Let Them Eat Widescreen TVs and I-Phones

By Monty Pelerin

The disparities in income between the lower and middle income Americans and those doing well continues to widen. In addition to the debt time-bomb, these income disparities represent another potential explosion.

Ambrose Evans Pritchard provides some data:

The retail data can be quirky but it fits in with everything else we know. The numbers of people on food stamps have reached 43.2m, an all time-high of 14pc of the population. Recipients receive debit cards - not stamps -- currently worth about $140 a month under President Obama's stimulus package.

The actual number of jobs contracted by 260,000 to 153,690,000. The "labour participation rate" for working-age men over 20 dropped to 73.6pc, the lowest the since the data series began in 1948. My guess is that this figure exceeds the average for the Great Depression (minus the cruellest year of 1932).

The US Conference of Mayors said visits to soup kitchens are up 24pc this year. There are 643,000 people needing shelter each night.

Jobs data released on Friday was again shocking. The only the reason that headline unemployment fell to 9.4pc was that so many people dropped out of the system altogether.

This schism continues to widen in American society. The well-off are doing just fine thank you. Many of the rest continue to descend into the abyss of joblessness, hopelessness, homelessness, poverty and bankruptcy. Social cohesion will not hold on our current path.

A thesis that I offered several years ago is that the credit expansion was a deliberate attempt to cover up America's structural decline. Ironically, by not facing up to the structural and incentive problems ten to twenty years ago when they were tractable (economically if not politically), the political elite created this current crisis. It was not their intent to create a crisis, merely to avoid hard decisions. They did so by "kicking the can down the road" using credit as their vehicle.

This "solution" enabled people to live beyond their means. "Let them buy widescreen TVs and I-phones" was the modern version of "bread and circuses." Pritchard points out a similar view:

Raghuram Rajan, the IMF's former chief economist, argues that the subprime debt build-up was an attempt - "whether carefully planned or the path of least resistance" - to disguise stagnating incomes and to buy off the poor.

"The inevitable bill could be postponed into the future. Cynical as it might seem, easy credit has been used throughout history as a palliative by governments that are unable to address the deeper anxieties of the middle class directly," he said.

Now, "let them eat widescreen TVs and I-phones" appears to be the solution. It is equivalent to the "let them eat cake" remedy, with the same potential ending.

The clock is ticking on the debt burden. It is only a matter of time before we are openly recognized as just another version, albeit a very large one, of the PIIGS. Just as important, however, is the ticking clock on social cohesion in this country.

The sense of entitlement cultivated by government over the years may be as intractable as the debt problem. It has corrupted the spirits and souls of men. It has destroyed the family structure. It has left a generation or two without skills and no reason to obtain them. It has transformed human beings into zombie-like creatures with little purpose in their lives. Removing them from the government teat is equivalent of separating a new-born from its mother.

There is no way out, as Pritchard alludes:

There is no easy solution to creeping depression in America and swathes of the Old World. A Keynesian `New Deal' of borrowing on the bond markets to build roads, bridges, solar farms, or nuclear power stations to soak up the army of unemployed is not a credible option in our new age of sovereign debt jitters. The fiscal card is played out.

The government is insolvent, both financially and morally.