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The Red Queen’s Race

“Well, in our country,” said Alice, still panting a little, “you’d generally get to somewhere else — if you run very fast for a long time, as we’ve been doing.”

“A slow sort of country!” said the Queen. “Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”

By every measure, US households are worse off today than four decades ago.  It’s gotten so bad that even households with two incomes are worse off than households with one income in the seventies.

A big part of it is that the median income of today is actually less than it was four decades ago, and that is for men.  It’s even worse for women.  The median income for women is ~78% that of a man.   The situation is even worse given the fragility of the American household.

The Fragile American Household

The best analysis I’ve found on this situation is from Elizabeth Warren (Harvard Law School and a US Senator for the state I live in) in her seminal book The Two Income Trap.  Although this book came out in 2004, it’s still the best single source of insight into the finances of the American household available.  In the book, she dissected  three decades of US census data on American households.  This data showed that it had become increasingly costly for a household to stay  on the path to the American Dream:

  • Mortgages.  UP 76%
  • Cars  UP 52%
  • Taxes.  UP 140% (corrected from Warren’s presentation)
  • Health Insurance.  UP 74%

Further, just to keep up with the rising costs of pursuing the American Dream, both parents were required to go to work full time. However, that wasn’t all she found.  She found that even a dual income household couldn’t absorb the increasing costs of pursuing the Dream, and they were going bankrupt with increasing frequency.

This increase in bankruptcy wasn’t due to frivolous consumer spending or runaway consumerism as the media has claimed.  The numbers just don’t back up that claim.  In fact, households spent 32% less on clothing and 52% less on appliances in 2004 than they did in 1974.  Even the size of the American home isn’t that different.  The square footage of homes were only 5% larger in 2004 than it was in 1974, although the average age of the home was 50% older.

The actual reason is more interesting than this.  The real reason is that the rising costs levels of merely staying in pursuit of the American made the two income household of 2004 much more fragile than it was in 1974 with only one income.   You can see why in this chart from the book:

two_income_trap

The amount of discretionary income available to the family in 2004 is the same as it was in 1974, yet it takes much more effort to attain it (much more cost and two incomes).   Worse, it creates a fragility that makes the household extremely vulnerable to inevitable disasters or reversals.  For example:

  • It takes a lot longer to save enough money to cover expenses than it used to.
  • The loss of either income (due to divorce, illness, layoff, etc.) will wipe out any savings very quickly.
  • The chances of losing one of two incomes is higher than losing one (with a spouse in reserve to enter the workplace if needed).

In sum, the American household has become fragile.  Unable to get ahead.  Unable to save for big event or retirement due to frequent financial reversals.  Increasingly unable to pursue the American Dream and it’s getting worse by the year.

How so?  Incomes are lower the costs higher (particularly health care and education) than when Warren wrote her analysis.  However, the worst part is that the volatility of the economic system is much higher, radically increasing the chance of the economic reversals that wipe out savings and force families into bankruptcy.

The Red Queen’s Race

The path we are on is clear.  The competitive dynamic like this is a sign we’ve entered the Red Queen’s race.

The Red Queen’s Race is a concept used in biology to describe the evolutionary arms race between predator and prey in an inter species struggle (or host/parasite).  For example, if a predator develops a new and better offense, its prey needs a defense that is even better in order to survive.  This process of competition goes on until one of the species is driven to extinction.

However, in this specific instance, it’s not competition between predator and prey.  The competition we’re seeing between US households is fratricide.  The kind of intra-species struggle that occurs when a habitat is shrinking or in failure.

In our case, the habitat that is in decline is our economy.  Our economy is becoming hostile to the pursuit of the American Dream, and Red Queen’s Race is the fast track the dustheap of history.

“IN American, it takes all the running you can do, to keep in the same place. If you want to achieve the American Dream, you must run at least twice as fast as that!”

JR

Join the movement to restore America's prosperity

Discussion — 14 Responses

  • Nick February 24, 2014 on 7:13 pm

    The question I have is to what extent if any the Red Queens race is caused by global net energy decreases? Any thoughts?

    Reply
    • John Robb Nick February 25, 2014 on 10:14 am

      Nope. Three pronged assault. avarice/incompetence/obsolescence.

      By the way, and this is a bit geeky, the thermodynamics of economics suggests that the inevitable next step is a pure information economy (where everything you consume/need is produced locally and only the information moves).

      JR

      Reply
      • Nick John Robb February 25, 2014 on 8:34 pm

        Agree that relocalization through information driven economies is the enevitable next step, in fact don’t think there is much to be done about many of our problems until we get there.

        Find it oddly encouraging you don’t think EROEI has much to do with our stagnation, even if it implies a corrupt system. Still i’m skeptical, I think its hard to know how to sift through data to determine one way or another. Would love to hear why you are certain its a non issue.

        In any case thanks for sharing your thinking on this project, as always its innovative, compelling and insightful.

        Reply
        • Nick Nick March 11, 2014 on 10:16 am

          Care to clarify what you mean John by a pure energy economy? I understand that the energy intenstity of our economy as measured by BTU/$GDP has been falling due to automation and efficiency increases, but don’t understand how this could ever be shifted below a certain threshold.
          Relocalization of manufacture and food can only lower it so much (20-30% ??) but even with that reduction there still would exist a critical EROEI of primary energy sources needed to drive such a relocalized economy. I guess i just want to know why you are so confident energy constraints are not a signifcant constraint to the economy you envision.

          Reply
          • Nick Nick March 11, 2014 on 10:16 am

            Oops meant “pure information economy” not “pure energy economy”…..

  • Greg February 24, 2014 on 9:27 pm

    It sort of reminds of this:

    http://en.wikipedia.org/wiki/Hedonic_treadmill

    In general it’s an evolutionary trap, but on our level the question is how much is ingrained or even self-imposed?

    Reply
    • John Robb Greg February 25, 2014 on 10:46 am

      Greg,

      Thanks. Different thing, but a good thing to point out. I’ll address hedonics in a future post.

      JR

      Reply
  • Chris February 25, 2014 on 10:04 am

    Perhaps the world has reached, and exceeded, its carrying capacity. Couples who stay together but forgo having children will do better economically. In a few decades, as the population declines to 10%-20% or so of today’s population, the economics will swing back to where having children become feasible again.

    Reply
    • John Robb Chris February 25, 2014 on 10:20 am

      Chris, We hit peak babies in the 80’s. It’s all downhill re; births after this (most of the world will be too old to have children very soon).

      Why is pop still increasing? We’re just living longer, which means we’re going to have a bit of a population hangover for a bit.

      Reply
  • Burgundy February 27, 2014 on 3:14 pm

    “In our case, the habitat that is in decline is our economy”

    Our natural habitat is also in decline, possibly exponentially. Meaning economic fratricide is going to morph into the real thing sometime in the future as resources become inadequate. The Red Queen is going to up the pace just as the bottleneck narrows around us.

    We’re going to need prosthetics to keep up (or at least keep ahead of the pack).

    Reply
  • Frank March 10, 2014 on 8:38 am

    I <3 how taxes go up 140% and… Not a word about that anywhere.
    We're not going to get sustainable or follow the American dream hard enough to escape the boot.
    First things first: establish a climate of liberty. The rest will follow.

    Reply
  • indyjonesouthere March 12, 2014 on 6:03 pm

    I’m 67 and have observed the change. First, Warren does not mention that a great number of women joined the work force along with a lot of illegals since the 60’s. A large labor supply will decrease the wage level. Two, Warren would not acknowledge that a large expansion in government over this period of time will divert production labor into government braking labor in the economy. Third, this massive regulation of everything to include cars, medical, and education drives their costs through the roof but does not necessarily add to quality. If you want to drive the use and cost up simply subsidize it like corn crops and you will get more of it, entitlements anyone?

    Reply