Even “stealing” digital items, doesn’t diminish the supply available for purchase.

Infinite knowledge is free online, accessible through high speed networks and cheap gadgets. Want to know the difference between Asian and African elephants? You know you do

The web also connects us to any physical product imaginable. Each parcel can now be conveniently shot through your living room window by an Amazon drone.

Brutal Truth #4: All prices are distorted

Our debt-fueled financial system is built to create bubbles that distort all prices: startups, stocks, real estate, and commodities. That’s not all:

  • Government meddling in lending makes housing and education more expensive.
  • Poor cost controls and incentives make US healthcare costlier and less effective than the rest of the Western World.
  • Farming, oil, even fishing subsidies skew what we consume and prices don’t factor in environmental costs. That’s why everything at the supermarket is made of corn scraps and our tuna eats more Dasani bottles than fish. They’re recyclable! Fish.
  • Tax policies subsidize second homes for the wealthy, encourage hoarding profits offshore, and create entire industries that transfer wealth from consumers to the financial sector.

All this bad pricing clouds our judgment and causes us to misallocate resources.

Brutal Truth #5: Capital will continue to coagulate, eliminating jobs & shrinking salaries.

We are on an inevitable trajectory. The concentration of capital and wealth is not thecause of inequality, but the byproduct of progress. Facebook went public at a $100B valuation with fewer than 5000 employees. They bought WhatsApp for $19B. It had 55 employees. That’s what software does. That’s what mass automation does. It makesmoney without people. That should be a good thing. It frees time to spend with your kids or running with the bulls. Of course, that’s only if people earn enough credits to taste the fruits of automation. That’s not the direction we’re headed in.

Self-driving cars will make the profession of driving disappear. Digital schooling will massively shrink employment in education. As I’ll cover in future articles, the same “disruption” will happen in every people-centric industry, even creative ones. A robotwill soon write my columns while I rent my organs for medical experiments on DespairBnB.

It’s not all bad news. There will be new jobs created:

  • as a result of transitioning from one technology to another
  • to solve new problems created by modern tech, like security
  • from the friction created by the rise and fall of industries

In aggregate, automation will ensure new industries need fewer people than their predecessors. Of course, there will always be jobs for ambitious, smart, hard workers who build our Terminators iServants.

Over time, birth rates will adjust to available opportunities. Until then, we’ll face 50+ years of too many people competing for too few jobs at lower salaries while living with their parentsMarketplaces like TaskRabbit, eLance, AirBnb, and Uber are capitalizingon that trend. They’re helping transform people into interchangeable, on-demand “task performers”. Cuddle up with that sentence and a cup of Swiss Miss.

Path to Prosperity

Despite our challenges, we’re on the cusp of something truly remarkable. We have the technology, talent, and trajectory to create a golden era of abundance. To unlock it, we need to eliminate trumped-up financial scarcity. It’s a cancerous drain on the economy that stifles innovation and collaboration, forcing everyone to play a zero sum game.

Of course, expecting leadership from our lobbyist-infested government is like expecting bowling trophies from meth addicts. But not all governments are impotent. Some are moving towards aligning economics with our new reality.

In Part Two, I’ll get into potential solutions to the Prosperity Paradox. Get notified when it’s out by signing up for the IdeaFaktory newsletter below.