My analysis TL;DR - the
Dream is all about growth.
The
American Dream is a sales pitch (demand driver) for a consumer economy. Americans often used to produce things (generally prior to the industrial revolution) for themselves - houses, food, simple tooling, etc. - it was generally a hard life and lacked economic profit and growth motivators like labor specialization and rent-seeking and profit opportunities for business owners. Growth was driven more significantly by expansion (a euphemism for theft, basically) as had been done by other colonizing empires up to that point.
The Dream converted average Joe American into someone that
buys things for themselves rather than
builds things for themselves. The upside to this was money circulation and demand growth for new products, i.e. consumerism. It created demand for specialization which requires education (of the Prussian, not Classical, variety.) It served both private and bureaucratic national interests.
Private business owners benefit from expanded consumer demand opportunity into more facets of everyday life. Bureaucrats benefit from increased tax revenues which create more opportunity for excess and expansion (like the federal interstate system, itself a critical component of expanding a consumer economy) as well as a larger defense budget, which is basically how you accumulate power and do things like win the Cold War - you start by selling the next
big thing to American families. Economic Growth. WWII was a handy head start no doubt.
This is generally an okay tactic and improves quality of life broadly expanding access to good things like education and technology, but we start running into a problem not all that long ago. Prussian-educated citizens (the vast majority of Americans) are not particularly adept at understanding or wielding political influence, and in turn managing policy in a political system like a Republic. No need to get political but what this boils down to is policy that favors capital over labor, because capital owners are most often classically educated and make up what is commonly known as the "political class" in a country like the USA. They understand political dynamics and most importantly, how to accumulate power and protect their interests within the system.
The problem? Wages stopped tracking productivity gains, meaning labor's total slice of the growing pie was getting just a little bit smaller each year, starting around the early 70's. When people stop getting raises this hurts demand for new products, but we had a solution that was imposed under Nixon - get rid of the Gold standard. Now, the Gold standard is not a panacea, but removing it allowed the Federal Reserve to levy effective
monetary policy- i.e. managing the money supply and interest rates, which means they could now do something they could not accomplish previously (very effectively) - managing inflation, or more accurately setting an inflation target. Why is this important? Because
modest, predictable inflation does something important - it drives demand. Why? Because you want to buy something before the price goes up, It fosters a time preference in consumers to buy sooner rather than later.
Managing inflation was only
half the battle. You can create a time preference in consumers, but how do they keep buying more stuff if they do not get wage increases to pay for this extra stuff? Debt! The untapped holy grail was easy access to consumer credit - enter the era of credit cards, home equity line of credits, and suddenly everyone starts to feel rich again, consumer confidence goes up and the American consumer is back in overdrive! A few bumps along the road, but usually the answer is free "trade" for cheaper imported products (necessary for price-sensitive consumers with stagnate incomes), looser lending standards, and more rent-seeking opportunity from "intellectual property" rights expansions to pad the balance sheets of the Fortune 500.
Ray Dalio calls this run-up process
leveraging in the long-term debt cycle. Debts rise faster than incomes and money creation. At some point, we max out our ability (or willingness) to take more debt, leading to the second half of the cycle,
deleveraging. Just like what it sounds like, getting rid of all the accumulated "excess" debt. This can be and often is precipitated by something like a recession, and the Great Recession did cause a temporary pause and a slight decrease of debt - but the decrease was small and temporary - QE and ZLB interest rates promoted more debt accumulation, both by the consumer (mortgages, auto loans, CC) and business sector (debt-fueled stock buybacks, dividend and P/E padding). This is known collectively as Private Debt, and it dwarfs all else. Debt-fueled growth. A debt
binge, if you like.
I think this is
critical to understand if you are finding yourself attracted to van dwelling, minimalism, or other anti-consumerism tendencies. It strikes me as a canary in the coal mine; an early adaptation in anticipation of deleveraging. Suzy Orman, Dave Ramsey, and the no debt/financial independence crowd are growing in popularity. Material pursuits are facing a backlash among a subset of particularly younger Americans with minimalism on the mind. Worshiping at the Alter of Mammon and chasing the American Dream are no longer the flavor of the day for many. The
Dream's bill of goods left families not only unsatisfied, but unable to navigate something like the Great Recession, leaving lasting financial damage and scarring not soon to be forgotten. I believe this, in part, helped spark a populist backlash against our conspicuous consumption driven culture. Self-imposed austerity.
What happens to growth in a consumer economy when the playbook of demand pressure is exhausted and there are no more sheep left to fleece? In turn, what happens to you?
