Noam Chomsky breaks down the reasons for the US economic decline over the past four decades:

American decline entered a new phase: conscious self-inflicted decline. From the 1970s, there has been a significant change in the US economy, as planners, private and state, shifted it toward financialization and the offshoring of production, driven in part by the declining rate of profit in domestic manufacturing. These decisions initiated a vicious cycle in which wealth became highly concentrated (dramatically so in the top 0.1% of the population), yielding concentration of political power, hence legislation to carry the cycle further: taxation and other fiscal policies, deregulation, changes in the rules of corporate governance allowing huge gains for executives, and so on.Meanwhile, for the majority, real wages largely stagnated, and people were able to get by only by sharply increased workloads (far beyond Europe), unsustainable debt, and repeated bubbles since the Reagan years, creating paper wealth that inevitably disappeared when they burst (and the perpetrators were bailed out by the taxpayer).

I never truly understood economics until I read Chomsky, and I highly recommend reading his work if you want to understand the reality of modern capitalism. His analysis of the global financial system is astonishing to read as it elegantly lays out the structure of a fraudulent system built on inequality, debt and massive instability. Chomsky has a scientists mind, not an economists, so he avoids inside jargon and focuses on explaining core concepts in simple terms. You can go through an archive of his articles here, and I would suggest reading 'Understanding Power', a brilliant collection of interviews and lectures Chomsky has given over the past 20 years or so.

I've moved slightly away from Chomsky's views on foreign policy in recent times as I think his depiction of Western governments as cruel imperialists bent on destroying the third world is overly simplistic (not entirely wrong by any means though), but his writing on economics is unparalleled in my opinion.

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The chart below dispells the myth that America has a strong middle class – it doesn't, and the sooner people realize this the better (via Cesca):

Americans must realize that the 'American Dream' is a now a myth in order to redress the massive inequalities and stagnant social mobility that defines the modern economy. It is a bitter pill to swallow but a necessary one. Free market capitalism has failed and a new model must be implemented if a brighter future is to be had. To me, the 'Occupy Wall St' movement symbolizes a waking up – a possibly defining moment in US history where mass awareness and non violent protest coalesce to bring down corrupt power structures that have outstayed their welcome.

The economic inequality seen in America today is unsustainable. While Americans may not be fully aware of it, the reality will always trump the myth when there isn't enough money to pay the bills. If we continue along the same trajectory, that reality will set in so fast that Americans will have no choice but to overthrow the current monetary system. And that day seems to be approaching fast.

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Image by Teo's photo via Flickr

Having struggled to pay bills at various points in my life, I would always feel drained after having to make decisions based on financial constraints: Should I go out to eat with my friends and maybe not have enough to pay rent? Should I fill my car up and not be able to pay my phone bill? I couldn't put it into words, but I certainly felt that I would be far more productive if I didn't have to worry about basic necessities. I remember long periods of doing nothing due to lack of money (and worrying about it), and feeling less energetic afterwards. It was a vicious cycle and it took a real effort to pull myself out of the slumps I found myself in. 

Thankfully, things are better now, and I feel I am far more productive not having to fret when picking up restaurant checks – I can spend that mental energy elsewhere, namely my career.

It turns out, this is actually a well studied phenomenon. The New Republic reports:

In the 1990s, social psychologists developed a theory of “depletable” self-control. The idea was that an individual’s capacity for exerting willpower was finite—that exerting willpower in one area makes us less able to exert it in other areas. In 1998, researchers at Case Western Reserve University published some of the young movement’s first returns. Roy Baumeister, Ellen Bratslavsky, Mark Muraven, and Dianne Tice set up a simple experiment. They had food-deprived subjects sit at a table with two types of food on it: cookies and chocolates; and radishes. Some of the subjects were instructed to eat radishes and resist the sweets, and afterwards all were put to work on unsolvable geometric puzzles. Resisting the sweets, independent of mood, made participants give up more than twice as quickly on the geometric puzzles. Resisting temptation, the researchers found, seemed to have “produced a ‘psychic cost.’”

Over the intervening 13 years, these results have been corroborated in more than 100 experiments. Researchers have found that exerting self-control on an initial task impaired self-control on subsequent tasks: Consumers became more susceptible to tempting products; chronic dieters overate; people were more likely to lie for monetary gain; and so on. As Baumeister told Teaching of Psychology in 2008, “After you exert self-control in any sphere at all, like resisting dessert, you have less self-control at the next task.”

This 'psychic' cost can be devastating to vast sectors of the population who spend their entire lives making complex and energy depleting decisions based on severe financial restraints:

Nowhere is this revelation more important than in our efforts to understand poverty. Taking this model of willpower into the real world, psychologists and economists have been exploring one particular source of stress on the mind: finances. The level at which the poor have to exert financial self-control, they have suggested, is far lower than the level at which the well-off have to do so. Purchasing decisions that the wealthy can base entirely on preference, like buying dinner, require rigorous tradeoff calculations for the poor. As Princeton psychologist Eldar Shafir formulated the point in a recent talk, for the poor, “almost everything they do requires tradeoff thinking. It’s distracting, it’s depleting … and it leads to error.” The poor have to make financial tradeoff decisions, as Shafir put it, “on anything above a muffin.”

This phenomenon is cyclical and structural – if you are born poor, the odds are automatically stacked against you based on the energy you will have to expend doing basic things like eating and having a roof over your head. Consequently, coming up with the next big game show or getting the grades to go to medical school isn't likely to be the first thing on your mind.

Obviously, this 'psychic' cost isn't the only factor when it comes to poverty, but if you have ever struggled to pay your bills, I'd bet it explains a lot.

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