This is not an abstract problem. Economists know it, and they have a whole set of rules, axioms and theories designed to provide guidelines and mechanisms to move an economy through troubled waters, like we're in now.
But what happens when their paradigms break down? The Fed has been printing money, buying bonds and keeping interest rates near zero, for years now. We should be drowning in inflation, the way the Fed is gushing dollars.
But we're not. Instead, we have a serious prospect of deflation during this deluge of cash and credit. No wonder the economists are confused.
Why is there no inflation? Because work doesn't pay. Inflation happens when too much cash chases too few goods. But only the one percent has too much cash, and there's just so much they can buy. Meanwhile, the purchasing power of the vast majority of working people has been withering for decades.
How did we get here? The markets took us here. When the great postwar coalitions of liberal democracy broke down, we were promised affluence without end, if only the people got out of the way. We were told that government was the enemy and the market was our friend. And we bought it.
We gave unbridled markets a chance; we gave them two generations of chances. We made the wrong choice.
The result was a terrible depression that killed the middle class and damn near destroyed capitalism. And we're ripe for another fall, because we never fixed the hole we fell into in the first place.
What went wrong? People didn't have enough income, so they went deep in debt. Eventually they couldn't keep up. The credit cards went first, then they stopped buying cars, and finally they defaulted on their mortgages. When several million people defaulted, Wall Street defaulted. The credit markets froze up. Business activity ground to a halt. Panic spread like swine flu, respecting no national borders. Capitalism had a seizure.
The governments of the world snapped into action. They poured cataracts of money into the bleeding body of capitalism to keep it alive. They're doing it still. But they're transfusing a corpse. The money leaks out of our gaping economic wounds as fast as they pour it in.
Since the Reagan Administration, the GDP goes up and up and not a stinking dime trickles down. But several trillion dimes trickle up.
What we are left with is throngs of people laboring in jobs that provide grotesquely inadequate compensation. Retail employees, office help, home health care givers, cab drivers, the nice lady who works the desk at the cat hospital ... I could go on and on. It would be easier to compile a list of jobs that do pay a living wage.
But the crimes of the market fundamentalists were only beginning. Their next victim was welfare. Welfare is an easy target. Welfare robs the spirit of vitality; it's an insidious condition, to be discouraged at all costs. That is received wisdom in America. We received it from Ronald Reagan and his fellow-travelers thirty years ago. Even Democrats swallowed that "wisdom" whole, and by the '90s it was a Democratic president, Bill Clinton, who declared the end of "welfare as we know it."
And what do we have now, twenty years later? Welfare as we never knew it. Wal-Mart "associates" who survive on food stamps. Fast food workers who feed their families at food banks.
We've come full circle. From welfare to work programs to welfare and work programs.
Business is going to push down the cost of labor by outsourcing, underpaying and automating as much as it can. I don't think that's in dispute at this point.