What’s 2023 Going to Be Like? A Big Crunch
Image Credit: OECD
The Longer We Pretend the Industrial Age Isn’t Over, the More Painful It’s Going to Get
by umair haque
Happy New Year! So. What kind of year is 2023 going to be? Tomorrow, I’ll discuss the big picture — why the 2020s have already been the worst decade in modern history, and whether or not this year promises more of the same. Today, though, I’m going to cut to the chase. Let me begin with a little parable.
When I talk to young people — and weirdly, I talk to a lot of them, in my other life as a musician, the ones that work at the cafes and bars I inhabit, and so forth — the conversation invariably turns to the subject of, well, that they’ve got it tough. How are you guys doing, I ask. Are you managing to hang on? They shake their heads. Just barely. So who’s doing well among your group of friends? What makes the difference? The answer’s always the same. They roll their eyes. And then they say: tech money.
The only ones among them who are really doing OK are the ones earning the crazy amounts that the tech industry’s been willing to pay in recent years, and those amounts have been eye-popping. But even that’s now drawing to a close — you can see the tech industry announcing waves of layoffs. So much for the last lifeline to a prosperous life, really.
Yet this isn’t about young people, and it’s not about tech. That’s an example of what’s going to be theme of the next year, what 2023 will be remembered for historical, and more to the point, what it’ll feel like to live through. 2023’s going to be a Big Crunch.
Now. See the chart above? I’ve used it before, to talk retrospectively, about the last year or two. But it also predicts the future. That charts shows us that real incomes are falling across the globe — cratering, in fact. They’re falling with frightening speed and fury. And that’s not going to stop any time soon.
In fact, it’s about to get worse. What does it mean when the tech industry begins to lay people off? On the level of an economy, it means that incomes fall. Now even the top earners have far fewer such opportunities. And that bodes ill for the rest of the economy. Very ill. Because tech firms are still raking in huge, huge amounts. And yet if they’re laying people off — well, sectors which barely have those fat profit margins are going to follow suit even more viciously.
All of that’s already on the cards. There’s a “debate” amongst pundits whether or not 2023 will be a “recession.” Or not. Don’t take it from me, take it from the IMF.
That’s not quite a recession. A recession is technically stagnant or negative growth. But in a very real sense, at this juncture in economic history, it doesn’t matter. When people’s real incomes are falling, even if it’s not technically a “recession”…it still is one, for all intents and purposes. In fact, if we look at deeper indicators of confidence, from both people and businesses, they’re plummeting fast. And for good reason. Inflation’s still biting, hard. It’s “slowing down,” a little bit, from eye-watering highs of above ten percent, to “just” seven or so. Did you get a seven percent raise last year? I didn’t think so. Hence, most people’s real incomes are falling, and falling fast.
2023? It’s going to hurt. Now let me explain why, in a litlle bit more detail.
People have been been weathering this financial storm — the Big Crunch of the 2020s — as best they can, so far. And they’ve been doing that in a way that’s deeply dangerous, financially, economically, and socially. They’ve had to dip into their savings — what meagre savings they have — just to pay the bills. That’s because the bills have skyrocketed — headline figures of inflation understate the case, because basics have gone up by much, much more than those numbers, and nobody can live without those. Food, energy, water, medicine — they’ve gone up way more than 7 or 10%. They’ve maybe doubled or tripled in many cases. And that’s leading to a very real wave of financial ruin brewing across our economies.
Hence, people have had to dip into their savings to pay their bills. Probably the best data about that comes from Britain: “To help cope with their financial struggles, 41% of Brits have said they’ve had to dip into their savings to pay for everyday costs, such as rent/mortgage payments and utility bills.” Yet that trend is almost surely true across economies — all of them.
Why? How do we know? Because something like 70–80% of people were living right at the edge, paycheck-to-paycheck, before prices started to explode. Hence, when prices did, it’s inevitable that they’ve had to dip into their savings to pay the bills. Living paycheck to paycheck doesn’t mean that you’re out there taking White Lotus Vacations to luxury resorts in Sicily — it means that you’re barely getting by.
So. People have been dipping into their savings to pay the bills, because that’s what falling real incomes in economies where people were already stretched to the limit really mean. But people didn’t have much in savings to begin with. The average American’s bank balance is just $5000. The average Brit’s bank balance is just, LOL, $500.
Now. These numbers are sketchy. We don’t keep good enough data on them. That doesn’t include things like retirement accounts and so forth. And yet when I hear figures like “Northwestern Mutual’s 2022 Planning & Progress Study revealed that the average amount of personal savings (not including investments) was $62,086 in 2022,” I have to question it a little bit. If people were saving that much, why is it that literally nobody I ever meet feels even an inkling that secure? Why is that no indicator, from confidence to trust in institution to mobility shows any form of socioeconomic stability or security at that level? Our societies are not happy places, confident in stability and security and upward mobility. They’re deeply pessimistic places, in which trust has collapsed and shattered, and that leads me to question numbers that suggest people have copious savings. Instead, numbers like the above are probably prone to selection bias — Northwestern Mutual customers might, but the average person? Nope.
The upshot is that people don’t exactly have small fortunes in the bank. They’re not quite broke yet, but…they’re getting there. We don’t know exactly when the point is going to be hit, because we don’t have a super-accurate number about how much people really have saved, but it’s not a lot. If it was, would people be this stressed out? Would making embittered fun of the super rich have become a cultural touchpoint? Would downward mobility really be the dominant trend of our socioeconomies?
2023 is going to bring our societies much closer to that point. The point when people begin to go broke. It’ll probably be the year that a whole lot of people hit that point. And a wave of genuine financial despair begins to sweep our societies. Why? How so? What does that mean and why should you care?
Well, think of what happens when people exhaust their savings. Next step in the cycle of financial distress? They have to sell their homes, if they’re lucky enough to own them. You can already see hose prices falling, for precisely the reason that this is beginning to happen. Supply is beginning to outstrip demand. And while falling house prices are good news, in a perverse way, for younger generations, in another way, they’re not, because, well, those younger generations still aren’t making enough to really buy homes, and never will, given the path they’re currently on. All that happens then is a) a housing crash b) Wall St and “hedge funds” meaning bros with daddy’s money move in and c) swoop up the housing stock and d) convert it to rentals at exorbitant rates. That’s what began to happen over the last decade, and it’s a big reason why rents are so high that they come in at half the average income or more, leaving people even worse off than they were not so long ago.
So as Big Crunches bite, people have to draw down their assets. First savings, then homes, and then right down to possessions. All that stuff then gets bought up on the cheap by Big Capital, which then tends monopolize it, seeing an opportunity to move in for the kill, own necessities in perpetuity, and rent back to people the very things they might once have owned. And that, of course, makes even harder for middle and working classes in sharp, steep decline — like ours — to ever “recover” to the living standards their parents and grandparents once enjoyed.
That, in turn, sets off a chain reaction — a loss of trust in institutions and systems. Now, you’re stuck. The stuff your parents and grandparents might have owned outright — homes, cars, possessions — you basically rent, at exorbitant rates, which means you need to accrue debt to do it, which usually comes with a super high interest rate.