The Iron Law of Oligarchy
Posted May 17, 2020
In 2008 the perpetrators of the reckoning were provided with cheap loans that negated free market forces while rewarding excessive risk taking. This free flow of cheap money continued for the next decade. Financial markets as an efficient pricing mechanism of the productive allocation of finite resources died in 2008. What we were left with was a clear display of The Iron Law of Oligarchy.
Millions of young Americans were inundated with loans that could not be absolved even through bankruptcy. While they took these loans of their own free will, they were entering adult life during the greatest economic failure of all time and so most were left with very few viable alternatives. The $1.8 trillion in student loans provided a huge boost to corporate earnings as about only half of borrowing goes to tuition. So about $900 billion was spent at Walmart, Target, etc., and lots of consumer goods were consumed. That consumption transferred cash to the top line of S&P 500 income statements. And while the cash from the loan was transferred to corporations, the obligation remained with America’s youth. More…