What we call economics is best understood as:
1. A mechanism that distributes resources asymmetrically: some benefit more than others.
2. The running of the herd: humans are a social-herd species.
3. Everyone seeks a windfall: something for nothing, or grabbing more while doing less.
4. Everyone seeks to make windfalls permanent by rigging the mechanism to favor their interests.
5. The mechanism is a system of self-reinforcing feedback loops that generate diminishing returns, blowback and unintended consequences.
This perspective helps us understand the progression of the economy from 2021 to 2024. In a nutshell:
2021: massive stimulus, "meme stock" bubble
2022: "Revenge" splurging, inflation
2023: AI stock bubble, "soft landing"
2024: Forced Frugality
So massive stimulus initially triggers the locked-down herd into meme stocks, inflating a bubble. Once the lockdowns end, this massive stimulus unleashes "revenge spending" where price no longer matters, we need a vacation, a new wardrobe, etc., never mind the cost.
Unsurprisingly, this tsunami of price-insensitive spending while the distribution mechanism was still struggling to reconnect disrupted global supply chains leads to 1) rampant price gouging / profiteering and 2) rampant inflation as costs are passed up the food chain.
Many costs are "sticky" and rarely decrease: taxes, fees, wages and benefits, healthcare, rent, insurance, childcare, etc. typically only ratchet higher. Any ratchet lower is rare and modest, and eventually reversed.
The net result is self-reinforcing inflation, as stimulus never really stops: windfalls are rigged to be permanent, even as broad-based stimulus dries up.
Two things happen when windfalls are rigged to be permanent: 1) the distribution of resources ("money," entitlements, tax breaks, subsidies, goodies of all kinds) becomes increasingly asymmetric (the already-rich get much richer at the expense of those barely holding their ground) and 2) the source of the supposedly permanent windfall generates self-reinforcing feedback loops that lead to diminishing returns, blowback and unintended consequences.
In other words, the asymmetric distribution either self-corrects or enters run to failure feedback. Either way, the sources of the windfall cease functioning, and the result is forced frugality. Windfalls that were presumed to be permanent are revealed as temporary asymmetries whose own dynamics generate decay, diminishing returns, blowback and run-to-failure.
And always, of course, the gravy train ending is "impossible" because recency bias encourages us to think the distribution mechanism has god-like powers and permanence. Bur frugality ends up being forced one way or another, even if the stimulus appears to increase. Bubbles deflate and windfalls shrink and then reverse into doing more to get less.
After all, "they can always print more money." That's always the solution until it becomes the problem.
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