NOTE: I had intended this to be a three part series, but it was not possible to put together an essay of reasonable length for part 3. Therefore, there will a part 4 next week covering how the Imperial Economy might come apart.
The Great Deceleration
The Big Picture & The Great Deceleration Thesis
The big picture for any economy is made up of three interlocking steps, one building upon another, until the result (wealth) is attained.
First, is savings. It all starts with savings. By all, I mean all. Savings are the foundation of all material civilizations. Yes, it is true that labor is a critical component in our material advancement, and there is dignity in any honest labor.
What then makes labor possible? Initially our brawn, simple manual effort. As we know from history that does not get us far by way of a standard of living. To raise humanity’s condition labor needs to be more productive. In fact, increased productivity is the only means by which humanity can increase its standard of living and become materially wealthier. As a species, we can only consume what we produce, so we must produce more to become wealthier, that is raise our level of productivity. We must produce more with the same or less effort to do this. How then, given the same 168 hours in a week and humanity’s physical abilities capped can we produce more?
Tools are the answer, of course. If we have more and better tools, then we can produce more and better things. Economics gives a fancy name to these tools, capital. The more capital we have the more we can produce. The more we produce the more we can consume. Voila, the wealthier we are.
So, where does the capital come from? Savings, the only place it can come from. We must defer some of our consumption to build tools that will allow us to produce more later. The foundation, then, of all material wealth is savings. So, as we can logically see, the wellspring of wealth comes from savings which produces more and better tools which allow us to produce more and therefore consume more.
So, it becomes critical to measure the amount of savings going on in the economy in order to see if the foundation is intact or eroding.
Second, as mentioned above is capital, which comes from savings. We need to measure the amount of capital formation. More importantly we need to see whether the capital base is being maintained and grown. Capital wears out and needs to be replaced, and we need to provide more capital (tools) to take care of the needs of a growing population. Also, if we want greater material prosperity we need to increase the amount of per capita capital invested. All of these things need to be measured.
Third, we need to measure the level of productivity. Are the savings that produced the capital (tools) generating increased output per unit of input. In short, is the labor using the tools created effectively to produce more goods and services?
These three interlocking steps build upon one another to produce…income, wealth. This is the goal of an economy, to produce more goods and services to make life better, easier, longer, and more pleasant. So, we must measure the output, income, and see if it is growing or not.
The thesis is that all of the inflation (money creation) that has occurred (see chart below), especially since 1971 when the U.S. went off the gold standard, has damaging effects on these steps, resulting in a decelration (not yet an outright drop) of the sources of sustainable economic prosperity.
This is because as each dollar becomes less valuable as the total number of dollars increases, market participants will respond. The manner in which the money supply increases is by lowering the interest rate. This encourages investors to start too many capital intensive projects without enough real savings backing them up. This is the start of the boom bust cycle.
The response by consumers is to spend more as the lower interest rate discourages savings. Also, as the new money courses through the economy those who are the first receivers will feel wealthier and tend to spend that newfound wealth on current consumer goods, also dampening savings.
All this creates a bit of a “tug of war” between the investors trying to pull resources into the future via long-term capital intensive projects and consumers who are trying to pull spending forward into the present. Let us now turn to the data and see if in fact this thesis holds up.
The Assault on Savings and the Rise of Debt
First, let’s look at what this inflationary policy has done to savings.
As you can see the trend is clear. The personal savings rate was consistently over 10% in the 1970s, dropping to the 5-10% range in the 1980s, and still over 5% in the 1990s. It has hovered in the 5% range since the turn of the century but has now dipped to mostly below 5%. The pandemic years must be discarded as the government filled bank accounts with cash and there were relatively few places to spend money. This degradation of the savings rate strikes at the wellsprings of any economy’s future.
The flip side of this is the rising debt level, since all this inflation fuels the rise in debt. The chart speaks for itself.
Personal debt has also risen, as would be expected in this kind of environment.
The Stagnation of Capital Formation
The next step is to turn savings into capital goods (tools) to produce goods and services.
At first glance this chart looks good. Real net private domestic investment is near all-time highs. Yet a deeper look reveals the Great Deceleration. From 1974 until 1999 the Compound Annual Growth Rate (CAGR) was 2.97%. From 1999 until 2024 the CAGR was .7%.
Looking at “Real net fixed investment: Net nonresidential: Structures”, which is a measure of capital invested outside of residential housing shows a similar trajectory:
From 1974 to 1999 CAGR 1.56%. 1999-2024 CAGR .65%. A Great Deceleration indeed.
Productivity
This is a metric that does not fit neatly into my Great Deceleration thesis. In short, the productivity rate has accelerated in the last 25 years from the previous 25 years.
The CAGR went from 1.76% between Quarter 3 1975 and Quarter 3 2000, yet it was 1.96% between Quarter 3 2000 and Quarter 3 2025.
I would argue that this rise in productivity while savings and capital formation stagnate is fragile and driven by specific structural shifts in the economy.
There are two main structural shifts as I see it. One is a technological breakthrough that shortens the production process even if the output is the same. This would raise the productivity level. Such a breakthrough did occur when in the early 2000s the internet took hold as well as the promise of the computer revolution was finally met.
The second structural shift is when stagnant savings are hidden by credit expansion driven by money supply growth. This lowers interest rates artificially, and for a time “mimics” the signal of increased savings. Investors pile into capital intensive projects that create a boom (unsustainable to be sure), that temporarily raises the productivity level.
Once the final bust comes, which I will outline possible scenarios next week, this number should also grind down, if not outright drop.
Income
The result of the three building blocks of an economy is income. The two charts below align with the Great Deceleration Thesis:
The CAGR breakdown is as follows:
Real Median Household Income: From 1984 until 1999 CAGR 1.17%. From 1999 until 2024 .61%.
Nonfarm Business Sector: Real Hourly Compensation for All Workers: From Quarter 2 1975 until Q2 2000 CAGR 1.08%. From Quarter 2 2000 until Quarter 2 2024 .85%.
The Warping of the Economy
All of this inflationary spending and money creation, put first into the hands of the politically connected, has also distorted the economy greatly in favor of that elite.
The top 1% own 50% of all stocks and the top 10% own over 90% of all stocks. See here.
The employment and total sales of the financial sector grew from under 10% of GDP in 1970 to over 20% by 2024. The United States was less about making things than making money from money. Along with this the manufacturing sector fell from 30% of GDP in 1970 to 10% by 2024. The economic effect was that real productive investment was starved at the expense of financial engineering projects that added nothing to the real output of the economy. That all of this was fueled by an unnatural government intrusion into the workings of the market demonstrates that this was not the result of a true and honest free market. The moral effect of this policy is uniformly deleterious. It is nothing more than a naked shift of money from the bottom to the top of the economic pyramid. It is those politically connected groups receiving something for nothing. This can only be accomplished, of course, if there is someone receiving nothing for something.
Conclusions
All of this wonkery is to show that the weight of government interventions, spending, and the inflation needed to cover that spending (and enrich the connected elites), has caused a deceleration in the foundations necessary for a prosperous economy. No, everything is not shit just yet, but we are heading there. Like a large ship, it cannot just stop. It will slow down first. In the case of an economy, it will slow down and if the erosions to its foundations are not strengthened, it will crumble.
This is the Imperial Economy we live under. Not all of the interventions are on behalf of the military industrial complex, but that is a significant share of it.
Next week I will outline some possible scenarios about how all of this ends, because it will end. That end, whichever way it plays out, will be ugly.
In the coming weeks after that I will flesh out more specifically how this occurs and is occurring in real time and what the damage to the real economy is, as well as some suggestions for surviving this economic regime.
As always it behooves God’s people to be clear-eyed about the world as it is so that we can make it a little more the way it should be.
Praise Be to God
