The world was presented with a tremendous opportunity in the thick of the financial crisis over a decade ago. There was a crucial juncture in the road we collectively needed to decide upon. In one direction was hardship, austerity, and a re-balancing that would have meant a few years of pain but, in the end, a path to true prosperity.
Liquidity moves markets!Follow the money. Find the profits!
In another direction was the easy way out with freshly-created trillions of dollars to paper over all our troubles and spare ourselves any more discomfort.
As a planet, we chose the easy route. Big surprise.
What has taken place over the past ten+ years has been so gradual, so steady, and so all-encompassing, that the madhouse we all occupy goes unnoticed by virtually everyone. I often ask myself why most people don’t puzzle over where the tens of trillions of dollars of debt came from, where it went, and how, if ever, it could be paid off. Most people, let’s face it, are dumb as posts, and have the attention span of a Kardashian, so virtually no one dare trouble themselves with considering any of this.
I tried to think of a model that, if nothing else, could help me think of what has happened with the massive changes in wealth distribution, coupled simultaneously with an eerie lack of inflation or distress from the common man. I finally landed upon an island with eggs.
For whatever reason, plenty of economic thought experiments are situated on an island, and this one is no different.
Imagine an island inhabited by a thousand people, each of whom is the proud owner of eight colorful eggs. These eggs are the medium of exchange on the island, as well as the store of wealth. The people perform different kinds of tasks – – some of them harvest coconuts, others build thatch roofs from fronds, others catch fish from the sea – – and, on the whole, it is a prosperous and thriving little economy with the wealth equally distributed.
Let us further imagine that at some point the leader of this little nation – let’s call him King Coconut – pulls aside ten of the citizens and tells them they might be interested in investing in an exciting new technology called the Chicken which, for the purposes of this little fantasy, was theretofore unknown to any of them. They’d need to give up three of their eggs to get this chicken, but they are assured it would be a good investment. Thus, these ten folks – – that is, 1% of the population – – gives up a portion of their egg wealth in exchange for this “chicken” thing they’ve been told about, not knowing whether or not they are fools.
The young chicks owned by the ten citizens grow to adulthood and, my goodness, start popping out eggs. Each chicken lays at egg each day without fail, and as this fortune of eggs accrues, the ten citizens are delighted. These chickens are definitely “layers” and not “broilers”, because their owners recognize the wealth-generating power of these things. They’ve become so attached to them, they’ve even given the birds peculiar names, such as WalMart, Home Depot, Apple, Amazon, and so forth. Let’s face it, these citizens are a weird bunch, but it’s their chicken, so what they named them isn’t really any of your concern, is it?
Now the ten souls who were bold enough to invest in the chicken technology aren’t fools: they don’t flaunt their wealth or incessantly brag to the others about it. Indeed, the birds and their warehouses of eggs are kept on the other end of the island, largely out of sight. The eggs simply grow in quantity, and the ten owners just go about their lives as normal.
Yet there is a vague sense that a very small portion of the population has more than the standard eight eggs. What isn’t really clear to the rest of the population is that the “egg assets” these ten folks have isn’t eight, but instead eight thousand. These ten people are really really rich.
And yet, even with this, nothing on the island has really changed. The sand is the same. So are the trees, the huts, and the crashing waves. Goods and services cost pretty much what they cost before, and it’s not like anyone is starving to death. In short, the people are pretty much content, as if nothing had really changed.
But the fact is that ten people on this island have ten times as much “wealth” as the other 990 put together. Indeed, just one of these people, with his 8,000 eggs, has more wealth than the other 990 put together (who have 7,920 eggs in total). This one guy, and his nine other fellow investors, could easily buy and sell the entire island. They’re loaded.
One other twist to this little story is that the 8,000 eggs were far in excess of the natural production of each chicken. King Coconut, in his munificence, made a deal with a neighboring island that, in exchange for the pledge of years of labor from his citizens, the other island would provide Super Chicken Power Food, which makes hens incredible healthy and productive. The 990 non-rich citizens don’t really know it, but it turns out that their labor, and the labor of their children, has been promised to pay off the debt incurred by King Coconut’s acquisition of this miracle poultry product. He figures it’s all for the best in the long-run.
But setting aside this pledged labor – – who wants to worry about the future, right? – – there’s another risk. What if the ten rich people decide that the old saw that “don’t have all your eggs in one basket” is true, and they want to diversify. Maybe they want to buy up a thousands of eggs worth of huts and rent them out to islanders. And maybe some want to buy a yacht, which costs 2,000 eggs. And maybe some others want to buy up the coconut trees on the island, which are going for fifty eggs apiece. And still others pay for the constructions of a factory to convert some of the island’s sand into glass. And so forth.
Thus, the desire to diversify floods the island economy with thousands of eggs. Assets get snatched up. Prices go up – – – way, way, up – – with all the egg money flying around. And the regular 990 citizens find that, more and more, they are paying rental fees and other charges to the ten rich people that they didn’t have to pay before. Slowly but surely, it has stopped being an island of 1,000 relatively equal people and has transformed into a place whereby 990 people are servicing the ever-increasing wealth of just 10.
And, as the topper, King Coconut has already pledged the labor of these people for years to come, since he had to go into debt for the chicken-enhancing food.
And that, folks, is where I think we are at as a society. A relatively small number of people have a staggering quantity of eggs, and the size of that fortune gets larger every day (particularly when the stock market is open). But no one else is really noticing, because it doesn’t really affect their lives in a way that they can perceive.
Yet my point of view is that it’ll eventually matter. At some point, all that wealth is going to flood into the regular, everyday economy, and it’s going to cause distortions to lives and diminishment to the well-being of common people, in ways that no one is anticipating.
Because the simply fact is that, over the past ten years, the majority of people have become much, much poorer. They just don’t understand the big picture well enough to realize it yet.
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