I don’t know about the rest of you, but I personally did not fully appreciate how much our economy is dependent on consumer spending until I read books like Affluenza, or watched movies like Maxed Out . I’d never heard anybody in the mainstream media come out and say “by the way, you the consumer need to buy ever-increasing amounts of stuff each year or else our economy will fail”. But I’ve noticed that since the economic crisis hit mainstream media they’re not even trying to hide that fact. Witness the intense coverage of retail sales over the Christmas holidays, as the media desperately hoped we’d all spend more money than last year, even while broadcasting daily reports of how bad the financial situation is and how it’s only going to get worse. Did nobody see the contradiction in this? We’re headed for tough financial times, so go out there and spend, spend, spend…?
It’s crazy, but true: our economy apparently depends on people buying more stuff each year than they did the year before. How does anybody say this with a straight face? You don’t have to be a genius to realize it isn’t the least bit sustainable. I mean, how can growth continue indefinitely? For one thing, our planet has a finite amount of resources (see The Story of Stuff for a good illustration of how this relates to consumerism).
But what’s even more crazy about using consumer spending to determine our economic health is that we apparently don’t take into account whether the consumer is spending money they have earned or money they have borrowed. As it turns out, borrowing money is considered to be a consumer purchase because you pay interest to the lender. Thus, buying with borrowed money produces more economic growth than buying with your own money, and don’t think the system hasn’t figured that one out yet. If you doubt this connection, consider that we’re coming out of several years of booming economic times and yet consumer debt is at record highs and personal savings at record lows.
When you are a single consumer and you overextend yourself the result is personal bankruptcy. But when you are a government, what happens when you effectively do the same thing? The United States is carrying a frighteningly high amount of debt, and this is after years of boom times. Now they are arguing over how many billions to give to the auto industry but where are they getting this money from? They are borrowing it (they sell bonds, mostly to foreigners)! Isn’t this “solution” the equivalent of trying to pay your overdue bills with credit cards?
It begs the question: how is the US government ever going to get out of this debt, and how much more debt can they possibly take on? I’m beginning to feel like the United States is one of those folks you read about in debt counseling books who rack up credit card debt, pay the minimum balances, and kid themselves into thinking they’ll be okay until that one day when it all comes crashing down. It doesn’t seem any different than the sudden, almost-overnight collapse of multibillion-dollar companies like Citibank and Lehman Brothers. Is it a stretch to predict that the government could wake up one day and discover that it’s broke?
While the tone of this post may seem negative, I was actually inspired to write on this subject today because of some positive things I read and heard recently. First, I came across this blog post and I’ll quote the part that made me feel hopeful that not everybody is crazy:
I couldn’t understand how I, who was making about the median wage for the area in which I was living, couldn’t even come close to comfortably purchasing a home, while families (not individuals, but families) whose gross net income could not have been much higher than mine at the time, were out purchasing four-bedroom McMansions so that they could park their two cars–one of which was obligatorily an SUV–in the driveway…That’s when I found the one-word answer to the dilemma: Debt. In fact, it was insane, “you’ve never seen anything like it” levels of debt that individuals/families were taking on without seemingly the littlest regard for a strategy of how they were going to ever pay it back. Everyone (and his two-year-old son and pet cat Wheezer) was going into debt at a rate that I just knew was not sustainable.
And then I stumbled across this YouTube video that introduced me to Peter Schiff. Finally, someone in the mainstream media who is talking sense! (forgive me if this guy is a well-known character; I don’t have cable and I rarely ever see programming like this, I just liked what he had to say here)…
I probably don’t need to remind you, dear readers, that the sensible thing to do in both good and bad economic times is live frugally, don’t spend more than you earn, and make sure to put aside some savings. Let’s just hope the governments will figure this out before it’s too late.
edited to add: I’ve just rung in the New Year watching Peter Schiff videos on YouTube. I can’t tell you how refreshing it is to hear someone tell the simple truth. I would highly encourage anybody who is frustrated with the current economical system to take some time to watch… It’ll cheer you up!