Nov 7, 2023 9 min read

The Great Undoing: How an Obsolete Economic Paradigm is Leaving Us Traumatized

Fortune

It’s one of those Big N numbers. I recently came across it, and it’s fair to say it blew my mind. Shocking but not surprising, as we say these days—but the more that I reflected on it, the more weight it carried. Ready?

70% of people say they’re “financially traumatized.” Whew. Put aside the shocking-but-not-surprising face that’s de rigueur these days, the shell of cool ironic distance that keeps us all sane and protected from bitter reality. Let me assure you, wearing my Official World’s Top 50 Thinkers Hat: that’s incredibly dire.

If you watch the video I made to accompany this post, I talk about some context. But int this post, let’s go deeper than that.

What does this number tell us? 70% of people financially traumatized is an American number, and it’s something that we should never, ever see. We should never see it in a poor country, let alone a nominally rich one. It beggars belief when you really stop to take it in. Just think of it as: 70% of people feel traumatized. You don't need, really, I think, to add "by the economy," because of course, this is a real form of trauma, too. How so?

The idea of “financial trauma” goes beyond mere stress. The numbers on stress alone, though, combined with a range of other social indicators, of course, back up the point that trauma is exactly what’s emerging. America’s seeing multiple, severe social crises afflict it. Friendship’s cratering, as it becomes a luxury, loneliness is soaring, deaths of despair are skyrocketing, and so forth. I recently called these a “modern crisis of being.” Half of American young people say they feel “persistently hopeless.”

In other words, there’s a theme here. What is that theme, though?

America’s economic model hasn’t worked. We can gild that lily, and try to veil the central point in politesse, like pundits, or we can just…speak frankly about the facts. That the vast majority of Americans say they’re “financially traumatized” is about as clear evidence as there ever could be that an entire socioeconomic model has failed.

We can call that economic model many things. Probably, we should just use the term “predatory capitalism.” The idea being that maximizing profit is the point of life, the raison d’être for institutional existence, which then gets translated to a ladder, a sort of hierarchy, of organizational forms. Shareholder value dictates the primacy of social priorities, and that basically means that the last penny of profit is to be wrung out of everything, at any cost. Including people.

Now, I don’t mean mom-and-pop local scale human variant commerce, trade, etcetera. No, I’m not saying you shouldn’t own a drycleaner or bakery or brewery. We’re talking here of mega-scale extractive economics, and what kinds of societies and lives it allows.

You see, this number is is really dark. Grim, sure, and dystopian, true, but it speaks of an unnecessary tragedy, too. It can’t be the case that 70% of people in a society—remember, especially, a nominally rich one—are “financially traumatized” at their own hands. This is the kind of thing that speaks to what insurers call “force majeure,” or we economists call “shocks.” When a number’s that big, the problem’s baked into the system.

So how has predatory capitalism failed? First, I want you to see the abject, colossal, terrifying dimensions of the failure. 70% of people say they’re scarred for life just by their financial lives. That’s crazy, wrong, awful, and heartrending. Look beneath that surface and you can easily see just why. Americans are stressed out by a wierd cycle of indebtedness—they can never seem to get out of it, really. Meanwhile, there’s a global “cost of living” crisis, meaning that just making ends meet has become a bitter, brutal struggle.

The result is that Americans are left living incredibly precarious lives. Asked, they’ll say they need north of $150K to feel “comfortable”—which is more than twice the median household income, meaning that just feeling stable and secure is completely out of reach for the vast majority of people. Again, that’s an important point to establish, because yes, it feels that way, but that feeling is real. Big N Numbers like tell us so without a shadow of a doubt.

So what appears to have happened in America is that predatory capitalism’s done its job all too well. It’s a system optimized to deliver maximum, record-breaking profits, whatever the price. And it’s done that: profits have skyrocketed, year by year, even through the pandemic, no matter what. As a system, this hierarchy works—at least for capital.

America’s been the subject of a Grand Social Experiment, in other words, as we talk about often. In Europe and Canada, the social contract is fundamentally different. There, great systems of public institutions tend to manage a much, much larger component of life than in America. So, for example, there, retirement systems are often public, like France’s treasured pensions system—meanwhile, Americans have “401Ks.” Healthcare is public, of course, too, even if it’s a mixed model—people are given vouchers or allowances and so forth, and the market’s carefully regualted, while in America, infamously, everyone has to obtain some kind of Wild West style health “insurance.” I could go on, but you get my drift.

This model has failed. Grand Social Experiments are all well and good, but what’s different about this age is that we’re seeing the results of America’s come in daily. And they are catastrophic. Think about that number again—70% of people feel financially traumatized. I imagine we’d have found similar results in…the Soviet Union…the Weimar Republic…any number of failing states.

So we should learn something from numbers like this. They aren’t just there for us to gawk at, or feel pity about, or even to get angry about. They’re forms of knowledge, which teach us crucial lessons.

In this case, the number 70% of people in America feel traumatized is sort of the ultimate proof positive that predatory capitalism has failed, ruinously so. Think about what it really says, and let’s go even deeper this time. Americans…work…notoriously hard. So it can’t be that they’re lazy. They’re by and large industrious and decent people—people go to their jobs, and perform what in the rest of world would be seen as fairly heroic feats. They get knocked down, and get back up, time and time again. The stats tell us all those things without a shadow of a doubt. So they haven’t failed the system—the system’s failed them. Even while working out perfectly for itself.

Think about what else we know about the American economy. American companies, at least the successful ones, are so profitable that they don’t know what to do with their incomes anymore. So the latest trend that developed in finance over the last decade or so is the “stock buyback,” meaning that companies will buy their own shares, to juice the share price, since that’s what bonuses are often based on. But what’s the point of that, in a larger economic context? All that’s happening there is a wealth transfer—upwards.

And it’s an astronomical one. One estimate puts the wealth transfer from America’s former middle class to it’s ultra rich at $50 trillion. We’ll dig into that one more in future posts. For now, that’s half of the entire world’s GDP. The average American would be on the order of $1250 a month better off if their incomes had kept up, aka, if that wealth transfer had never happened. That, I’d bet, would add up to a lot less financial trauma, because…

Let me try to put this another way, so that you really understand it. Why is it that even though Americans work hard, and try to get ahead…60-80% end up…living paycheck to paycheck? You see, that’s a very curious thing to see happen. It tells us that no matter what people do, how hard they work, what they accomplish, in their society, the outcome is the same: they’re left right on the edge.

And that implies that their economy has evolved to leave them right on the edge. It’s not a coincidence, a mistake, a random event that the majority of people are on the edge. That must be what the system’s designed to do. Especially when, as this research reveals, it keeps happening, across generations, which rules out some kind of natural catastrophe or external cause, really. It must be baked into the system, and that means a specific thing: the system must be optimized to keep people right at the razor’s edge.

In other words, such an economy is designed to extract maximum wealth from people, and leave them with…just enough to survive. Just enough so that they’re forced to compete, brutally, for money, food, shelter, medicine, the basics—but never enough to really be secure or stable. When we see that particular result? The vast majority of people in a society right at the razor’s edge, generation after generation, no matter what they do? Something’s up. The system’s become predatory, and it optimizes to leave people in that state.

And that’s where America is today. The average person goes on just being battered and bruised financially, living at the edge—precisely because the economy leaves them with just that much. That’s what it’s designed to do, and I mean that almost literally—there are entire industries whose only real purpose it is to ascertain just how much people can be pushed to the brink, and what the maximum rate of profit is that can be extracted from them.

Do you see my point a little bit? It’s a sinister and creepy thing. Let me put it in context. Yanis Varoufakis just wrote a book about the return of feudalism. The rule in the Middle Ages, and across much of history, was that peasants kept half their harvest. That was how that system was optimized. This system’s optimized to leave people right at the edge, in a modern way. That means…

Dependent. Why are Americans hooked on debt? Because they have to be. When you’re living paycheck to paycheck, you have to go into debt for everything to emergencies to groceries, if prices rise just even a tiny bit—much less how they’ve soared in recent years. And that’s how the contours of financial trauma begin to emerge. Trapped in a lifelong cycle of debt. Along the way, social mobility erodes, social bonds rupture, social ties shatter, and trust and faith in institutions craters, while optimism and confidence begin to die.

Now tie that back to how pessimistic Americans are about the future. Wouldn’t you be if you were traumatized, in these ways, too? You see, the prevailing attitude in America is that systems are rigged against people, and in a sense, that attitude is correct. If you work hard, play by the rules, try to be an honest and decent and productive person—and your reward is that you get financially, socially, emotionally traumatized…of course you give up, after a while, and turn pessimistic, too.

So results like these matter. They speak volumes. In this case, they tell us that a Grand Social Experiment’s failed. Does it work when we privatize everything from retirement to healthcare? When we give billionaires tax breaks and tell the rest the wealth will “trickle down”? When a society allows mega concentrations of power to emerge? Those questions used to be political.

But they’re not anymore. Now they’re empirical. It’s not a matter of your political beliefs or mine anymore. We can observe the results instead. The results say that this model, this paradigm—it’s a catastrophic failure. No, the idea of Darwinian, dog-eat-dog society, where the most greedy and ruthless and cunning rise, and everyone else is to fall, because only the strong should survive, and the weak perish—sorry, doesn’t work. At least not as a society, versus as a get-rich-quick scheme for a tiny portion of it. Nope, the notion that the average job or profession is more or less worthless, and superstars are worth a million, a billion times the average person—doesn’t work either. Nor does the idea that life itself is worthless, nobody deserves anything, and money is the only point of all human activity and existence.

All of that’s a failure.

Now, I’m under no illusions, and you shouldn’t be either, that America’s going to reinvent that anytime soon. And yet there are undercurrent of discontent now roaring. All the above explains why anyone under the age of 40 will laugh contemptuously when pollsters ask them about capitalism. It explains, too, quite mercilessly, why America destabilized politically—despair is the handmaiden of democratic collapse, the vacuum in which demagogues emerge, and point fingers at scapegoats.

Nobody knows, really, if America will be able to reinvent itself. But what we can do right now is learn. We should never see startling, jarring Big N Numbers like these, anywhere, really, outside natural calamity, war, or some other form of ruin. To see the vast, vast majority of people in a society traumatized, especially financially and economically, which of course lays the groundwork for social, relational, and personal trauma, too—that’s a Nine-Alarm Fire, which tells us that the house is burning down. The Grand Experiment in turbo-charged predatory capitalism failed. That’s going to be one of the great lessons of the 21st century—and only time will tell who learns it, and who…repeats it.

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