The Devolution Of The Consumer Economy, Part II: Rising Costs, Declining Wages

Friday, April 8, 2011
By Paul Martin

by Charles Hugh Smith
ZeroHedge.com
04/08/2011

The widening gap between declining incomes and higher costs has been filled with borrowed money. Now that borrowing has reached its limit, and the consumer economy is devolving.

Earlier this week I discussed the devolution of the consumer economy with a focus on the diminishing returns of consumption and the limits imposed by servicing ever-growing debts. Today I will address a series of other interconnected reasons why the consumer economy is devolving.

The cost structure of the entire U.S. economy has bloated to unsustainable levels. I have discussed this rarely-covered issue for years, for example Lowering the Cost Structure of the U.S. Economy (August 29, 2008)

Here’s the basic mechanism: when money is “free,” costs rise. If you had to explain why sickcare in the U.S. consumes 17% of our nation’s GDP while other developed nations provide universal care for half that cost per capita (7-9% of their GDP), the answer boils down to “there’s an unlimited amount of free money here for sickcare.” There are no real limits on Medicaid or Medicare spending, and none on insurance cartels (it’s a free market for health insurance, except there’s only two providers in your area and their prices are the same–welcome to a “free market,” hahahahaha).

In other words, thanks to lack of competition via Central State-granted quasi-monopolies to cartels, and virtually unlimited sums of money for Federal programs, then the sky’s the limit on cost.

If Medicare limits the cost of an MRI, just triple the number of MRIs you give. Don’t laugh–that’s exactly what happens. Then there’s the hundreds of billions of dollars in outright fraud the system routinely pays.

You provide endless free money, costs go up. Look at the education cartel, another parasitic system latched onto the Central State. Once you enable students to borrow $36,000 a year, then magically the costs of a year in college (or for-profit school offering worthless “skills” that do no more for the hapless student than a high school diploma) rise to $36,000.

The Rest…HERE

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