The Scam Economy

Introduction

I know you feel it, that something is notably “off” about financial life in the United States. Whether it is noticing that products do seem to be increasing in price faster than your paycheck, that your doctor’s office, lawn care company, or other service seems to have been purchased by a large firm meaning you now need to use an app for even the smallest transaction. Perhaps your favorite product’s quality and size have declined. Maybe your insurance costs or property tax bill has gone up so much that your mortgage or car payment is now causing you burden. If you are a business owner, you may feel that more of your time than ever before is gobbled up by permitting, licensing, inspections, and compliance. The lowest earners may feel as though their minds are entirely consumed by worry, unable to understand what is actually occurring or control their future. Beyond this, however, and perhaps more alarmingly, is that even those with knowledge and great resources are unable to verbalize or enact meaningful change in this regard. While those low earners are encased in concrete, politicians, economic analysts, and monetary policy makers are immured up to their knees; they can speak about observations of these various symptoms, but they do not address the situation in its totality, nor explain the mechanism by which we have arrived here. This paper argues that the modern U.S. and global economy has evolved into a system I term the Scam Economy, in which financialization, ZIRP-era policies, and global interdependence have spiritually hollowed productive institutions and labor, all while turning U.S. consumption patterns into operational inputs for global production. China, through its debt purchases, has sustained U.S. low interest rates and leverages U.S. service-sector consumption to guide their industrial strategy, effectively using the U.S. population as a Nielsen Nation. The system’s continuation equally relies on asset-price inflation driven by pensions and unproductive labor, creating a feedback loop that sustains global financial and manufacturing stability. This structure, however, is fragile; rising interest rates, inflation, and the erosion of asset-price growth threaten domestic services, school funding, and broader social stability.

Thesis

Global capitalism in the twenty-first century has shifted from industrial productivity toward financialized flows, consumption-driven planning, and flow-driven asset stability. Traditional economic structures, including labor-based productivity and civic institutions, have degraded and will continue to degrade as a result. This paper introduces the concept of the Scam Economy, in which financial flows, consumption behavior, and industrial strategy form a self-reinforcing system, with citizens functioning as both economic inputs and stabilizers.

Financialization, ZIRP, and Inflows

Zero Interest Rate Policies (ZIRP) is the concept of artificially low interest rates which has been the policy selection of most developed nations since the 2008 financial crisis, or thereabouts. This repeatedly extended period of cheap credit has incentivized corporations to prioritize asset inflation over real production and has enabled governments both national and local to obscure mismanagement and poor planning from the general public. U.S. corporations rely on buybacks, debt at these low rates, and financial engineering rather than capital-intensive innovation or long-term workforce training activities. This is in my view most likely because it is the path of least resistance; it is much easier to lever up a company to acquire revenue than it is to invent new products or educate your workforce with the hopes they will someday invent something new. This is equally compounded by the fact that this path also has the least managerial risk associated with it, which will be discussed in more detail shortly. U.S. corporations, European pension funds, and various allied governments depend upon rising U.S. equity values for continued solvency. With the creation of direct paycheck deductions for 401(k) plans in 1981 U.S. corporations were given a reliable source of unsophisticated capital inflows. Further, this is compounded by our allies also purchasing U.S. equities through government mechanisms, their pension plans, and sovereign wealth funds; all of which provide further capital inflows to U.S. equities. U.S. corporations which skew towards highly paid service-sector labor produce wages that fund consumption and 401(k) inflows but often generate negligible “real” output. This environment produces American Husks, which we have written about previously, wherein corporations and workers’ value is less in productive labor and assets and more in their participation in the internal aspect of the financialization feedback loop.

The Nielsen Nation: America as a Central Planner

In the Scam Economy, Americans, when they are flush with cheap debt, form a Nielsen Nation, wherein individual consumption patterns are operationalized by global firms, especially in China, to guide manufacturing and innovation. The wealth creation from ZIRP-enabled wages and asset appreciation fuels both domestic consumption and global industrial allocation. Our citizens are both input and metric: their preferences, spending patterns, and discretionary income direct the production of various industries. Through this lens we can reconceptualize the role of citizens: beyond being mere consumers, they serve as real-time sensors for global industrial production, particularly in consumer goods and novelty markets. For a fun example we can look at fidget spinners, the ball bearing-based toys that were a fad in 2017 were ramped up to full production in China in around 3 months. It is highly unlikely that this type of production direction could be centrally planned, nor would it have emerged from China directly. China did however, use this U.S. demand to quickly turn factories making phone cases and other plastic parts, to an industrial chain able to integrate radial ball bearings. China’s industrial planning actually leverages the Scam Economy in several ways. Chinese Treasury purchases enable low interest rates, creating abundant capital for U.S. firms to stay solvent and for lending to households to support consumption. These debt purchases influenced ZIRP and debt holdings stabilize U.S. interest rates. U.S. service-sector wages, fueled by ZIRP and asset appreciation, generate demand patterns that China uses to allocate production and R&D resources. Rising U.S. equities, driven by inflows, boost consumption patterns as those who own a more valuable portfolio spend more. Additionally, the rising equity of U.S. firms allows them to “reasonably” leverage further on this cheap debt, supporting both domestic and global financial stability. Through this mechanism, China and the U.S. are undergoing a mutually dependent feedback loop: U.S. wealth creation allows Chinese industrial direction, and Chinese manufacturing supplies and amplifies U.S. consumption.

BS Jobs & Work vs. Slack Game Theory

Bullshit Jobs: A Theory by the late David Graeber coined the term “bullshit jobs” defined as "a form of paid employment that is so completely pointless, unnecessary, or pernicious that even the employee cannot justify its existence even though, as part of the conditions of employment, the employee feels obliged to pretend that this is not the case". These BS jobs are an emergent feature of the Scam Economy. Many service-sector roles exist not for productive output benefiting the material world but to channel wages into consumption and investments, which in turn sustain asset prices. Many workers’ productivity is largely irrelevant, creating the strategic dynamic we can explain with the following thought experiment.

Work vs. Slack Game Theory

Players: Imagine we have 4 coworkers (2 managers and 2 employees), each of whom could potentially reveal the others are slacking off. An employee could tell the owner that the manager does very little, and the manager could equally get the worker in trouble for the same.

Payoff structure: If everyone slacks off, everyone gets paid without having to work, so the payoff is positive for all players. If someone speaks up, the situation could be exposed. However, the manager (who is also slacking off) has a strong incentive not to fire anyone because doing so would expose their own failure to manage.

Therefore, the employee who speaks up risks losing the benefits of the slack-off culture while likely not receiving any actual reward for speaking up (perhaps even facing resentment). If no one speaks up, the status quo continues, and everyone is incentivized to keep quiet and maintain the current benefit of low effort and full pay.

Nash Equilibrium: In this case, a Nash equilibrium could exist where no one speaks up. This is a situation where each player does what is optimal given the actions of the others.

Here's why: For the employees: If they speak up, they risk losing their benefit of doing minimal work while likely not gaining any additional compensation. They prefer to stay quiet, especially since the managers are not likely to take action against them. For the managers: They do not want to reveal their own slacking by firing anyone, as it would expose their team's inefficiency. Hence, they also have no incentive to take action, even if they know that slack-off behavior is occurring. This creates a stable outcome where all players are incentivized to conceal the truth and not take any action to change the status quo, even though it is suboptimal for everyone in the long run (lower productivity, potential organizational collapse).

Now we may think, why wouldn’t the shareholders or higher-ups simply fire these people for doing relatively little work?

We can add these principals to the game and see the results: In this scenario, the principals (shareholders or executives) are not incentivized to disrupt the existing system because: No real work is required from principals. The principals themselves are not doing meaningful work or managing effectively, which means they have little incentive to address inefficiency within the organization. Further, their wealth is tied up in stock of the company itself, generally based on holding periods rather than performance. The principals benefit from stable or increasing stock price due to automatic investment. If the company’s stock price is relatively stable or even increasing due to constant inflows from pension funds, 401(k)s, and other automated investment systems, the principals have little immediate motivation to improve internal productivity. In this case, the stock price might be artificially propped up by passive investment flows rather than real operational performance. Automatic investment systems mean that, regardless of the company's actual performance, money is flowing into the stock, thus making the principals’ investments appreciate without requiring major management improvements or operational overhauls. Ergo, there is little incentive for a principal to improve performance. If principals don't face short-term financial pressures (such as a decline in stock price, significant debt, or shareholder activism), they have little reason to incentivize better performance from employees and managers. The stock market, driven by automatic investments, acts as a cushion, and passive investors don't typically press for day-to-day performance improvement. The principals may prefer the status quo because disrupting the system could cause short-term volatility or disruption, both of which could harm their personal investments. If changes were made, such as firing managers or employees, or instituting more rigorous oversight, it could be seen as a signal to the market that the company is not doing well. This could provoke a sell-off of stocks by active investors or institutional investors who might react to the perception of a company in turmoil.

The Unspoken Collusion: This creates a situation of mutual collusion, where the employees, managers, and principals all benefit from the continued inefficiency. The principals benefit from the increased stock price due to passive inflows, while the employees and managers benefit from doing minimal work without facing consequences. In this situation, no player wants to disrupt the equilibrium because: Employees and managers are incentivized to keep quiet, knowing that they will continue to receive their paychecks and that speaking up could have negative repercussions (such as personal backlash or the risk of losing the "benefits" of the slack-off culture). Principals don’t want to disrupt the flow of passive investments, and they are often insulated from the day-to-day operations of the company. Their wealth is tied to the stock price, which is growing due to automatic investment flows.

This experiment is an example of a coordination problem with incentives to conceal information that results in a self-enforcing agreement. Thus, BS jobs are structural nodes in the feedback loop; “labor” generates consumption that supports asset growth, enabling leverage, the enrichment of asset holders, and the continuation of the Scam Economy.

Asset Flows and the Inelastic Market Hypothesis (IMH)

A key mechanism contributing to the Scam Economy is that pension and retirement fund contributions force capital into the equity market, inflating asset prices via the Inelastic Market Hypothesis. The inelastic market hypothesis (IMH) is a modern financial theory posited by economists Xavier Gabaix and Ralph Koijen which states that asset prices are highly sensitive to capital flows because a large portion of the market is constrained by fixed investment mandates and does not actively trade in response to price changes. In overly simple terms: asset prices rise due to constant inflow from passive investments; think index funds, ETFs, 401(k)s, and pension schemes. The IMH helps to explain why financial flows, rather than fundamental productivity, dominate market pricing. It also helps explain why many governments are concerned with being allocated to markets with the greatest passive inflows; such as many European pensions allocating large portfolio percentages to U.S. markets. This constant inflow buoys stock prices enabling greater corporate leverage, supporting further financialization. The combination of BS jobs, pensions, and leverage creates a multi-state self-reinforcing feedback loop:

ZIRP enables high wages in service jobs → fuels consumption.

Consumption guides Chinese production → China cooperates or remains neutral with the US.

Labor wages flow into 401(k)s, pensions, and equities → asset price inflation.

Rising asset prices enable corporate leverage → financial system stability maintained.

Loop continues until interest rates or inflation disrupt the system.

Fragility: Rising Rates, Inflation, and Domestic Breakdown

The Scam Economy’s stability is conditional on multiple factors being maintained in perpetuity, which is highly unlikely. It also carries significant risks to the economy, but also to everyday life. For example, during ZIRP, local governments could finance schools, infrastructure, and discretionary programs through rising asset values (property tax assessments) and low borrowing costs. Rising interest rates and inflation now require higher property tax revenue and increase insurance and maintenance costs, which have outpaced wages in aggregate. This breakdown reveals the structural fragility of a system built on perpetual asset appreciation and cheap credit. Consequences will likely include deteriorating public education as tax revenues decline, strained local services, and pressure on household balance sheets. Alternatively, the Scam Economy also results in a cultural hollowing, as labor, education, and civic structures no longer transmit intergenerational skill or knowledge. If a nation has very few specialized engineers, craftsmen, and industrialists in the first place; it is not unreasonable to think that in a few generations these skills could be lost entirely if strong youth education and career training programs are not offered or offer poor training simply to enable managers to check boxes. Taking education for example, as literacy and numeracy rates fall significantly, is it unreasonable to think that it is possible for a nation to not only lose its expertise, but also require a multi-generational effort to recover these skills? In the Scam Economy, Americans function simultaneously as consumers, industrial inputs, and financial stabilizers, subordinating productive culture to the dynamics of global finance. The system incentivizes short-term consumption and novelty, further weakening craftsmanship, vocational skill transmission, and institutional resilience.

Conclusion

The Scam Economy is a globalized, financialized system in which U.S. labor, consumption, and asset accumulation form the operational core of both domestic and international economic stability. China’s industrial strategy leverages this system, using American wages and spending as the de facto central planning mechanism. Pensions, BS jobs, and corporate leverage maintain asset-price growth, sustaining the system, while rising interest rates and inflation expose its fragility. Understanding this structure is critical for policymakers, investors, and cultural analysts seeking to address systemic vulnerabilities in both domestic institutions and global industrial networks.

Our next article will be on the risks that could disrupt The Scam Economy. Any questions regarding this article can be emailed to joseph@longshorewealth.com.