How will declining buying power play out?
My dear brother got laid off yesterday and that got me thinking.
I had this theory of how the economy worked for low wage earners versus higher wage earners from my youth. My theory went that lower wage earners did not get laid off as frequently as higher wage earners when business slowed down and my reasoning was that it was affordable for the lower paying businesses to keep the workers and ride the slow down. I was in lower paying jobs in my youth and not once did I get laid off, but a lot of people I knew in higher paying jobs got laid off all the time, so that was my reasoning. In my mind part of the reason high paying seasonal work was high paying was in part because of the seasonal nature of the work.
Well, my brother is not in a higher paying job. He is in a low paying job and he left the job for a while and when he asked to go back, they rehired him immediately because they knew he was a hard worker.
So, what this got me thinking is wow, not only has the buying power of so many people grossly decline, but what I thought of as a trade-off for a serfdom job was more job security if that was once true, it sure isn't today.
In the micro picture, a business lays off a worker and in the short term the business makes more money, but in the macro picture, there is one more person with less disposible income and with this gross level of declining wages and I do think declining job security, disposible income is contracting and has been contracting for some time. Part of it is hidden in all the adult "children" who are still living with their parents so they don't have the same household bills and that is what gives them spending power.
And then there is the 20 odd years where the ability to increase debt has been there because how rates declined which has also masked the declining buying power.
And then there is what I call the "parallel" economy. This would be like how Costco has tables and tables of clothing that has prices that are comparable to prices from my teenage years. When you don't have much income you can shop at second-hand stores, but there is this second economy of shopping available where the price difference between second-hand and new is not that different, as in these tables of clothes at Costco. It seems to me that the price difference between "cheap" clothes and what was popular was popular was double the price, but today Lululemon is 5-10 times the price of what you can find on that Costco table.
Anyway, I think the economy is in big trouble because of this growing class of serfdom worker, which is contracting disposible income to the detriment of the greater economy and it is going to be really interesting in terms of how that plays out as the baby boomers age and these terribly undervalued generations come to power and will be making the decisions that determine policy in my old age.