Dual Economies

I’m curious about what the Republicans, who now have control of all 3 branches will do. Not only about income inequality, but also the lesser recognized but possibly more devastating dual economies now extant in America.

We all know about income inequality, where larger business profits are not distributed back to the employees but are mainly distributed upwards on the corporate chain. This has happened over the last 35 years so that lower paid employees have actually seen their paychecks, based on inflation and shared benefit costs, go down. There is much more that can be written and discussed, but suffice to say that the phenomena has been described elsewhere, and I really want to explain the dual economies, which is much less known.

The dual economy is created by two coinciding economic realities. The first is income inequality as briefly described above. The second is the overall low inflation rate. It is possible to have income inequality with a higher inflation rate that may be high enough to keep us on a singular economy. Having a low inflation rate and less income inequality prevents the dilemma of a dual economy. Our dual economy has a significant portion of it’s participants living in a normalized economy, where price inflation is slightly outrun by pay inflation over most of one’s lifetime. But, then there is an even larger portion of the population where price inflation is greater than pay inflation. When the economy is looked at holistically, the numbers reflect an economy where pay slightly outpaces prices. But when you pull out the only workers who get the bulk of pay increases, the rest, an significant majority are left in an economy where they experience both price inflation and income deflation.

Of course, generally the inflation/deflation determination is made based on prices alone, but it only makes sense to evaluate that equation by including salary changes to establish whether or not the economy is experiencing an inflationary period or a deflationary period. Through a realistic lens most Americans are experiencing deflationary pay rather than a healthy low inflationary economy experienced by only persons in the higher incomes.

Certainly, I had to toss aside some classic definitions of deflation to come to this conclusion, but perhaps those definitions may need some refinement. For example, interest rates have remained low which is contrary to the classic deflation definition since they are not negative. On the other hand, if your income is relatively less because your employer raised your health care contribution and also completely ended your fixed pension, then the interest rate to refinance your home or buy a new car has gone up. You effectively end up at the classic deflation condition of postponed purchases, only the purchases are postponed due to deflationary income and inflationary prices. One can easily observe that growing income inequality creates the big divide in the US as individual victims express their dissatisfaction along social lines, obscuring the true economic causation.

I am fairly certain that a large number of the victims of being a part of a deflationary economy can be counted among the supporters of Donald Trump. They are certain that someone that has run successful businesses can fix their problem. And their problem is that every year, their bills go up, they work hard get a raise, and the bills have gone up more than their raise. Deflation. They don’t care if he is a misogynist, racist, xenophobe. All those issues take a back seat to getting someone in office that knows how to manage to the bottom line.

There are lots of big problems with that logic, but the undeniable truth is that Republicans are now in control and my question is what do they plan to do to reconnect the dual economy into a single entity?