OUR INCOME DISTRIBUTION IS FAST BECOMING NON-NORMAL.That's not good.

Anyone who has struggled with poverty knows how extremely expensive it is to be poor. ~ James Baldwin

What do the beef, cable TV, smart phone and soybean markets have to do with eroding middle class income? In this blog I will discuss one root cause of the US middle class' ever-withering income: the ever-increasing market power of industrial employers. This cause has not received much notice. Other reasons for the declining economic welfare of our middle class have been far more discussed – the weakening of labor unions and more international competition (aka, globalization). It is my contention that these reasons are, in fact, based on the ever-increasing power of relatively few, very large firms. These firms' power radiates directly from their concentrated market power.

Eons ago when I was sitting in graduate-school economics classes there was much discussion in my favorite slice of microeconomics (the economics of individual markets and/or decision-makers) - industrial organization – about the "concentration ratios" of important industries. These ratios provided one measure of how competitive an industry might be by measuring an industry's largest firms' market share. The more concentrated the market (the higher the market share), the less competitive it is likely to be, despite protestations from the largest firms' CEOs.

If the largest 4 firms in an industry capture more than one-half of the total market, this industry historically was judged to be concentrated and thus not terribly competitive. In bygone times, such concentration provoked the US Department of Justice (DOJ) or the Federal Trade Commission (FTC) to initiate an anti-trust assessment and lawsuits of the largest firms in this industry to reduce their market power. No longer. Mergers between an industry's largest firms routinely are approved by the DOJ or FTC, with minor concessions, if any.

In general, the more competitive an industry behaves, the greater are the benefits that accrue to customers in the form of lower prices and greater choices. Classic examples of significant industrial concentration include the Standard Oil Trust in the early 1900's oil industry, steel makers, tobacco manufacturers and the telephone company (the original AT&T). Large, integrated firms that dominated these markets were split up by the government's successful anti-trust actions.

However, over the past several decades when increased industrial concentration has proliferated across many US industries, the DOJ and FTC seem asleep at their anti-trust wheels. This lack of proper judicial and regulatory oversight has had important – and detrimental – consequences.

With stout market power, large firms can dominate not only the markets they sell products in – and thus set non-competitive retail prices and/or conduct anti-competitive behavior – but they also can dictate the markets they buy their inputs from (like labor and materials). The current class-action anti-trust lawsuit brought by 64,613 software engineers against Google, Apple, Intel and Adobe accuses these companies of agreeing not to solicit one another’s employees in a scheme developed and enforced by Steve Jobs of Apple. These workers allege they were unable to apply for jobs at these prominent high-tech employers in Silicon Valley because of a collusive "do not raid" agreement among the firms regarding their competitors' employees. This agreement thus thwarted these workers' opportunities to increase their income and job responsibilities. That's concentrated market power in action infecting employees' opportunities and livelihoods.

Here are other examples of strong market concentration. For Internet searches in the US, the top 2 search engines Google and Microsoft's Bing, control 85% of the search market. To no one's surprise, Google itself dominates with 67% of the market. In many other countries the top 2 search engines account for more than 90% of all searches.

The top 2 producers of the fast-growing smart phone operating system market –Google/Android and Apple – together control 91% of the world market. In the smart phone market (250.2M units in 2013), the top 2 producers –Samsung and Apple – control 42.2% of the world market (the top 4 producers capture 54.1% of this market) which in 2013Q3 represents 55% of total cell phone world sales – the first time smart phones outsold "regular" cell phones worldwide.

The recently proposed merger between the US's 2 largest cable TV providers – Comcast and Time-Warner Cable (TWC) – will place over 30% of the retail pay-TV market across America within one huge, vertically-integrated corporation. As one news article noted, if approved this merger would place Comcast as the dominate cable provider in 19 of the 20 largest US TV markets, and could give it unprecedented leverage in negotiations with content providers and advertisers. Comcast now owns NBC-Universal (a TV network as well as a major producer of TV shows and movies). It is no surprise that this week Netflix publicly stated it was opposed to the Comcast-TWC merger. And, according to Comcast, such increased market power will not affect its well-documented ability to considerably and continuously raise customer prices. To believe that, you must also believe in Tinkerbelle and the Tooth Fairy.

What about a non-digital market ? Glad you asked. Here's the market for beef, chicken and pork in the US. Four companies produce 85% of America’s beef and 65% of its pork. Just 3 companies make almost half of all chicken sold in America. These figures probably understate the reach of these modern meat oligopolies, which includes companies like Tyson Foods and Cargill. Today’s vertically-integrated meat conglomerates control each level of the food system in a way that that firms in the past could only dream about. Companies like Tyson Foods have pioneered a new model of food production that gives them ownership and control over virtually every stage of the business. By controlling the supply of meat, these producers control retail prices that consumers face for all types of meat, from T-bone steaks to turkey breasts.

Other agricultural markets beyond meat are similarly concentrated, belying economics professors' statements to their students that agriculture is a classical example of competition. It no longer is. A mere 46,000 of the 2.2 million US farms (2.1% of all farms) account for 50% of total sales of agricultural products. US behemoths such as Cargill  and Archer Daniels Midland (ADM) – remember them from the above paragraph – control significant agricultural markets as diverse as cocoa and corn to soybeans and wheat. ADM and several of its executives were convicted of participating in an international cartel to fix the price of lysine, a widely-used animal feed additive.[1] The world's 4 largest food producers-processors-traders – that go by the acronym ABCD derived from their names: ADM, Bunge, Cargill and (Louis) Dreyfus – account for between 75% and 90% of the global grain trade. Forget about the little farm on the prairie.

And don't forget about the banking sector, one of the most reviled by the public. As one astute observer noted: At some distant point in the past the banks have transformed from being the lubrication system for the engine of our economy to being treated as the engine itself. How did this happen? And the answer please…

The financial services/banking industry has increased in size, concentration and power with the explicit support of the federal government. After the 2008 bankruptcy of Bear Sterns and as part of the disastrous "credit crisis" the government not only allowed, but often coerced financial institutions to merge (e.g., the Bank of America's take-over of failing Merrill Lynch). Once again[2] our government – meaning taxpayers – provided beaucoup funds to bail-out the largest banks and required virtually nothing in return – other than eventual payment for certain provided funds. This bail-out of Wall Street (and many, many other firms including GM and AIG) by Main Street cost us $700 billion (B) via the Troubled Asset Relief Program (TARP) plus more than $960B in other direct and indirect financial "assistance" to the financial sector and beyond.

During the past 30 years, the financial industry's share of the US GDP has doubled. Heretofore big banks have gotten much, much bigger. According to the Federal Deposit Insurance Corp. (FDIC) in 2013, the nation's 5 largest banks controlled 40% of all bank deposits, and 44% of all financial institutions' assets. In 1990, the 5 largest banks accounted for only 9.7% of total market assets.

Most regions of the US are even more dominated by a few giant banks. For the San Francisco-Oakland- Hayward area in June 2013, the top 4 banks controlled 71% of all bank deposits; the top 2 banks (BofA and Wells Fargo), control 64.7%, illustrating a very high degree of market concentration and power. With such power you shouldn't be wondering why the 2010 Dodd-Frank Act's useful bank reforms and regulations, and consumer protections have been watered down and not yet fully implemented.

It is not a coincidence that as corporate power has dramatically swelled, the compensation provided to the CEOs of gigantic businesses has stratospherically grown relative to the pay of ordinary workers. Recent headlines like, "CEO-to-worker pay ratio ballooned 1,000 Percent since 1950"and "CEO-to-worker pay gap is obscene" describe this inequitable trend.

So, the market power of colossal businesses has steadily multiplied – along with their CEO's compensation – in no small part because of the neglect and/or active persuasion of the government. What has been happening to workers' income? The answer in two words, nothing positive.

The US income distribution is fast becoming non-normal; it's becoming bimodal, with many more poorer people and more higher-income folks. The middle income earners are withering both in numbers and in wages.

The 2013 median annual wages of workers was $35,090 according to government statistics; that is $16.87/hr. The US median, real annual household income in Feb 2013 was $51,404, 7.9% lower than when the great recession officially started (Dec 2007), and 8.4% lower than in Jan 2000. The figure below illustrates this depressingly downward decline in median household income since 2008. The Bottom 50% of taxpayers earned a mere 11.6% of total adjusted gross income (AGI) in the U.S. according to 2011 tax returns (the latest available for analysis). All by themselves the Top 1% received 18.7% of 2011 AGI. The Top 1%ers earn at least $390,000 per year.

Source: New York Times and Sentier Research

The distribution of US wealth (the value of all assets – possessions, property, money – held by a person, family or organization) is even more skewed than that of income. In 2009, the top 20% of households held 87.2% of all wealth in the US. The top 1% earns a bit less than 1/5th of all earned income (mentioned above) and holds 35.6% of all US wealth. The biggest winners in the wealth arena during the last decade have been the very most moneyed people of all (the top 0.1%); they have left even the 1% far behind. The top 0.1% countryside often includes CEOs home territories. Unlike CEOs, average middle-class families, those dead center in the US income distribution, had about 90% of their assets in their home. After the 2007-08 popping of the real-estate bubble, between 33% to 50% of their total wealth disappeared, unlikely to return any time soon, if ever.

On Apr 22, the New York Times offered an international perspective on the plight of the US middle class. Using data from 9 other nations, this article concluded that the US middle class has lost significant ground to other nations. The American middle class is no longer the world's richest.

Middle-class (50th percentile) real disposable incomes in Canada now appear to be higher than the US. The Times analysis shows that across the lower- and middle-income tiers, citizens of other advanced countries have received considerably larger raises over the last 30 years than similar people in the US. At the 20th income percentile (representing people whose income level is exceeded by 80% of the population), people in 5 nations have higher incomes than in the US – Norway, Canada, Netherlands, Germany and Finland. So much for the American Dream. But for the 95th income percentile folks, US incomes far exceed all other nations; the US real disposable income appears over 20% larger than the 2nd-ranked nation, Canada, and 50% more than the 5th-ranked nation, Netherlands.

Many local and state groups are now increasingly engaged in improving the economic plight of middle-class and working-class US families through a variety of actions. Most visible have been local group pushing to raise the stagnated federal minimum wage. The federal minimum wage certainly needs to be raised above $7.25/hr.

But raising the minimum wage does not address a major structural cause of stagnated incomes – exorbitant market power. Two economic policies must be changed to address this.

First, the Dept of Justice and FTC should immediately establish a 24-month hiatus in approving any and all mergers and acquisitions (M&A) involving any firm that is among the 10 largest in any specific market it now operates in. Anti-trust policy should be removed from its crypt at the DOJ and actively resuscitated, now. Standards for M&A acceptance should be tightened and enforced. In this age of multinational business, the US anti-trust authorities – the DOJ and FTC – should cooperate more effectively with their European (and other nations') counterparts; in particular with the European Union's Directorate-General for Competition. To date, the record of cooperation between the US and EU on matters of competition is spotty at best.

Federal and state authorities must immediately revive their now-moribund commitment to improving markets' competitiveness. This proven strategy can advance workers' incomes and offer consumers better, lower-priced goods and services as more competition is revitalized. With this M&A hiatus, currently-proposed mergers like Comcast-TWC, GE-Alstom, and Facebook-Oculus would be stopped. Corporate giants would not be able to broaden or deepen their market power. Every-day customers would have more, and less-expensive, market choices, and eventually workers wages would not be hammered by this country's oligarchs.

Second, there must be a supplemental, progressive inheritance/estate tax established for the very wealthy. Such a tax would be implemented on estates greater than $25M (adjusted annually for inflation) at a rate of 45%. For estates exceeding $50M, the tax rate would be 50%. The current estate tax starts with $5M estates, taxed at 40%.

These two policy changes would ultimately reverse eroding middle-class incomes and benefit the vast majority of US citizens.

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[1] This conspiracy was the basis of a popular movie, "The Informant!", starring Matt Damon as one of the ADM conspirators.

[2] The first publicly-funded bail-out of a US bank happened in March 1792, when the nascent US government provided funds to the failing First Bank of the United States. See The Economist for a fascinating essay about multiple financial crises during the past 200+ years.

DIMINISHING RETURNS. When sunsets might be useful.

Golden Gate sunset - Jan. 2014; © Bruce A. Smith 

The first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it. The first lesson of politics is to disregard the first law of economics. ~ Thomas Sowell
The second lesson of economics is diminishing returns: adding more of a productive input will eventually result in a decline in the additional output produced. The second lesson of politics is to disregard the second lesson of economics. ~ C.B. Ladler

The Law of Diminishing Returns, a keystone proposition of economics, states that in all productive processes, adding ever more of one input (say, labor), while holding all others constant, will at some point lead to a decline in the additional amount of the resulting product.[1] The consequence of adding the last laborer is less than the added product when the second (or perhaps five hundredth) worker was added. There are many documented examples of this principle after it was described in the early 19th century by economists like David Ricardo and Thomas Malthus.

It remains relevant in the early 21st century. But politicians and bureaucrats either choose to not recognize its relevance, or more likely, falsely believe diminishing returns does not apply to programs and policies they deal with. Despite their hopes, diminishing returns always applies (in addition to the first lesson of economics – scarcity). Here are several examples.

The Value of a College Degree.  The US and many other nations have hugely benefited for a long time from improved and lengthened formal education of its citizenry. Two weeks ago the Obama administration publicly renewed its efforts to promote greater support for low-income youth to enter and graduate from college. Such support is important and needed. But well-meaning politicians never mention the changing labor market dynamics – based on the law of diminishing returns – that follow from ever-more college graduates entering the labor market.

As I've mentioned before, now that 30%+ of young adults (YA's) have college degrees there may be some downside consequences based on diminishing returns. The unemployment rate of YA's (20-24 years old) remains high: the Dec 2013 rate is 11.1%, much higher than the overall unemployment rate of 6.7%. However, with a B.A. degree, the current YA unemployment rate dramatically drops to 3.3%. At a macro level, having more college graduates continues to be demonstrably beneficial for many reasons.

 Nevertheless, from a micro perspective the relative value of completing college is lessening because the law of diminishing returns holds for B.A.'s as well as virtually every other good or service produced. Having a B.A. is becoming a new normal minimum requirement for a broader number of jobs, some of which have not historically required this skill level. For example, 15% of taxi drivers are college graduates. These B.A. job requirements were not present previously, when a smaller minority (roughly one-in-five in the 1990's) of young job market entrants was college graduates and when the US economy was growing strongly.

Now things are different. Having a B.A. is becoming less distinguishing. This is in part why employers can be choosier and state that a B.A. is needed for being a receptionist or gofer. And why YA's with B.A.'s may wonder where the superior job prospects long-promised by parents and teachers have gone. Their jobs (and wages) may not be as bright as expected. As even more YAs receive B.A.'s, graduates' initial career expectations may need adjustment.

Politicians pushing programs that support more college graduations should recognize both the macro and micro consequences. These politicians should also endorse policies that increase job-creation so the more-numerous folks with college degrees can actually find fulfilling jobs rather than be a call-center automaton with a B.A.

National Defense and Security.  Examples of diminishing returns inhabit every large, bureaucratic institution. Perhaps the preeminent illustration is the federal government's expenditures for national defense and security. These expenditures are the single-largest non-entitlement expense in the federal budget. Remember the $600 toilet seats the Department of Defense purchased in 1987 (which in 2013 would be worth $1,231)? They're still buying stuff like that, lots of it.

In fiscal year 2013 the government's "all-in" defense/security budget is $1.6 trillion. This includes expenditures for the DOD as well as NSA, CIA and DOD intelligence budgets. This colossal sum is equivalent to spending $182.5 million per hour every hour every day. It is impossible to imagine that diminishing returns are not very much alive and well inside this gargantuan level of spending. After all, Defense Secretary Chuck Hagel called the Defense Department “bloated” in a 2011 interview.

How could we diminish DOD's diminishing returns? By not reversing the Sequester-based DOD budget cuts – sadly, last week Congress overturned most of these cuts. Also, "unify" the military and intelligence services by combining the Army, Navy, Air Force and Marines into one integrated service, something Canada did with positive results over 4 decades ago. And really change procurement practices so no more generals (or privates) sit on $1,200 toilet seats. Yet attempts to reduce our defense/security budget are invariably met with misologistic statements of misguided vitriol that often boil down to diminishing returns be damned.

the Mars Rovers.  NASA's budget has been repeatedly cut by the Obama administration, much to the consternation of its proponents and contractors. One of NASA's impressively successful programs – the Mars rovers –illustrates how budget constraints can force an organization like NASA to evaluate the net benefit of each of its programs in order to eliminate expenditures where diminishing returns may be present. The Opportunity rover has been operating far beyond its expected lifetime. Opportunity has slowly motored in the Martian soil for 10 years doing experiments. It was designed to work for 3 months; its annual operating budget is $14M. Curiosity, a much more capable rover, will complete its 2-year mission in June; its annual budget is $67.6M.

As they do every two years, NASA officials will soon conduct a review of the spacecraft that have outlived their original missions. For the 2015 fiscal year, which begins Oct 1, NASA faces some difficult choices. Opportunity may still be knocking, but NASA's fiscal guillotine may kill it as well as Curiosity and other "extended missions" (budgeted at $140M this year) that don't measure up in terms of returns. The Opportunity cost may be too high.  Although painful, NASA's biennial review appears quite consistent with a goal of maximizing returns from available funds. More agencies should conduct such program reviews.

The Major League Baseball season.  Following a long tradition, Major League Baseball's 2014 season will again be 162-games long. This year, spring training games begin on Feb 26. The season-opening game will be played on Mar 22 down under in Australia (who'd of guessed). US fans will see the Dodgers and Padres play on Mar 30. The season ends on Sep 28. The Red Sox won the last year's World Series on Oct 30; break out the Halloween candies. The full baseball season is thus 8 months long!

It may once have been America's national game, but really how many fans really want to wear down jackets and gloves to baseball games amid snow flurries in places like Minneapolis, Chicago, Boston and Toronto at the beginning (or very end) of the season? The 2013 season saw fan attendance drop slightly, compared to 2012. No surprise.

I have a suggestion; reduce the number of games in the season. A century ago, major league baseball teams were playing 140-game seasons, which seems far more reasonable (unless you're an owner or player). Don't you think that diminishing returns becomes well-entrenched even before 140 games, and certainly by the 162nd? Isn't baseball supposed to be a summer game? Shorten the season; reduce diminishing returns; make each game worth more.  

Nth-Stage Regulations. Regulations affecting our behavior surround our every move. New or revised regulations grow more numerous with every tick of the clock. A number of them are essential (like environmental and airplane safety regulations– although I'm not so sure about allowing cell phones to be used in a flying airplane), many others may be less indispensable. Safety regulations continue to be added, like having turn signal displays within a car's side mirrors that have diminishing marginal benefit than prior regulations. Should we stop augmenting regulations because we may have reached diminishing returns? That is a fraught question, and was behind rules that sometimes require cost-benefit calculations to be made before certain new regulations are enacted.

An example of an N'th stage regulation includes a mother who has petitioned the Food and Drug Administration to prevent American firms from using artificial dyes to color M&Ms and other candies. Her son apparently has a very rare, hyper-allergic reaction to such dyes but loves, really loves, this chocolate. So she has to buy European M&Ms for him that don't have "bad" dyes. She wants to stop Mars from using artificial dyes (as has been allowed by FDA regulations) in all US-made M&Ms, so she won't have to keep buying European M&Ms to keep her son's meals happy. Wow.

Corporate and Personal Subsidies.  Finally, there's the swampy morass of subsidies. However well-intentioned they may have been when inaugurated, subsidies are also subject to diminishing returns for those who pay them – us taxpayers. Subsidies here include not just tax breaks, R&D and price supports, but direct payments as well. In general, people and businesses believe government-provided subsidies are wasteful and unfounded – and offer unequivocal evidence of diminishing returns that they'd rather not pay for (and unintended consequences). That is unless you are receiving a particular subsidy; in which case it is wholly and forever appropriate. Subsidies are a fine example of fiscal beauty being in the eye of the beholder.

Illustrations are legion: mortgage interest subsidies for home-owners are estimated to cost $70 to $100 billion annually. Subsidies to the oil and gas industry cost an estimated about $4B a year – and have been provided for more than 80 years. Agricultural subsidies for producing food for livestock and humans are worth up to $35B per year, not including numerous US tariffs that raise the price of imported food. Renewable energy producers (like home-owners and businesses who have installed solar and wind energy systems) have received federal subsidies worth about $50B over the past 30 years – roughly $1.7B a year. Boeing recently used the threat of moving to a nonunion, low-wage state to win a record subsidy package – $8.7B from Washington State – to remain in Everett, WA.  

After one starts identifying government subsidies it's hard not to believe that virtually all consumers and businesses are receiving several sorts of subsidies. Justification for subsidies, especially for "infant industries" like petroleum and solar that haven't been infants for a long time, is ultimately not founded on economics, its politics. So it goes, despite diminishing returns.

Subsidies present a good case for introducing sunset provisions at the beginning of subsidy expenditures. After a specified number of years (say 10 for oil/gas and solar/wind), the subsidy would stop. In a variant of this idea, California's solar subsidy was designed to diminish over time and end when a specified amount of solar capacity had been reached. Such fiscal sunsets elicit howls of outrage from recipients, but would give them plenty of time to prepare for the day when they would have to survive without public fiscal support, saving taxpayers millions.

Having sunsets on solar (and other) subsidies is a good idea.


A JAN 29 ADDENDUM.  Here's another subsidy story, but with a twist. In 2012 Congress passed the Biggert-Waters Flood Insurance Reform Act, a law that rectified a significant taxpayer subsidy for homeowners in flood zones whose houses were damaged – not too surprisingly –when flooding occurred. The fund that provides payments for flood damage was $24 billion in debt after paying out megabucks for costs from Hurricanes Katrina, Irene, Isaac and Sandy. The new law was designed to have the folks who chose to locate homes in flood zones pay more for their flood insurance themselves; and as a consequence we taxpayers wouldn't pay as much in the future. Sounds good so far. Except when flood-prone homeowners received their new federally-backed flood insurance policies, they found premiums had risen, quite a bit, as they were destined to with the reform law. An example, a flood-insurance policy that used to cost $600 per year now cost $4,500. The flood-prone homeowners were incensed; and let Congress know how they felt about losing their subsidy. Guess what? Congress is now about to pass another law(with 180 sponsors)  that would block, repeal and/or delay the reform law. We unflooded taxpayers never had a chance.  
  

 

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[1] See Economics, by Paul Krugman and Robin Wells, (2nd ed.)Worth publishers, 2009.

 

AN ECONOMIC TOUR OF THE ENGLISH COUNTRYSIDE, STARRING DOWNTON ABBEY – ACT II

That is the thing about nature; there is so much of it. ~ Violet Crawley, Dowager Countess of Grantham

My first part of this tour (see here) recounted the centuries-old business model of the owners of England's countryside – landed-gentry like Lord Grantham of Downton Abbey – that was challenged by changing economics of the early 20th century. These changes had been building for a considerable time. Four (4) sets of events in the 19th and 20th centuries conspired to destabilize the steady world of the British aristocracy, including Lord Grantham.

First, Parliament passed the Corn Laws in 1815 that protected English and Irish farmers with significant tariffs on less expensive, imported grains, and thus raised the domestic price of bread and other agricultural products. Riots occurred in London and other cities after the laws' passage. The Corn Laws helped agricultural interests – that were squarely based on the landed gentry, including Lord Grantham's forebears – and who had reaped large financial benefit from an increase in land prices and agricultural products due to the Napoleonic Wars (1803-1815). But the emerging merchant/industrial class in England was strongly opposed to the Corn Laws because these laws kept the price of grain and bread high that in turn required wages to rise, so workers could afford necessities like bread.

After several decades of the Corn Laws and with the Industrial Revolution in full bloom in England, the balance of political power began to shift and these laws were repealed in 1846. The new "industrial elite class" had arisen. Grain imports into England from the US and other nations rapidly increased after repeal. England imported 2% of its grain in the 1830s, 24% in the 1860s. As a consequence, the British price of grain decreased by more than 30%. Britain's domestic grain producers (including most estate-based farms) could not compete with growers in Indiana, Illinois and elsewhere. By 1885, more than one million acres of domestic corn were withdrawn from production in England. Farm income for estates like Downton Abbey (DA) dropped greatly.

Lord Grantham does not seem to define his estate as acres of land subdivided into farms that produced foodstuffs. He mostly saw it as people whom he and his ancestors have taken care of forever. One doesn't dislodge trustworthy tenants simply to stay in business by dismissing them. In this sense, he obdurately went against the grain of modern agriculture. Furthermore, new, more efficient agriculture was (and continues to be) more capital-intensive – which requires more investment – something that Lord Grantham doesn't seem to have any talent at obtaining. Even if he could, he is not one to substitute cold capital for his honorable, loyal labor.

Second, the Panic of 1873 that included a stock market crash and a financial crisis added to the economic misery of investors (the landed gentry) in England and beyond. This bank panic created a deep recession and considerable poverty throughout Europe (and also the US) that reduced demand for agricultural products and other goods and services for at least 6 years. Both workers' and producers' incomes dropped as a consequence. This economic calamity, called the Long Depression, very likely added to DA's fiscal and personal woes.

Third, just as change in international trade patterns and macroeconomics were adversely influencing British estates' income stream, new residential technologies were emerging. Specifically, the telephone, central heating and electricity, not to mention the automobile, were altering what "comfortable living" entailed the late 19th and early 20th centuries. Abbeys, castles and manors built before the late 19th century – like Downton Abbey – required expensive alterations to incorporate these new standards of modern living. Just when Lord Grantham's wallet was less full, he had to pay a lot to keep up with the Lord Joneses.

Finally, there's World War 1, the "Great War". This 4-year conflict began in 1914 and killed about 15 million soldiers and civilians, including over 700,000 British soldiers. No one was spared its devastating effects, as we have already seen in DA. Beyond the horrific deaths and injuries, WW1 transformed the social order in Britain. The influence and power of the landed gentry were reduced. Not only were lords, prospective heirs and downstairs staff of the estates harmed and killed, but large numbers of those who provided service to the manors and abbeys never returned even if they survived the war. Instead, they cast their fates to new lives working in the cities.

Thus, by the 1920s the economics of many British country estates like DA had been inexorably altered. Very few were roaring at all; many were teetering on unstable fiscal ground. They needed an influx of income and capital as their traditional business model had been forever fractured.

After conducting contents auctions to raise funds, numerous estates were demolished. Indigent lords, like the 9th Duke of Marlborough (the first cousin of Winston Churchill), cast a wider eye and married wealthy American heiresses to finance and save their life style. In the TV show, Lady Mary's foreboding, nouveau riche marriage would have had a similar remunerative purpose; praise be for small emotional favors that it wasn't consummated. Fortunately, Matthew's unexpected inheritance from a far-away, forgotten uncle served the same, much-needed compensatory objective for DA.

With this backdrop, what will happen to DA in its 4th season? Will Tom take up the "modernist" scepter that Matthew held as necessary to insure DA's financial security? Will Tom thus consolidate the farms, dismiss many cottagers and ox-herds and watch Lady Edith operate one of the new tractors? Will Lord Grantham lie down across his driveway (but only after Mr Carlson has hurriedly placed a drop-cloth underneath him) to stop the dastardly tractors? Will Shirley MacClaine reappear having a change of fiscal heart and save the abbey with her foreign largesse? Does Lord Grantham head to London for a much-needed executive MBA at the London School of Economics? Will he pass the courses? And/or will the grieving Lady Mary toss aside her damp hankies and get her fingernails a bit dirty to revive her portion of the great, green English countryside as her dearly-departed husband championed? Tune in and find out starting on January 5. Onward to the past...