Four Words

Marginal Consumer Product Demand.

Four words that constitute the brick wall against which the U.S. has run. Four words that explain why, even if the Dow Jones Industrial Average rises high enough to provide real, break-even returns on equity portfolios from, say, October 2008 to whenever the DJIA reaches that goal (talk about moving goal-posts!), then provides minimal, real growth over that break-even point, then provides compound profits for the same indefinable period, there will still be no need for the owning class to loosen the purse strings.

Even if the "miracle of equity financial markets" contrives to make this now-five-year-old economic nightmare disappear, there will never again be a sufficient flow of cash into the retail-consumption market to lift the former middle class's boats off the bottom, much less make them float. And the poor - well, they're hosed, but what else is new?

Four words:  marginal consumer product demand. Even if the value of the 1%'s stock portfolios rebounds to real, compound growth, there are only so many consumer goods that the 1% can consume. The Skeptical Entrepreneur has been flogging what he calls the "Reeboks-Domino's-Blockbuster" test since . . . well, since Reebok and Blockbuster were players.

There are only so many pairs of Reebok sneakers that someone with disposable income can buy. There are only so many Domino's pizzas one can eat, and only so many videos from Blockbuster that one can rent. The 1% can only consume so much.

This is equally true of "luxury" goods, the sorts of things that only the (super-)rich can afford. After all, back in the day - when the middle class, attenuated as it was, still existed - even the hoi polloi could buy Reeboks, Domino's, and Blockbuster. Not everybody can buy multimillion-dollar jet aircraft, or yachts that sleep eight, or more.

But even the ones who can afford those expensive transportation toys can only buy so many of them. Shoot your wad on a late-model Gulfstream G-IV, or the latest offering from Cris-Craft, and you're done. There's no repeat business, except in a few extraordinary cases, until the previous model is disposed of. Note that the population of the super-duper-wealthy, who can afford multiple jets, boats, &c., is even smaller, thus reducing the aggregate marginal consumer product demand.

Four words. Has any harder wall ever been constructed from only four pieces?