Expert reveals why US economy has that ‘weird feeling of something you like becoming worse’
Having to spend more for quality products is taking its toll on consumer sentiment. Modern American capitalism has devolved into a system where companies aren't trying to make a good product but trying to "find power" and extract as much as they can from consumers, says Tim Wu, a Columbia Law School professor who previously served in the Biden administration, as “an architect of the antitrust policy." Speaking to Fortune about his latest book, Wu expressed that there is a sense of "economic resettlement" across the nation that coincides with the "K-Shaped" nature of the economy.
On the release of his new book, "The Age of Extraction", Wu shared with the publication that there is a connection between the political volatility and the feeling that "our system is not fair." He defines the problem as a shift in business goals where companies are moving away from building a good product that people would buy toward models that seek to “find power over someone and suck as much as they can out of them.” He added that it was an economy-wide problem that was affecting consumer sentiment. "Everything kind of just creeps. It’s that weird feeling of something you like becoming worse.” He added that his "understanding of America is that it’s the place where things are supposed to get better."
He details this in his book, writing about “extractors” and the “extracted” in a way that has similarities with the current K-shaped economy, where the rich are thriving and getting richer, and the poor are struggling with the rising costs. “I think we have moved in the direction of an economy where the focus of business models is the accumulation of market power and then extraction, which, by definition, almost by basic microeconomics, is going to result in a lot of [upward] wealth redistribution,” Wu said. He added that many of the industries that used to cater to the middle class or upper middle class are being driven down in favor of a couple of industries that yield outsized returns.
According to Forbes, the driving force behind the trend is the wage growth that has continued to outpace inflation only for the top earners in the nation. Meanwhile, the lower-income households continue to struggle with the aftereffects of the pandemic, inflation, and rising costs that make their wage gains look stagnant or even disappear entirely. This has, in turn, had an impact on the spending habits of most Americans, as per the publication.
However, Wu had an unusual example to share, to illustrate a possible solution for the concerning trend. He cited examples from sports, like the NFL, where the league has improved instead of getting worse by coming up with a market structure that allows smaller teams to get big players. He added that he hopes that America doesn't become a place for the extractors, saying, “I think we can do better. I’m a big believer, frankly, in business. I think we need a return to this idea, you can reap what you sow, that your investments will get you somewhere.”
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