I often refer to the “dollar store economy” in my posts. What does that mean?
A dollar store economy is characterized by: low wages, inflation, and interest rates; high profits, asset prices, levels of foreign trade, and inequality; and sluggish growth. The low wages are the product of regulations favoring capital over labor and the availability of an enormous workforce overseas. The low inflation and interest rates result from the low wages and an aging population. The high profits and asset prices are caused by the low wages, low taxes on capital, greater access to foreign markets, and the lack of investment opportunities at home due to a shortfall in demand. The high levels of foreign trade are a driver of inequality and sluggish growth, because they reduce wages (and, therefore, demand) at home and provide additional markets abroad.
The poorly-paid workers can only afford to buy goods at dollar stores; as a result, the wealthy invest in them, but not businesses catering to the middle class.. Hence, my name for the economy.
Over the next week, I will be looking at this phenomenon from a variety of different angles, and exploring the plausibility of alternatives.