Consumerism Gone Awry
In case you hadn’t heard, we are in a recession. Job losses continue to mount, the credit crunch is still with us, the government continues to debate how best to throw our money at the problem to make it all go away. During this holiday season they are also encouraging us to behave like them as Fred Thomson so eloquently stated, tongue in cheek. We all know that in our consumer driven economy, the Christmas season makes or breaks a large number of retailers. If sales are good in December, they are in the black. If people are not buying, the red ink spills and with it the lifeblood of our economy.
A full seventy percent of our economy is based on you and I buying things, most of which we don’t need, things which will most likely be clogging our landfills in a few months. It’s an economy that is based on a house of cards, however. As Mr. Obama, whose understanding of economics normally encompasses socialist fallacies, correctly pointed out, if you and I stop spending a vicious cycle of job losses and decreased spending followed by job losses and decreased spending will result. In a consumer driven economy, if we stop buying as much, business stop producing as much, people get laid off and those people spend less and the cycle repeats until it reaches some stable point. This is nothing new, it’s called the business cycle. Business expands and contracts based on the market forces of supply and demand.
There are several things that make this time around different, however. One is the nature of our consumption. The expectation of the consumer today is to have the newest and the best of everything. It used to be that having a new car or new furniture or a new television or even a new phone was something that happened once in a while and therefore demand for the new stuff was stable because people had to save for it. Let’s say thirty percent of purchases were new things and most of them were produced here by small businesses. In a downturn those purchases are cut in half to fifteen percent. That hurts but it is not catastrophic.
Things are different now. Let’s say eighty percent of purchases are new items, it may be more. Easy credit offered by everyone makes these purchases available (and more expensive) to everyone and even though the television you bought two years ago works just fine you are dissatisfied with it because we are conditioned to have the best possible. More credit, more purchases, more credit, more purchases and at some point the credit runs out. People are stretched beyond their ability to repay and begin to default. Credit tightens and purchases slow. Now if we cut new purchases by fifty percent we drop from eighty to forty percent and people that bought new are not going to buy used now because the stuff they have is currently better than used, it’s just not the newest and latest. Easy credit for the purchase of new consumer goods is what brought on the great depression and we are in the same circumstances.
Had things been able to follow the natural business cycle in 1930, the depression wouldn’t have evolved into the Great Depression. What made that time and this, different, is government involvement. Business doesn’t like uncertainty and FDR and the current congress and administration are introducing a lot of uncertainty. Take the window company in Illinois where the employees sat in to receive wages owed. The company blames Bank of America for refusing to extend their credit to meet payroll. Now as a layman I understand that businesses need credit for some things; expansion, covering the expenses of large, unexpected orders, but weekly payroll? Isn’t that a little like us buying our groceries on our credit card and then blaming the bank for our hunger when we max out the card? If Bank of America looks at this business and doesn’t believe it will get its money bank, it is within its rights not to lend it, or it used to be. Now the government steps in and forces Bank of America to lend because Bank of America was forced to take government bailout money. So look at it this way. The government has taken our money and forced Bank of America to take it and lend it to a business that is not going to be able to pay it back. Does that make any sense to anyone?
Easy credit and our insatiable desire for new things created the crash of 1929 and 2008. Haphazard government intervention mad the crash of 1929 into the Great Depression. Unfortunately, I don’t think we have learned our lesson. In fact, our consumer driven economy and our attitude toward it and our government will make it much worse. If we truly measure our value by our ability to purchase things then the length we will go to to ensure that ability (and our worth) remains unhindered are frightening. As FDR showed us, the government is more than willing to step in and attempt to ensure our ability and the attempt to do so has demonstrated government’s complete lack of competence in the economic arena. Today, we are even more likely to look to government to solve the problem, to ease whatever suffering we think we have and the current crop of politicians from both parties are more than happy to step in and do what they can. All it costs is our freedom. Is the newest and best really worth it? If you think it is, read a book on the Soviet Union.
A full seventy percent of our economy is based on you and I buying things, most of which we don’t need, things which will most likely be clogging our landfills in a few months. It’s an economy that is based on a house of cards, however. As Mr. Obama, whose understanding of economics normally encompasses socialist fallacies, correctly pointed out, if you and I stop spending a vicious cycle of job losses and decreased spending followed by job losses and decreased spending will result. In a consumer driven economy, if we stop buying as much, business stop producing as much, people get laid off and those people spend less and the cycle repeats until it reaches some stable point. This is nothing new, it’s called the business cycle. Business expands and contracts based on the market forces of supply and demand.
There are several things that make this time around different, however. One is the nature of our consumption. The expectation of the consumer today is to have the newest and the best of everything. It used to be that having a new car or new furniture or a new television or even a new phone was something that happened once in a while and therefore demand for the new stuff was stable because people had to save for it. Let’s say thirty percent of purchases were new things and most of them were produced here by small businesses. In a downturn those purchases are cut in half to fifteen percent. That hurts but it is not catastrophic.
Things are different now. Let’s say eighty percent of purchases are new items, it may be more. Easy credit offered by everyone makes these purchases available (and more expensive) to everyone and even though the television you bought two years ago works just fine you are dissatisfied with it because we are conditioned to have the best possible. More credit, more purchases, more credit, more purchases and at some point the credit runs out. People are stretched beyond their ability to repay and begin to default. Credit tightens and purchases slow. Now if we cut new purchases by fifty percent we drop from eighty to forty percent and people that bought new are not going to buy used now because the stuff they have is currently better than used, it’s just not the newest and latest. Easy credit for the purchase of new consumer goods is what brought on the great depression and we are in the same circumstances.
Had things been able to follow the natural business cycle in 1930, the depression wouldn’t have evolved into the Great Depression. What made that time and this, different, is government involvement. Business doesn’t like uncertainty and FDR and the current congress and administration are introducing a lot of uncertainty. Take the window company in Illinois where the employees sat in to receive wages owed. The company blames Bank of America for refusing to extend their credit to meet payroll. Now as a layman I understand that businesses need credit for some things; expansion, covering the expenses of large, unexpected orders, but weekly payroll? Isn’t that a little like us buying our groceries on our credit card and then blaming the bank for our hunger when we max out the card? If Bank of America looks at this business and doesn’t believe it will get its money bank, it is within its rights not to lend it, or it used to be. Now the government steps in and forces Bank of America to lend because Bank of America was forced to take government bailout money. So look at it this way. The government has taken our money and forced Bank of America to take it and lend it to a business that is not going to be able to pay it back. Does that make any sense to anyone?
Easy credit and our insatiable desire for new things created the crash of 1929 and 2008. Haphazard government intervention mad the crash of 1929 into the Great Depression. Unfortunately, I don’t think we have learned our lesson. In fact, our consumer driven economy and our attitude toward it and our government will make it much worse. If we truly measure our value by our ability to purchase things then the length we will go to to ensure that ability (and our worth) remains unhindered are frightening. As FDR showed us, the government is more than willing to step in and attempt to ensure our ability and the attempt to do so has demonstrated government’s complete lack of competence in the economic arena. Today, we are even more likely to look to government to solve the problem, to ease whatever suffering we think we have and the current crop of politicians from both parties are more than happy to step in and do what they can. All it costs is our freedom. Is the newest and best really worth it? If you think it is, read a book on the Soviet Union.
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