2021 broke the economy

This year had everything: fat paychecks for CEOs while workers go on strike, NFTs going crazy, and cryptocurrency at the whims of Elon Musk tweets.

Illustration by Peter Gamlen

Remember when two staple mall dwellers of the early 2000s, AMC and GameStop, suddenly became the two hottest stocks on the market? How about when someone paid $69 million for a digital picture that you could still look at for free? Hey, what about when Elon Musk name-dropped a cryptocurrency, sending its value skyrocketing for no discernable reason other than hype from the world’s most sophomoric hype man?

None of it makes any sense. It’s not that it can’t be explained — it can, as long as your eyes don’t glaze over at terms like “short squeeze” or “non-fungible token” or “blockchain.” But just because it can be explained doesn’t mean that it makes sense, you know? These are the types of things that happen when the economy ceases to operate by the rules that we thought everyone agreed to. Things have always been rigged in favor of the rich and powerful, but this is ridiculous.

As year two of coronavirus rages on, it feels like we are increasingly becoming untethered from a shared reality. If you’re lower or middle class, the last two years have likely been defined by loss: of loved ones, of a job, of savings that you had to dip into in order to pay your bills. If you occupy a higher tax bracket, a couple of pandemic years likely padded your bottom line. You might actually be better off than you were before.

Increasingly, the overall economy seems to reflect only the interests of the wealthiest among us, and new vehicles of wealth creation provided more opportunities for the haves to separate themselves from the have-nots. 2021 is the year that the economy finally broke from reality entirely — but maybe, just maybe, a realignment is on the horizon.

The savings disparity

Just 37% of people had $500 stashed away for unexpected expenses before the pandemic. Since coronavirus hit, savings for most Americans have dropped to a record low. Now, 40% of Americans have less than $300 saved up, and they are increasingly having to dip into those funds to survive, making it that much harder to establish any sort of nest egg. One in five households lost their entire savings in the last two years just trying to stay afloat.

Stimulus checks arrived, but they were too small and too infrequent to help build savings accounts back up. Most families immediately spent the money on necessities: Nearly three-quarters of families used their first check to pay off rent and bills, and many used the subsequent checks to pay down debt. Very few people were in a position to stash that cash.

Upper-class Americans, meanwhile, actually saved more during the pandemic, in part because they were experiencing less loss to begin with. With businesses closed, restaurants shuttered, and commuting on pause, they actually decreased their spending. High-income households saw their overall spending drop by 17% in the first months of the pandemic, according to a Harvard study, compared to just 4% for low- and middle-income households.

Low- and middle-income households were already at a significant disadvantage when it comes to savings. The pandemic widened that gap, resulting in those who were already financially comfortable expanding their safety net, while those who need it most were left walking a tightrope with little support waiting if they fall.

As workers are hurting, corporations thrive

There are certain vital signs that are supposed to tell us how healthy the economy is: unemployment insurance claims, consumer confidence, new home construction. When these things are looking good — unemployment is low, confidence is high, lots of new houses are springing up — then the economy should be booming. When the opposite happens, expect a recession.

Something went wrong this year. Check these indicators, and they tell you that we’re headed for a downturn. Jobless claims reached record levels, with thousands of people dropping from the workforce entirely. Consumer confidence tanked to a new low in the summer, right when everyone thought we’d be getting back to normal with widespread vaccine availability. New home construction, constricted by high costs for material, supply chain issues, and rising prices that cut out large swaths of potential buyers, fell to new lows.

And yet, the stock market is soaring. Day after day, week after week, the S&P 500, Dow Jones Industrial Average, and Nasdaq averages hit record highs. Major corporations are reporting record-level profits. CEOs took home big, fat bonuses.

Uh, what?

It turns out that these indicators don’t mean shit as long as the folks at the top keep seeing profits. Need evidence? The Washington Post found that 45 of the 50 biggest companies in the U.S. managed to turn a profit during the pandemic. And what did they do with that money? Well, more than half of the firms carried out layoffs, cutting their collective workforces by over 100,000 people. Then they turned around and handed the earnings over to shareholders. More than 79% of their total profits were spent on stock buybacks and dividend payouts, distributing a whopping $240 billion to shareholders.

Meanwhile, those laid off workers — the ones who would be spending money on goods or saving for a house — were left with unemployment checks and endless job searches while major shareholders saw their bottom line increase. The workers who survived those layoffs didn’t benefit much, either. Per the Brookings Institute, while major corporations saw an average of 39% increase in their profits, they raised the pay for essential workers by just $1.11 per hour.

The good news is that workers got sick of getting left out and made their displeasure known. 2021 saw the biggest push for organized labor in years, with more workforces unionizing and winning big against corporations that tried to break up the efforts. People who are sick of being exploited, expected to work through the pandemic and other crises, and see only paltry pay and few benefits in return are starting to push back — and labor shortages are giving them leverage to do so.

Crypto madness

Perhaps the most bonkers trend of 2021 was the explosion of cryptocurrency. Bitcoin and some of the major altcoins hit record highs, seeing comically absurd gains on the way to the top. We’re talking hundreds if not thousands of percent increases.

And then NFTs, or non-fungible tokens, became a thing. Explaining these things is a nightmare, and what they are in theory isn’t even what they actually get used for in practice. In theory, an NFT is a way for artists to sell one-of-a-kind pieces of art, with ownership tracked on the blockchain (that’s a whole other explainer, just think of it as a publicly available ledger of all transactions) so you always know who owns it and who made it. In actuality, though, NFTs have turned into status symbols that the rich kids buy and sell solely to cash in on the completely fictional value assigned to them.

Sure, there are some novel purposes for NFTs that could, hypothetically, benefit artists. But for the most part, NFTs have gotten attention because they are the world’s most expensive profile picture generator, complete with the mediocre digital artwork to match. Look at these cartoon apes and try to wrap your mind around the fact that people spent millions of dollars to purchase them. They do not hold any intrinsic value, except for the fact that owning them shows that you had millions to spend on them, and rich people love that kind of thing.

Meanwhile, crypto, while it is marketed as accessible to all, really isn’t. Most of the people putting money in have spare cash to play with, a luxury that is not available to most Americans. Nearly 70% of crypto investors have an income of $60,000 or more.

But with the rapid gains, it’s hard for lower-income folks not to feel a sense of FOMO. There’s a get-rich-quick opportunity staring at them. They’re watching other people throw thousands of dollars into some meme coin and come out a millionaire on the other side — sometimes damn near instantaneously. So more people are getting involved, and most are convinced they’ll get rich, too. Two-thirds of Gen Zers think they’ll become millionaires from crypto. In reality, they’ll be the ones holding the bag.

The truth is that, much like more traditional wealth, the wealth in cryptocurrency is highly consolidated. The top 0.01% of Bitcoin holders control more than a quarter of the cryptocurrency’s total wealth. Bitcoin is not a means of wealth redistribution, as some of its biggest shillers claim. It’s a way for the richest people to expand their wealth, and they need more people to keep buying in for their gains to grow.

Cryptocurrency is volatile and unreliable; it could go to zero in a day. But by the time it does, you can bet that the rich people will have cashed out, and the people who were promised an opportunity to create generational wealth will be the ones who feel the losses.

Making the whole thing even more farcical is the fact that all of it is made up. Bitcoin was a thought experiment that went too far and that even developers of the project have called a failure. The rest of it is no different. Hell, dogecoin skyrocketed in value this year because Elon Musk tweeted about it, but the creators of dogecoin will tell you that it serves no purpose; it was literally designed to be worthless. All of this is speculation and hype, smoke and mirrors, a game where the last people to know (or last people to afford to buy in) are left holding the bag.

A new reality in 2022?

The economy has been holding on to reality by a string for years now. The fact that millions of Americans are struggling while the top 1% gobble up more and more wealth has served as a warning sign. But in 2021, the thread got cut entirely.

If there is any hope for us to return to normal, it’s with the workers. Solutions that put workers first, center around labor, and seek more equitable working conditions, are the ones that present an opportunity to fix things. Not crypto, not NFTs, not stocks, not any of the other little tools the rich have successfully utilized to increase their lead over the rest of us. These things are all products of created, inflated value. If we want to fix our broken economy, we’ll have to get back to prioritizing the real stuff.