What Defines a "Good Economy"? Social Mobility and Not Losing Ground

What defines a "Good Economy"? Real advances in ownership of capital and the real-world resources an hour of labor can buy are within reach of the majority.

What defines a "good economy"? To answer this, we start with a second question: a "good economy" for whom? Economists turn to financial statistics to answer both queries, and this brings us face to face with the core difficulty with statistics: "money" is an overlay on the real world, and doesn't necessarily map the real world.

Economists measure "the economy" as a whole with GDP (gross domestic product), inflation, trade deficits or surpluses, money supply, the total credit/debt outstanding, productivity, and so on, but who's getting the real-world consequences--who's gaining ground and who's losing ground--is harder to determine.

Wealth as measured in money can be rising but this doesn't guarantee we're getting a higher quality of life. Much of real-world life can't be distilled down to dollars and cents, and so we ignore what's difficult to measure in favor of what's easy to measure: financial data.

I have long held that the only truly accurate measure of gaining or losing ground is how many real-world resources can be bought with one hour of labor. In other words, how many hours do we need to work to pay for shelter, healthcare insurance, childcare, college, food, utilities, transportation, etc.?

If we have to work more hours to buy the same resources that previously required fewer hours of work to buy, we're losing ground, regardless of statistics such as GDP, productivity, inflation, etc. If one hour of labor buys more real-world resources, products and services, we're gaining ground.

Put another way, the only meaningful measure of whether an economy is good or bad is social mobility, which has two components:

1. Whether we're gaining ground as defined above--what each hour of our labor can buy in real-world resources, and

2. Whether we're accumulating productive capital--assets that generate income and increase productivity--or not.

This is where the abstract world of economists touting higher GDP, net worth and income fails in a systemically consequential fashion: GDP can be rising, one's house can be gaining in value so our "wealth" is rising and our income can be rising, but if our labor buys less of the real world and we're just keeping our head above water paying for essentials, then all those "positive statistics" mean nothing.

Social mobility describes the relative ease or difficulty of advancing not just one's income but one's ownership of productive capital. If only a handful of the bottom 80% can manage to claw their way into the top 20% as measured by ownership of productive assets, social mobility is broken.

If the core qualities of middle-class life are out of reach or demand extraordinary sacrifices and luck, social mobility is broken. These include a secure career / employment, healthcare, a home, and sufficient surpluses to accumulate productive assets, as opposed to gambling.

Economists have mastered Ultra-Processed Life, which is the substitution of artifice for authenticity. So we're supposed to accept that the auto that cost $24,000 a few years ago that now costs $40,000 is "equivalent" because it has more digital systems and air bags overlooks the reality that we have no choice but to buy what is being produced today: if we need a car, we now pay $40,000, and if this takes far more hours of work to buy, we've lost ground, regardless of "hedonics."

Italian economist Vilfredo Pareto found that the top 20% of households own about 80% of the land / productive wealth, and this ratio doesn't vary much. What varies is the dynamism of the flow of people into and out of the top 20%, i.e. social mobility both up and down.

When ownership of assets that produce income becomes concentrated above this 80/20 distribution, the social order / economy become unstable as social mobility decays and those in the top tier lock in their advantages.

In the US, the top 10% now own roughly 3/4ths of all financial wealth. The "middle class" (those between the bottom 50% and the top 10%) own about 1/4th, and the bottom 50% own a signal-noise sliver: 2.5%. This distribution is more concentrated than 80/20.



Here's another depiction of the same reality: a grossly imbalanced economy that favors the few.



The income generated by capital is concentrated in the few at the top, a power-law distribution:



The cost of buying/owning a home is higher than previous eras, requiring far more hours of work to pay the mortgage, property taxes, home insurance, maintenance and other costs.



Housing affordability is at historic lows, meaning home ownership is out of reach of those who once could have bought a home without extraordinary sacrifices or family wealth.



A college education did not require student loans a few decades ago. Now it requires debt-serfdom or wealthy parents: the number of hours needed to "buy" a university education has skyrocketed.



As debt becomes the norm to afford a middle-class quality of life, an increasing share of wages is devoted to debt service/interest. Recall that every student loan and mortgage is a debt to the borrower but an income-producing asset to the owner of the loan.



The income spent paying interest is income that cannot be set aside to accumulate productive capital.



An economy where people are increasingly relying on gambling as their last-ditch means to secure a future that is less precarious than the present is not a "good economy" except for the top 10%. And to the degree their wealth is also a gamble placed in a central-bank casino, the precarity of all this wealth is masked by the artificial "goodness" of statistics that reflect artifices rather than the real world.

What defines a "Good Economy"? Real advances in ownership of capital and the real-world resources an hour of labor can buy are within reach of the majority. In an era of rising precarity and receding social mobility, many will settle for Not Losing Ground.


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Small Business in the TINA Economy: Competing for the Scraps

While the top 10% who manage the TINA Economy are fixated on their ballooning stock market wealth, the bottom 90% are melting away. Some day that might actually have consequences.

Let's start with a thought experiment focusing on soaring household expenses. Consider healthcare insurance, which has risen not just in the monthly premiums paid by employers and employees, but in higher fees out of pocket and co-pays. The value of the healthcare insurance has declined as households opt for high-deductible plans and insurers deny claims to reduce their expenses.

Let's say that a household paying their own insurance seeks to lower their costs by finding a local provider rather than one of the giant corporate insurers which effectively form a cartel. They soon discover that there aren't any local providers of healthcare insurance. There may be direct primary care alliances that offer some services, but virtually all healthcare insurance in the US is controlled by a handful of corporations, a cartel with superficial competition.

This is also the case for home and auto insurance, utilities, education expenses and interest on debt all of which are rising rapidly for many households. In every case, the competition between the handful of giant corporations that dominate each sector is superficial, as this is the point of cartels and quasi-monopolies: eliminate competition to keep revenues and profits high.

A slew of essential services such as Internet and mobile phone subscriptions are also controlled by a handful of providers. Introductory offers that expire in a few months provide a fig-leaf of competition, but the actual cost differences are negligible: maybe enough to buy one sandwich a month, not enough to restore a stretched household budget.

Other services such as auto repair and veterinary services are soaring in cost as the same cartels squeezing households are squeezing small businesses. In some cases, private equity has been buying up local services, assembling hidden cartels behind a screen of illusory local ownership.

Then there's the software subscriptions employees are expected to maintain, costly credentials they must pay for to keep their jobs, and a host of similar expenses which are controlled by other quasi-monopolies and cartels.

Note that these are all big-ticket expenses: healthcare, home and auto insurance, auto repairs / maintenance, utilities, etc. cost thousands of dollars annually. If the cost of a new TV declines $100, that "falling inflation" is a drop in the bucket of the big-ticket expenses that are consuming thousands of extra dollars a year.

As household budgets are squeezed by soaring costs for which there is no alternative--the TINA Economy--the sum left for discretionary spending is reduced. Non-competitive cartels and quasi-monopolies controls virtually all the big-ticket TINA expenses that are soaring by leaps and bounds, leaving the rapidly shrinking pool of discretionary household budgets to the local, small-business sector which is the only sector that is still marginally competitive.

So while corporations and cartels such as higher education and credentialing feast on TINA--there is no alternative in a monopoly-cartel controlled economy--small businesses must compete for the scraps left (discretionary spending) after the cartels have consumed the majority of household budgets, fattening the profits / revenues that fuel their political and market power.

This is why corporate profits are soaring while small businesses are in decline: since there's only superficial competition for big-ticket expenses, households have no alternative to paying higher costs. What money is left is all that can be spent supporting local enterprises, which face the double-whammy of higher operating costs imposed by the same cartels squeezing households and the diminishing pool of discretionary income left to households.

The Economic Divide Between Big and Small Companies Is Growing: Economic fortunes of low- and high-income Americans are diverging--same pattern happening with companies. (WSJ.com)

--The growing divide between the fortunes of small and large businesses mirrors the divide that has emerged over the past year between low-income Americans and their high-income counterparts.

--Large, publicly traded companies in the S&P 500 saw net income increase by 12.9% in the third quarter, contrasting with faltering small-business profits.

--Small businesses are facing economic headwinds, including high inflation and cautious consumers, leading to job cuts; 120,000 jobs were shed in November.

Small business, whose ownership and interests are diffuse, have been reduced to tax donkeys struggling to pay soaring rent, wages, utilities and overhead costs without the market muscle of monopolies / cartels to force consumers to pay higher prices for degraded goods and services.

While large corporations are adding employees, small businesses are shedding employees to survive.



Corporate profits reflect this structural asymmetry: the large corporations that have eliminated competition are expanding their revenues and profits, leaving less for the only sector that still faces competition, small businesses:



We're constantly assured an economy where the gains follow an extraordinarily asymmetric power-law distribution is a wondrous engine of sustainable growth that benefits everyone, but the facts don't support this fairy-tale PR promoted by the winners to placate those losing ground.



This distribution of the gains to the few and the costs to the many is not inevitable, it was the direct result of policy choices made by our political class in response to the money and lobbying funded by the few to increase their share of the economy's gains by any means available.

The avalanche analogy is apt: the snowpack looks stable because the melting is hidden from view. But when a critical point that cannot be predicted is reached, the mountainside gives way. While the top 10% who manage the TINA Economy are fixated on their ballooning stock market wealth, the bottom 90% of households and small enterprises are melting away. Some day that might actually have consequences.



This is where the TINA economy is heading: there is no alternative to system breakdown.

The Middle Class Vanishing Act Nobody Saw Coming Until It Was Too Late (medium.com)


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What Few Understand About Money

This leaves out the purpose of money, which is facilitating social organization.

I've thought a lot about "money" and wrote two books that explore what few understand about money: that it's fundamentally a social construct with a social purpose and structure. The books are Money and Work Unchained and A Radically Beneficial World.

The conventional understanding of money is that it's a financial unit with economic functions--store of value, means of exchange and unit of accounting-- defined by its intrinsic nature as a material that's valuable or convenient.

So gold is "real money" because it's physically permanent, convenient in size and scarce, and fiat currency--paper money and its digital versions--are intrinsically worthless as paper is fragile and digital currency is conjured out of thin air.

This leaves out the purpose of money, which is facilitating social organization. Money's social function and structure is the water we swim in, unseen because we take it for granted.

Many have embraced the view that all our problems would be solved if we returned to the gold standard or adopted Bitcoin. The simplicity of this is appealing, but when examined under the lens of social purpose and function, the simple solutions turn out to have limits: being a store of value isn't enough, as the wealthy hoard stores of value and remove them from circulation. Hoarded stores of value don't enable social mobility, they limit it.

When the social waters we swim in become turbulent, money reveals its fluid, adaptive nature. In a severe famine, for example, the most valuable store of value and most sought-after means of exchange are non-perishable food items and train tickets that take the holder far away from the famine. Gold will have potential value on the periphery, but the most valuable "money" are flimsy train tickets and things we can consume to stave off starvation.

Let's shed light on the social nature of money with a thought experiment.

Let's say there is a geographically defined region with scattered gold deposits. that can be panned in streams or collected with simple hand tools. Gold is the store of value and means of exchange, but its exchange value fluctuates depending on the scarcity of what people want to buy: eggs, shelter, tools, etc.

Two townships arise in this region. The first is conventional: mining gold is a "winner takes all" activity: as long as a miner has a legitimate claim, whatever gold is found is theirs to keep. So when a lucky miner stumbles on a big rock that turns out to be almost solid gold, he quietly uses this windfall to buy up the town's mining claims, land and businesses as a silent partner. Once he controls the town, he raises prices to milk the residents, exploiting his gold hoard in an extractive fiefdom.

The fact that gold is money worked well for the wealthy owner hoarding the gold but not for everyone else. Social mobility--a key social purpose of money--is limited in this neofeudal economy.

The other township establishes by vote of the residents a much different social construct for the gold. Rather than "winner takes all," every miner agrees to put 20% of whatever gold they collect into a common fund that has two purposes: to provide a small stake for those miners who have worked diligently but come up empty due to bad luck or illness, and a town "rainy day fund" for periods where the work stops due to severe weather or other events.

Those tasked with collecting and protecting the town's gold fund are duly elected and scrutinized to insure their conduct is above-board and they're doing their job correctly.

This system works well until an extended period of declining yields of gold begins pressuring the service population--the laundries, restaurants, etc. that the town needs to survive. Those managing the gold fund explain the situation and obtain permission from the miners to extend the modest hard-luck stipend to service workers should they otherwise be forced to abandon the town, leaving the residents without key services.

Even when yields stabilize, it's now obvious that the easy gold has been recovered, and yields will continue declining. The town residents face abandoning the town or starting some other industries to compensate for the decline in gold mining.

The leadership comes up with an idea: why not issue paper currency for use in the town, based on the gold still held in reserve, and save whatever new gold is added to the town's fund for trading for essentials from elsewhere? The paper currency will be "backed by gold": as the town's gold won't be spent, this paper money will have something valuable behind it. The paper money is a representation of value rather than a valuable object in itself.

After some skepticism, the miners agree because the other option--abandoning the town--is even less appealing. After all, the decline in gold yields isn't limited to the township; it's happening everywhere. Pulling up stakes and trying to find an as-yet unexploited area is a gamble with poor odds.

After some hesitation, the paper money is distributed to residents as their stipend and used to pay for services and materials. Those accepting the paper find they can buy goods from other merchants with the paper money, and so trust in the new money is established.

Miners who abandoned their claims are paid to dig deeper mines with the paper money, and a small lumber harvesting operation is also funded by the paper money. Merchants still need gold to buy products from afar, but the paper money encourages residents to start producing more food locally. Though gold production is way down, the paper money has funded the labor needed to continue producing enough gold for outside trade.

The town actually expands as new residents take advantage of the opportunities--social mobility is broadening--and while the leaders maintain the town's stash of gold, the paper money that's needed to grease commerce and pay wages now far exceeds the value of the gold in the town vault.

In effect, the town is issuing a fiat currency, a paper money with no intrinsic value, based on the trust that there is gold backing it up.

But this paper money isn't actually valueless. It's backed by the social structure and purpose of the town's economy--the residents' trust in the institutions, their fellow residents, and in the valuable work being enabled by the paper currency.

As long as the worker issued $1 in paper money can buy $1 of goods with that piece of paper, and the merchant who accepts the $1 can buy labor, goods and services with it, the system functions smoothly.

The key to the system's trust is the leadership's discipline in only gradually expanding the issuance of the paper currency in line with the expansion of the workforce and town's economy. For if the currency doesn't expand enough, the town's economy is starved of both means of exchange and "small money" store of value.

If the leaders issue too much paper money, this excess eventually reduces the value of the paper money and residents will lose trust in the system. The ideal they must seek is scarcity of paper money, but not so severe that it begins limiting hiring and commerce. They must resist the natural demands for more money entering circulation, as the entire structure is trustworthy precisely because there is resistance to issuing any more than the absolute minimum needed to keep the wheels of commerce turning.

But consider what happened: a gold standard--gold was the only money--was dooming the township as the supply of new gold was no longer enough to turn the wheels of commerce. The social purpose of money--maintaining a viable economy, social mobility and a vibrant social order--demanded the introduction of fiat currency, which could be prudently expanded as needed.

The town thrived by doing what many consider is the opposite of financial wisdom: they abandoned a gold standard in favor of fiat currency as the only means of not just surviving, but of thriving by enabling an expansion of work and initiative.

(if this seems farfetched, study the history of paper money in dynastic China.)

This is why I have suggested a labor-backed currency: rather than return to a system in which the wealthy hoard the majority of gold or Bitcoin, or give the power to issue currency to central banks and private banks who enrich those already at the top of the wealth-power pyramid, money is only issued when useful work has been performed. This money is created at the bottom of the pyramid to pay those doing useful work, which is the ultimate foundation of a productive social order and economy.

Money is a social construct with an implicit structure and purpose which we swim in but don't even see. Money is fluid and must adapt to fulfill social purposes. If it fails to do so, it's not just money that fails, the entire society fails.




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Self-Employment Series #2: Ownership Is Not Freedom

Ownership collapses abstraction.

This guest essay by correspondent 0bserver is #2 in a series on self-employment / owning your work. The first entry was Owning Your Work in a World That Rents Your Life.


Charles Hugh Smith's book Get a Job, Build a Real Career and Defy a Bewildering Economy did not resonate with me because it promised escape.

It did the opposite. It stripped away illusions.

Self-employment is often marketed as freedom: no boss, flexible hours, autonomy.

In reality, it is ownership. And ownership is heavier than people expect.

When you own your income, you also own:

Risk
Uncertainty
The learning curve
The boredom
The consequences of poor decisions
The cost of hesitation

There is no HR department to absorb mistakes.

No manager to hide behind.

No structure unless you order it yourself.

That reality alone filters out most people--not because they are lazy, but because their goals are oriented toward comfort rather than responsibility.


The Shift No One Prepares You For

The hardest part of building a self-owned income stream is not technical.

It is psychological.

You have to abandon assumptions that are quietly reinforced for years:

That effort should be quickly rewarded
That credentials confer value
That security comes from institutions
That direction will be provided

None of that survives ownership.

Revenue does not care how hard you worked.

Customers do not care how clever you are.

The market does not care what you intended.

It responds only to value delivered, consistently, under constraint.

That requires a different orientation toward time.

Days give way to weeks.

Weeks expand into months.

Eventually, years become the unit of measurement.

Most people do not fail because they lack ability.

They fail because they measure progress using the wrong clock.


Loneliness, Boredom, and Friction

Self-employment is lonelier than advertised.

There is no shared ladder, no approved narrative, no external validation.

You don't get credit for persistence.

You don't get applause for showing up.

Much of the work is unglamorous:

Repeating tasks that don't scale yet
Fixing small operational failures
Saying no to distractions that feel productive
Doing things manually because leverage comes later

There are long stretches where nothing appears to happen--except quiet improvement.

Those stretches are where most people quit.

Not because the work is too hard, but because it is dull.


Feedback, Authority, and Reality

Ownership collapses abstraction.

It forces human capital into direct contact with reality.

Feedback arrives through product quality, timing, and process.

It is immediate and unforgiving.

One of the harder lessons is that ownership cannot be delegated.

Responsibility without final authority does not create empowerment--it creates resentment.

Businesses are not voluntary societies.

Someone has to decide.

Someone has to absorb the consequences.

Cleverness works early.

It fails under scale.

Structure survives pressure.

That realization changes how you operate--and how you lead.


Why So Much Work Is Being Exposed

This is why the current economic adjustment feels so destabilizing.

Large portions of modern work drifted away from value creation and toward coordination, signaling, and lifestyle optimization. When conditions were loose, that drift was tolerated. When conditions tighten, it is not.

Ownership environments do not allow that separation.

If something does not produce value, it disappears quickly.

That is not cruelty.

It is feedback.

And feedback, while uncomfortable, is clarifying.


What Ownership Actually Provides

This is not a warning against self-employment.

It is an argument for honesty.

If you accept the tradeoffs, ownership offers something rare:

Alignment between effort and outcome
Skills that compound rather than expire
Optionality grounded in capability, not permission
Social capital built through accountability

These rewards come late.

And they only arrive once the work stops being an identity project and becomes a discipline.

You do not become self-employed.

You build something that earns the right to exist.


Conclusion

Ownership forced me to recalibrate what I measure and why.

Progress stopped looking like recognition.

Success stopped meaning comfort.

Work stopped being expressive and became accountable.

Nothing about it felt free at first.

Most of it felt heavier.

But over time, the weight clarified what mattered.

And clarity--not freedom--is what ownership ultimately provides.

This is a guest essay by longtime correspondent 0bserver.




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A Market Crash and Recession Are Bullish, Not Bearish

This isn't "Capitalism," it's Model Collapse ushering in the inevitable conflagration.

One of the most peculiar hyper-normalized hallucinations about "Capitalism" is that markets and the economy "should always go up" and if they don't, something is terribly wrong and somebody better do something to fix it.

Remarkably, this hyper-normalized hallucination is the exact opposite of real-world "Capitalism," which relies on the periodic clearing of excesses of debt, leverage and speculation as its essential mechanism of self-correction and adaptation. If these are stripped out, "Capitalism" fails as a system.

The two charts of the NASDAQ stock index below illustrate the astounding divide between a real-world understanding of "Capitalism" and the hyper-normalized hallucination of always goes up "Capitalism."

Various justifications are trotted out to support the "markets and GDP should always go up" narrative:

1. There's always a Bull Market somewhere. In other words, the market and "growth" are always going up somewhere, and so rotating out of flat sectors into growing sectors enables markets to always go up.

2. The economy can no longer survive a market crash or recession, and so we can't allow either to happen. Spoiler alert: If the market and economy cannot survive self-correction, then "Capitalism" as a system has already failed.

3. The Federal Reserve has mastered the art of manipulating--oops, I mean managing--the market and economy via adjusting the dials of liquidity, stimulus, money supply, cost of credit, etc. As a happy result of their god-like financial powers, markets and GDP will never go down again, barring an alien invasion or asteroid strike.

These justifications overlook the need for systems to self-correct self-reinforcing excesses that reflect the inevitable self-reinforcing human emotions: greed / confidence and doubt / fear: soaring markets generate demand for more credit and leverage to boost higher risk gambles which in the euphoria of the bubble are perceived as guaranteed to win rather than guaranteed to fail.

Given that the core functions of capitalism require feedback that correct / clear excesses, these justifications are incoherent. Dynamic systems such as capitalism don't remain in a steady state; they are constantly in motion, and humanity's herd instinct and built-in attraction to windfalls will inevitably generate the madness of crowds which then generate excesses of borrowing, leverage, risk and speculation, all of which must be reset via market crashes and recessions.

If corrective market crashes and recessions are not allowed (via ever higher stimulus, moral-hazard backstops of the biggest gamblers, etc.), then the system becomes increasingly brittle and dependent on hallucinations such as "markets can always go up, and so they should always go up."

Actually, excesses must be wiped out to enable markets and economies to reset organically rather than kept aloft by centrally organized manipulation. The forest fire analogy explains this: routine, periodic fires burn off the deadwood that piles up in a forest, clearing space for new growth. If these healthy fires are suppressed, the deadwood (debt, leverage, speculation, moral hazard) reach dangerous extremes: when a fire finally ignites, the conflagration consumes the entire forest.

This is how markets clear excesses of speculation and risk: they crash 80% and reset over a period of years. Though the crash is naturally viewed as disastrously bearish by those absorbing the losses, it's ultimately bullish for the economy and market, as suppressing the self-correction generates system collapse.



This is how the incoherent, system-failure hallucination views this bullish process: quick, do more of what crippled the system to maintain the illusion that "Capitalism" is "markets always go up."



This isn't "Capitalism," it's Model Collapse ushering in the inevitable conflagration.


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