A rounding error with a grocery list
It starts and ends at the fridge
Sam. You know Sam right? She’s the star of the show - or so she thinks. I have a different opinion. She’s highly intelligent, but kinda short on attention. I’m happy she talks to me about the markets because it gives me a never ending source of counterfacts to debunk and to build articles around.
And for that alone: THANK YOU SAM!
(links to previous articles at the bottom)
and yeah bear, she’s real 😎
Sam has a theory, and the theory is that you don’t matter.
Not you-you. You as in the ordinary person with a job and a fridge to fill and a pair of shoes going at the heel. Sam says the economy doesn’t really notice whether you’ve got money. Food and clothes, she says, that’s only a tiny little corner of the whole thing. The REAL economy is upstairs you know? Government spending, the enormous flows, the trillion-dollar deals nobody at your pay grade ever lays eyes on.
But you are just a rounding error with a grocery list.
I countered that consumer spending is around 70% of GDP. Seventy. Everything else - government, business investment, the famous trillion-dollar deals - fights over what’s left.
“Okay, fine”, she says. “Seventy percent. But satellites are in there too, so it can’t be right”.
They are. Hang on to that one.
Then she played the Engel coefficient. Which I had to go and look up because I thought she meant the bloke who co-wrote with Marx. Wrong bloke.
Ernst Engel, Prussian statistician, 1857, no S. His law is one of the oldest things in economics: the richer a household gets, the smaller the slice of its budget that goes on food. Not the amount, the slice.
So Sam’s argument arrives fully formed. The Engel number says food and clothes are a sliver → the sliver doesn’t matter → therefore the economy is mostly the grand stuff that has nothing to do with you.
Tidy.
And upside down, in a way that takes rather more than 280 characters to flip back. Which is the actual problem here, because if it doesn’t fit in a tweet Sam doesn’t read it, and she’s up 30% on her stocks and not currently shopping for reasons she might be wrong.
So this article won’t be for Sam.
It’s for you.
I think I’ve drawn the whole machinery already multiple times before. All from different “Engel”s.
Workers earn, workers spend, the spend becomes someone’s revenue, the revenue pays the workers, round and round it goes. Cut one wire and the lights go out. Not doing that again today.
Today is narrower. I want Sam’s two best cards, the satellite and the Engel number, and I want to show you they’re the same card.
So you could counteract your own Sams.
Step 1: the satellite. (🎺 tataataaaaa 🎺)
She’s right… it’s in the 70% of “consumer spending”.
I mean, a satellite costs a fortune, and somebody has to pay that fortune. The payment is counted as spending, and so the spending is counted (in the GDP).
Grand.
Now the only question that matters - why does the satellite exist at all?
Because someone, somewhere down the line, is betting you’ll pay for what it does. The signal on your phone. The little voice telling you to turn left in half a mile. The weather. The telly. Or the state builds the military one and pays for it by taxing... you, on the way home with the phone signal.
Pull the thread on any enormous expensive thing and it comes out the far end as a person buying something they wanted.
Every. Single. Time.
This has a name. Derived demand. No1 actually wants a satellite - they want what it beams down. The satellite is just the means, wrapped in titanium and launched into orbit so everyone can forget that someone somewhere just wanted to watch football.
And it runs the whole way down. Every link in every supply chain, however many trillions deep, however many invoices stacked on invoices, ends at a final buyer. A household, or a government living off households.
There is no hidden floor where the money simply circulates among serious people and never has to touch anyone with a grocery list.
Even her stocks. A share price is the discounted value of a company’s future sales, and sales run downhill to a consumer every time.
Buy Nvidia and you’re betting the hyperscalers keep spending, which is a bet AI pays its way, which is a bet that someone out there buys what the AI makes. And there’s no second customer base waiting in the wings to do the buying.
The whole tower she’s dazzled by is a stack of IOUs, and every last one of them is payable, in the end, by the rounding error with the grocery list.
THAT is her satellite.
Now Engel, which she’s holding by the wrong end.
Food is a small slice of a rich person’s budget. Completely true. But she skipped the load-bearing word, and the word is rich. Food is small because the person is rich. It's like a fully automated factory reporting zero workplace accidents and applying for a safety award.
China. In 1978 a rural household there put 67.7% of everything it had into food. Two-thirds of the lot, just to eat. Last year it was 29.3%. That fall, two-thirds down to under a third, is the cleanest picture of a country getting rich that exists anywhere on a chart. Forty years of Engel’s law running forwards.
So now: run it backwards.
Let’s do it for Sam shall we? Because she never does… I mean, a tweet has no CTRL-Z on her memory.
Engel’s law is a ratio and ratios go both ways. Income up, food share down. Income down, food share up. Simple enough that even Sam could grasp it.
But she’s only ever looking at the half that flatters her.
So let’s take the income away and watch what people drop. Not food, they can’t. Everything stacked on top of it goes instead. The restaurants, the holidays, the streaming and the new phone and the gym and the thousand little services that happen to make up nearly half of everything a consumer spends. Services are about 45% of the pie and also the most cancellable thing in it.
So the higher-order economy doesn’t ease down gently in proportion as people get poorer. It caves in. And the sliver Sam keeps brushing aside, food and clothes, swells straight back up to swallow the budget. Nobody’s eating more. There’s just nothing left over for anything else.
The Engel number she’s waving at me is a photograph of the precise world she says we can do without. A snapshot of mass prosperity, held up as proof the prosperity was never the point.
Derived demand says everything above food and clothes only exists because ordinary people could afford to reach above food and clothes.
Engel-in-reverse says that everything above food and clothes is the first thing to go the moment they can’t pay for it.
One is telling you what holds the tower up.
The other tells you what falls off it first.
So Sam has the whole thing flipped. She thinks the grand stuff up top is the solid part and food and clothes are the bit she can safely wave off.
Backwards.
Food and clothes are the floor, the last spending ever to go, because it physically cannot. The satellites and the market caps are the penthouse. Lovely view. Only standing because of the people downstairs, and the first thing to come down the moment those people can’t afford to hold it up.
Which is Sam.
Near the top of a very tall building, leaning over the rail, pointing down at the foundations, telling me with total confidence that they're decorative.
Previous articles:
Sam's perspective matters, because it is the perspective of the oligarchy. It is the assumption that underlies the Great Reset and the NWO---that the useless eaters are the disposable part, that only the Epstein class and their service personnel need to be kept.
And you managed to quite succinctly expose the fundamental error underlying it.
The Honest Sorcerer on AI eliminating paid-jobs:
The AI Takeover Has Arrived...but it looks completely different from what we imagined
The economy shrinks 10-15% to match the new supply-demand balance created by a lack of vital physical inputs on one side, and a lack of purchasing power on the other. Prices, trade flows and production volumes eventually stabilize, but at a permanently lower level. And while growth might eventually return, it will be wholly inadequate to raise economic activity back to its pre-war, pre-AI levels. Historians looking back on 2025 will say: that was the year when we passed peak global economic activity.
https://thehonestsorcerer.substack.com/p/the-ai-takeover-has-arrived