Tuesday, 16 August 2016 11:08

The Failed American Social Contract and the Betrayed Generation

by Manuel Rodriguez
Part II: The Failure of the American Social Contract Will Cause Profound Upheaval

The American Social Contract was the social and financial backbone for much of the economic progress made by America in the last 60 years. Its destruction will lead to the eventual and inevitable erosion of the middle class and meaningful prosperity for generations of future workers. The consequences of this disruption are profound.

As the middle class is slowly carved out and flattened, economic demand will continue to decrease, leading to stagnant and stalled economies. Monetary policies by central banks, which have traditionally primed the economic pumps through targeted interest rate cuts at key moments of crisis, have become largely irrelevant. These policies, which have rescued nearly every recession in the last 60 years, will become increasingly impotent. Currently, with interest rates in negative territory throughout the world, central bank monetary policies have been rendered ineffective in creating aggregate demand, the real culprit of the decades-long stagnation in Japan and most Western economies.

And economists are perplexed because the current cycle is unlike any they’ve ever witnessed. Keynesian intervention, long favored by the Democratic elite has, at one time or another throughout the last 60 years, been successfully applied to modern recessions to alleviate them. But most recently, monetary policy aimed at improving the economy following the Great Recession has largely failed to kick-start aggregate demand.

Supply-side fiscalists, the favored Republican Band-Aid to nearly every economic ailment, stresses that fiscal policy alone is enough to induce the expansion of businesses, which in turn would ultimately spur growth. This model, proposed and implemented by many Republican presidents, has markedly failed to remedy the country’s economic malaise, as overcapacity continues to plague most manufacturing countries.

Both remedies have failed to mitigate economic contraction, as the United States has steadily reduced overall tax rates for the last 30 years (fiscal, supply-side intervention), and interest rates have remained at historic lows for at least 10 years (monetary, Keynesian intervention), yet overall aggregate demand has remained stalled and barely budged.

The inevitable result of decreased economic demand and pervasive central bank interest rate manipulation are frequent asset bubbles. Interest rate manipulation has severely skewed asset allocation incentives in the United States, creating massive pricing bubbles in the stock market and real estate markets and among many other asset classes affected by this manipulation. Banks and other traditional financial repositories have been stripped of any meaningful ability to provide investors with healthy returns on their invested assets, and these investors have turned to other investment vehicles for their funds. This outcome has driven up the value of these alternative investments to unrealistic valuations. These valuations have become meaningfully divorced from their inherent, income generating potential, and instead are based on fear and irrational expectations.

As economic demand continues to slide, investors will continue to fund these bubbles. Projecting the end of a bubble and its inevitable collapse is a Vegas parlor bet, at best. Bubble-reliant economies will become subject to cyclical economic cycles that are highly unpredictable and chaotic in their unraveling and outcome. This point is driven home by the array of economic outcomes that have accompanied the resulting post-Great Recession recovery (itself the product of inflation and deflation of massive asset bubbles). These outcomes include near-negative interest rates for the indefinite future, stock markets continuing their climb to new heights while being completely disconnected to much of Main Street America’s health and new asset bubbles created as a symptom of a dysfunctional asset allocation system.

These larger, national economic patterns portend severe disruption and dislocation to anyone much beneath the “1% class”:

  1. As globalization is an ever-present race to the bottom, both nationally and internationally, many classes of jobs will disappear, and not be replaced with enough viable, sustaining jobs in which to install these displaced workers. This will lead to civil distress and permanent, structural joblessness for vast classes of workers, including the young, the old, minorities, the uneducated, and those incapable of rapidly adopting to quickly changing technologies and rapidly obsolete product life-cycles.
  2. The new, technology driven workplace, which has rendered many classes of jobs obsolete, will become increasingly dependent on raw data analytics. Workers at every level will be increasingly and instantly measured by data analytics in completely objective fashion, rendering human subjectivity of workplace performance less necessary than ever before. The consequences of workplace performance being guided by data analysis alone are breathtaking and frightening, as winners and losers will be constantly measured, critiqued, and terminated. Amazon has incorporated this practice judiciously throughout its workforce, here, with frightening results.
  3. The same measurement driver discussed above, high-level data analytics, information processing, sharing and analysis will render workers, companies, government and other stakeholders beholden almost exclusively to data, reducing most human intervention and workplace decision-making to data influenced outcomes in many industries and professions. Data analysis and decision-making will soon be shaped by artificial intelligence, which will severely reduce the need for human intervention in even high-level, advanced industries. Artificial intelligence is increasingly being deployed in sophisticated electronic investment platforms and in high-level data analysis on Wall Street, reducing the need for human interaction at many levels. Subjectivity and human override of many decisions will become a relic of bygone eras.
  4. The “gig” economy is increasingly displacing permanent hiring on many levels. This outcome is not merely occurring within low-information jobs requiring poorly educated workers, but is also being reflected in professional service industries. Doctors, lawyers, armies of professional consultants, and many other workforce classes will be affected by corporate America’s near-obsessive need to remain nimble and agile in the face of near-constant technological disruption. The inevitable result of this emphasis on the gig economy is that most workers will have innumerable careers, jobs, industries and re-training experiences throughout their working lives. The disruption in time, training and the impact on economic demand (worker disruption prevents personal economic continuity and disables the ability to effectively manage, save for the future, plan, etc.) will be pervasive and extensive. This trend will further decrease economic demand throughout the economy, as dislocated workers have little to no purchasing power and will not create much demand.
  5. These trends will lead most people and workers to feel permanently disposable, and this attitude will influence all personal decisions, including postponement of marriage, child bearing, savings, and home ownership. The cognitive understanding, either consciously or unconsciously, that we are all permanently disposable will terrify many into not committing to long-term obligations, contracts, or social arrangements. This feeling of permanent instability within our economic relationships will transform itself into feelings of permanent personal instability. Permanent personal instability will lead to tremendous social and cultural unrest, as the traditional guideposts of success and happiness (children, homes, extended families, cars, permanent healthcare) become increasingly elusive and irrelevant for most of us.
  6. In a largely data-driven marketplace, financial and economic trends will reverberate throughout the economy far more quickly than in decades past, creating personal dislocation at dizzying speeds. Wall Street’s insatiable appetite for immediate results will merely amplify this trend.
  7. These trends will also result in much lower living standards for the vast majority of Americans in future generations. The attainment of the traditional markers of professional and personal achievement will become increasingly difficult for many. These trends will create a permanent, structural underclass of individuals that simply won’t be able to compete in this new paradigm. Increasing income inequality will become permanently entrenched, and social and economic mobility will be severely compromised and increasingly out of reach for most. The new economies will require greatly heightened training and education in highly technical professional trades and vocations, reducing many workers that either cannot attain this education due to circumstance or limited resources to a permanent employment underclass of mediocre service jobs and severe underemployment.
  8. Institutional fraud by those that manage and control, politically or financially, the levers of economic wealth in our economy will become pervasive, as globalization’s relentless “race to the bottom” will affect even their profitability and ability to generate wealth at levels comparable to decades past. This institutional fraud will occur as the corporate ruling and political class realize that their only effective means of ensuring financial control in a rapidly evolving and changing global economy is to aggressively exercise their ability to completely manipulate the domestic economy. This manipulation will occur through intense lobbying and legislative efforts to rig their desired outcome. Evidence of this manipulation has become obvious in efforts to prevent Medicare from pharmaceutical cost negotiation, pervasive trade treaties that have dismantled America’s manufacturing base, scuttling all efforts to prevent single-payer health insurance from ensuring affordable health insurance for the masses and maintaining American healthcare as the most opaque, non-free market system in the world, ensuring complete cost and service manipulation. This institutional fraud, cloaked in the veneer and patina of the “free-market”, is anything but free and market related, and is instead the product of high-level graft and corruption of nearly every legislative institution.
  9. Increased BREXIT-type movements the world over as the means by ordinary people of scuttling the hyper-integration favored by the corporate globalists. These mini-BREXITS will occur as a response to the severe economic distress being felt by the masses and not as a xenophobic response to immigration, as has become the favored rallying cry of the globalists. Domestic party politics will become similarly affected by the rise of nationalist and populist candidates very similar in mold to Bernie Saunders and Donald Trump, who were merely channeling the angst of this severe economic dislocation.
  10. Loyalty to work, other people, ideas, institutions, country and civic responsibilities will begin to slowly collapse, as individuals begin realizing that every human interaction, every exchange of ideas, indeed every transaction outside of the core family will become a unit of barter or economic exchange susceptible to a quid-pro-quo dynamic. Economic disruption will ensure that every interaction outside of the immediate family unit will be precipitated by and viewed from a selfish perspective. The requisite selfishness required to advance relative to others and derive some gain will replace the narrative and moral imperative to embrace ideals related to selflessness or civic ties to any group or social construct.


This self-awareness, bordering on narcissism, will pervade most social, legal, financial and cultural relationships in many unintended and unanticipated ways. These will manifest themselves primarily as increased cynicism, disdain for authority and institutions, increased distrust of supranational control of their lives (the European Union), and will result in nationalist or populist political movements. Shifts away from supranational control of domestic policies, i.e., BREXIT, will become the norm.

The brave new world being created as a result of the failure of the American Social Contract will result in feelings of deep alienation and betrayal by her citizens. The lessons being taught by countless parents, that adherence to a programmed social order leading to adulthood will ultimately result in generous lifelong benefits and security will soon become increasingly disconnected and divorced from reality. The American Social Contract, forged at a time when America was largely a meritocracy, has now evolved into a Faustian bargain with America’s plutocracy.

Millennials are the leading edge of this veritable tsunami of dislocated workers, and have already begun to deride the grand bargain surrounding the American Social Contract. If, in fact, they are merely the proverbial tip of the advancing economic backlash, then America would be wise to listen carefully to their demands and exhortations. Bernie Sanders and Donald Trump may be the most charitable and benevolent faces of the Betrayed Generation.



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