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Wait, Why Are People In Debt?
The lame duck President said we have to give $700 billion to Wall Street
because if we don't even people with good credit won't be able to get loans for cars, college and
housing.
Um...
Why in the Hell do people who work every day need loans to by simple things like cars, education and housing?
The real failure here doesn't have anything to do with any capital
markets, the failure is that our government allowed an economy to
develop where the totally reasonable wishes of everyday workers have
been priced to the point where those workers have to go into debt to
get them.
Personal transportation, education, housing. Those all
strike me as reasonable desires that any person might have. If they
perform labor in the service of others on a daily basis, seems to me
like those three things should be givens.
The crisis right now
is not a credit crisis, it's a compensation crisis. People who work day
in and day out shouldn't have to borrow in order to meet basic
needs. The problem is that managers and executives take too much and they pay too little to the people who do all the work. Credit shouldn't be considered liquidity. Cash should be. For that, workers need to be paid more.
Comments (64)
Great point, Destor. Way to see beyond the limiting discussions out there. I'd add affordable, quality healthcare to your list---since so many Americans have lost their housing, transportation and money for education due to illness.
September 25, 2008 11:16 AM | Reply | Permalink
Short of rejecting the capitalist economy or making education, houses, and cars free, you're not going to get rid of debt, and you wouldn't want to. Let's talk housing because it's the clearest example.
A house (or in NYC, an apartment) is a very large purchase. There is simply no way for an individual without a trust fund or a lifetime of savings to pay for a house. Debt allows a young person or family to commit their future income to buy a house today. The alternative to debt is renting, which would cost more over a lifetime. In Europe, where it's a much harder to obtain mortgages, a much smaller percentage of the population owns.
Higher wages would not give anyone the money to buy a house because the cost of the house is astronomically higher than one's annual wage. Furthermore, higher wages would just drive up the cost of housing because good real estate is a limited commodity. The government could and, to an extent, does subsidize housing, but not to the point that you don't need credit.
Cars are similar but on a smaller scale, and the government does subsidize public transportation, though it should surely do more. I won't argue education because I think it should be heavily subsidized as in Europe (though the trend in European countries is to a more American model).
September 25, 2008 11:44 AM | Reply | Permalink
As Kevin Phillips points out in his excellent book, BAD MONEY, the notion of owning a home is hardly embedded in civilization. In fact, except for a very few English-speaking/related countries (England, US, Australia, and the Dutch), home ownership is the exception and not the rule.
Also: the notion of capitalism that you speak up, is very much tied into Western civilization. There is a form of capitalism that is evolving in Asia. It is different (as we all know) from that of the West, but no more or less "correct" than our current form.
No one should be going into debt to maintain a living. Financial planners will all tell you that a mortgage and maybe (just maybe) a car are the only reasons to go into debt. And the car should be a debt vehicle (no pun intended) only if you are buying modestly -- not for an SUV or a luxury or top-end auto.
September 25, 2008 11:56 AM | Reply | Permalink
A house, a car, and education of course. The three things that Destor mentions. I'm not talking about a credit card shopping spree. I'm talking about three fundamentals to the American way of life that are too expensive to pay for out of savings unless you're an old person with a lot of savings (or a young person with a trust fund).
You can certainly argue that people don't need to own houses and cars, but that wasn't Destor's point. He was arguing that we shouldn't have to go into debt to buy them. And if he has the ability to magically drop the price of houses by 90% (or raise wages by 900% without increasing the price of houses), than I agree.
September 25, 2008 1:21 PM | Reply | Permalink
Nonsense, There is good debt and bad debt. Depending on various specifics buying a home or a car could be either.
September 26, 2008 12:54 AM | Reply | Permalink
I agree that the normal everyday things that people need are priced way out of reach. That is because of exponential growth. Everyone wants to make more and more money. But we have to look at the root causes of this process that made these everyday needs out of reach for everyday people.
Do you think money comes from the mint? Backed up by gold or something?
As horrible as it is, debt is the vascular system that keeps our economy moving. If we all bury our life savings in the back yard instead of putting it in banks, if we never take out a loan for a mortgage, car or college - the whole system collapses.
I wish more people would watch this short documentary. In easy to understand terms, this feature explains how our economy works and how money in America is not backed by assets or gold, but debt. Every high school in America should show it.
Money as Debt
After watching, you'll have your first question answered "Why are people in debt" and will also answer a bigger question.
"Why is debt creation the lifeblood of our economy?"
September 25, 2008 11:50 AM | Reply | Permalink
Yep, that was a real gem from the Leader of the Free World......
September 25, 2008 12:04 PM | Reply | Permalink
Destor,
As usual, nice thoughtful post.
While I disagree with your notion that the government sets (or should set) the economy, I agree that the government in general, and this administration, in particular, has been telling citizens to behave in bad behavior.
A classic example is just after 9/11 where the Bush plan was telling everyone to go out and buy things.
Of course, the government leads by example and they can't control their budgets either.
Bush's statement last night was outrageous for a Republican to make: he implies the market isn't working because prices aren't always going up. That's garbage, of course. So instead, the government will prop inflated prices up on your home. Well, that's going to lock out people as well.
How does such an artificial market correct itself? Through inflation.
Case and point:
In Boston, which is an old city and where most building has long been done, it's difficult to find housing. So prices go up. In the early 90's, there was a real estate "crash" in Boston. Did prices go down? Nope... they remained fixed and houses eventually got "cheaper" by two ways:
a) inflation eroded the fixed price of the house ($400K simply became worth less and hence more easily affordable)
b) banks gave out junk mortgages allowing people to live beyond their means.
People should recognize that our government encourages us to be huge consumers (live beyond our means) and grow our consumer base (tax credits for having children).
As always, at some point, the next grain of sand on the pyramid give way to toppling it.
September 25, 2008 12:05 PM | Reply | Permalink
And of course the corollary to b) is the moral hazard created by the ability of lenders to sell their junk loans out of the back-door with good-as-government-bond ratings. No exposure, no incentive. Lather, rinse, repeat.
September 25, 2008 2:52 PM | Reply | Permalink
Destor23 - You just gave this debate the suplex/camelclutch it deserves. Debt is the problem here. Worshipping the credit score like Suze Orman is the problem here. Voluntarily accepting peonage to a bank is the problem here.
http://www.daveramsey.com/ [Dave's a huge conservative, but he's right on debt and how to care about people again and help them get their lives in order.]
maxedoutmovie . com
iousathemovie . com
pgpf . org
September 25, 2008 12:11 PM | Reply | Permalink
As a general rule, before debt only the relatively wealthy owned their homes and very few people recieved an advanced education. And, if everybody's wages were to go up enough to buy things without debt, then the price of everything would also have to rise to pay these higher wages.
There are some adjustments that we could make around the edges, but the concept of debt isn't going away because our economy depends on it. Heck, not even the government (who owns the printing presses) has been able to live within their means and since we all came down from Walton's Mountain, credit has been the name of the game.
September 25, 2008 12:29 PM | Reply | Permalink
Without this sort of debt structure, the redistribution of real property would not be possible, at least not without a radical shift in inheritance law.
September 25, 2008 2:55 PM | Reply | Permalink
The deficit spending mentality has trickled down to the working class. By setting a good example of paying down debts and being fiscally responsible, the government might encourage regular citizens to not spend beyond their means either.
September 25, 2008 1:01 PM | Reply | Permalink
Destor, another criticism. This buying houses and cars issue is a red herring. Personal credit won't be the biggest economy killer. It will be corporate credit. Businesses need credit in order to expand. To put it simply, no credit = no growth = no jobs.
September 25, 2008 1:25 PM | Reply | Permalink
Businesses do need a lot of interim credit. You need to be able to borrow money against receivables for example (receivables are unpaid bills -- your customer pays on the 30th but you borrow on the 15th so you can have the money now).
But that's not what Bush is doing. He's literally saying "Give $700 billion to Goldman Sachs or you're not getting a new car."
September 25, 2008 1:32 PM | Reply | Permalink
Thanks for the great comments everyone. I do agree with you who point out that debt isn't going anywhere. Heck, some debt is even productive. If you take on debt to buy an appreciating asset or to build something that's going to pay off in the future (like a new server for TPMCafe) then there's an argument to be made for it.
But I do object to the president being able to threaten people into this bailout by saying "they're going to take your student loans away!" which is what he's doing.
September 25, 2008 1:30 PM | Reply | Permalink
Well if that isn't mccainish flip-flopping, I don't know what is. Your post is all about how we shouldn't need no strinkin' loans, and now you're saying, ok we need loans, but it's not cool for Bush to threaten people about them. So your point is now that we don't need a bailout to avoid a credit crunch or that we do but that Bush is exaggerating/oversimplifying (shocker)?
Every economist that I've read believes that we need a bailout to avoid a recession, the biggest impact of which won't be that people won't have credit but rather that they won't have jobs. Where the economists disagree is whether we need the Paulson bailout plan. So Bush is not wrong to say we need a plan or else; he's just wrong to say, we need this plan or else.
September 25, 2008 2:04 PM | Reply | Permalink
A flip flop? A flip flop? I still think it's insane how little people are rewarded for full time work. Throwing money at potential lenders only exacerbates the problem. It potentially debases the dollar by hurting the country's balance sheet so it's potentially inflationary so even if it gets the credit markets working again, it might well stimulate more need for credit.
This is trickle down stimulus, basically. Do something to reduce people's need to borrow and the credit markets won't matter as much, then there'd be time for the banking industrym to fix itself, probably by taking writedowns and consolidating.
September 25, 2008 2:12 PM | Reply | Permalink
This isn't about stimulus. It's about market confidence and avoiding a deflationary spiral. Do something to reduce people's need to borrow? Like what? You're seriously oversimplifying fiscal policy. Do you realize how big an effect even a half-point change in the prime has on the economy? Please find some economists who share your view that we don't need to protect the banks from collapsing.
September 25, 2008 2:23 PM | Reply | Permalink
Genghis, here's an easy and free way to protect the banks for collapsing -- suspend mark to market rules so that the banks only have to take a loss on their debt instruments if the loss is realized. They're marking to a non-functioning market, that's the problem. This is why people believe that if the US takes equity positions in these banks that the government will eventually make money. Today's writedowns might be written up 2 years from now.
What they're doing with the $700 billion as its structured now is nothing but stimulus. It's a capital infusion.
As for reducing people's need to borrow you can change the tax code, you can limit exec comp, switch from a minimum wage to living wage laws, pass usury laws to better regulate consumer intrest rates and fees and in some circumstances you can even try price controls.
September 25, 2008 2:27 PM | Reply | Permalink
Oh and you actually pursue a strong dollar policy because weak dollars are inflationary. Everything Bush did to debase the dollar in the last 8 years is a tax that you and I pay with every purchase.
September 25, 2008 2:28 PM | Reply | Permalink
I don't know of anyone other than Steve Forbes who seriously advocates suspending mark to market. Criticism ranges from ineffectiveness (shareholders run anyway because no one knows the real value of the banks, leaving us where we are now) to calamity (foreign investors lose faith in the American system and dump dollars). If you've got a serious economist on your side, please link.
As for stimulus at the bottom, I'm all for it, but it should be done in conjunction with saving the banks.
But you really, really don't want to push a strong dollar in a recession, as it would exacerbate the credit crunch. Europe's recession was so long in part because they had such tight monetary policies. And you are surely familiar with the concept of a "deflationary spiral." That's what caused the Great Depression.
September 25, 2008 2:56 PM | Reply | Permalink
I'm just tossing around ideas with you... why do I need to link to actual economists? Seriously, didn't actual economists help cause this mess?
I know Bernanke says that you stop depressions by stopping bank failures but this is nothing more than a transfer of wealth from working people to Wall Streeters. This is awful stuff.
September 25, 2008 3:37 PM | Reply | Permalink
I'm not saying that economists are omniscient. I'm just saying that they're smarter than you and me. Sorry if I don't have confidence in the Destor-Forbes plan.
And to clarify, this is not about transferring wealth to rich people. It's about investing in banks to keep them from failing. So first of all, it's not a $700B donation. The government will not lose all its money. But it will probably lose some money because these are bad investments, which is why private investors won't make them.
Why would the government spend taxpayer's money on bad investments? Because unlike a private investor who's only investment concern is making money, the government has other interests, namely making sure that the economy doesn't collapse, which would cost the taxpayers much, much more than that $700B.
Look, this in not my expertise, so please spend at least a little time reading up on why a bailout is important. You can start with today's NYT explanation. If you take the attitude that the people who studied the economy have nothing credible to say about the matter, then you're just sticking your head in the dirt.
September 25, 2008 3:58 PM | Reply | Permalink
I think I'm up on the rationales behind the bailout. I'm just surprised that you actually believe that Bush and Paulson are actually trying to do what they say they're doing. I don't buy it. These guys have lied to us too many times. It's structured as a giveaway, it's a massive transfer of wealth and there's nothing in this that helps ordinary people.
Was the system about to collapse? So they say, so they say. I'm skeptical. The Resolution Trust Corp, where the government received equity stakes in S&Ls in exchange for taking on liabilities actually made money in the end. This time, the government isn't be compensated with equity. So there's no hope for a gain. That's just wrong. We should dilute the hell out of existing shareholders so that the taxpayers footing the bill get the majority of the equity benefit when this rebounds.
September 25, 2008 4:04 PM | Reply | Permalink
Two key points. One is that we don't want investment banks around. We don't want to save those banks. They're bad for the global economy. Anyone who doesn't understand this by now understands nothing. What does this mean? It means that the specifics of what the Federal government does know mean everything.
Paulson, et al., comes to the government and says, "We need an open account of $700B and we need total impunity in spending it. And we need it now." Section 6 of the original proposal says that they can have $700B outlying at any time.
We don't want to say Goldman to save Goldman. And I understand that Goldman Sachs and Morgan Stanley have agreed to become traditional banks, but that's neither here nor there right now. Goldman shouldn't be our concern. There are some 6,000 other banks that ought to be our concern. That's the implosion we should be worried about.
Second point, the one that no one is talking about: What if it doesn't work? You throw $700B at it, raise the debt ceiling to $11.3T, and the shit still hits the fan. There's too much hysteria revolving around this whole affair right now. The main thing is, this financial paper isn't worth squat. Everyone knows it. Printing $700B won't change that. The Bush bailout plan is a grab. It's the wrong thing to do. I'm not saying do nothing, but the plan stinks.
Flashback: Colin Powell goes to the U.N. Says Saddam threatens to destroy us. Says we don't have proof, but we've got this artist's rendition of what it would look like if we had it. Smoking guns. Mushroom clouds. We need total impunity to act now and save the world. Sound familiar?
The problems we're facing now are deeper than five investment banks. Any plan, any proposal, any move that is made that doesn't account for this reality is nothing but a waste of time and money. We're out of both.
September 25, 2008 4:10 PM | Reply | Permalink
Sorry, that last sentence should read:
September 25, 2008 4:12 PM | Reply | Permalink
All I know is that I'm printing out Genghis' quote & sticking it on my business card: "I'm not saying that economists are omniscient. I'm just saying that they're smarter than you and me." Nothing like a good crash to raise the reputations of economists, eh?
September 25, 2008 4:29 PM | Reply | Permalink
DF, as always you are one step ahead of me.
I'm surprised that people don't see the pattern that has formed in this country over the years: do nothing until crisis then panic and throw money at the problem.
This is not just an issue with the administration, it's endemic in our culture these days.
The bailout proposals sounds an awful lot like the Patriot Act we needed as well, correct?
September 25, 2008 4:50 PM | Reply | Permalink
Read this book, The Shock Doctrine by Naomi Klein.
September 25, 2008 11:18 PM | Reply | Permalink
I don't think the details of the compromise have totally come out, but I'm in the camp that says if it's a small ($150b) downpayment with room for Congress and the next administration (Obama) to fine tune it later, then I can probably give it my approval.
With everyone screaming like Chicken Little (including the Republican ticket), then the market will just tank if we do nothing and if we just throw $700b with no strings attached, then they'll just threaten the economy again in a few weeks to blackmail some more money out of our coffers.
My hopes are with the compromise because right now, it's our only hope.
September 25, 2008 5:51 PM | Reply | Permalink
Er... I meant best hope and I'm talking politically, but not necessarily economically. (I'm one of those who think a correction might actually be in order, but we wouldn't be able to do it before the election)
September 25, 2008 6:01 PM | Reply | Permalink
Guys, it's not Paulson and Bernanke that I'm trusting in my belief that we need a bailout, it's everyone else. WTF do I know? But heck, a quick google search gives me a bunch of economists who say that we need a bailout and a bunch who say that the bailout plan needs work but none who say that we don't need a bailout at all. So throw me a bone here. Who are you guys reading? What do you know that other people who have spent their careers studying this stuff don't? Why do you trust your own opinions on the matter?
September 25, 2008 4:55 PM | Reply | Permalink
Economics is an imprecise study to begin with. This is not physics. Economic models tend to have interesting intersections with reality -- but sometimes not. (See my real world experience with those lenders, below.)
Why, for example, would I now trust Krugman -- a man whose books I once bought -- after I've seen him twist things to favor a Hillary Clinton position over the past year?
When destor brought up a Forbes-like idea, you dismissed it because "only Forbes" was promoting it.
There is plenty of evidence to suggest that the S&L bailout may have encouraged the lenders to be irresponsible:
http://www.npr.org/templates/story/story.php?storyId=16734629
And, of course, I can show you instance where all the "wise people" sided in one direction only to be wrong.
I feel what's important on these boards to to ground arguments in reality, not on the positions of "experts". As FNC has shown, you can always find an "expert" to speak to any side of an issue.
Where experts are of value is to frame arguments and provide lines of thought -- but it doesn't mean their recommendations are based on reality, as Krugman's slippery slides have shown.
September 25, 2008 5:18 PM | Reply | Permalink
As far as I know, this is a forum for debate, not a knowledge free zone. Economics isn't perfect, and experts disagree, fine. So frame an argument citing quotes and articles from people who support your side, like any good debater.
But when you take a position citing nothing but your mistrust of those taking the opposite position, that ain't an argument. And Destor didn't cite Forbes or anyone else. I cited Forbes. I cited him because he's the only person I could find supporting Destor's proposal, and I derided him because he's 1) not an economist, and 2) an extreme supply-side conservative (which I doubt Destor supports).
September 25, 2008 5:37 PM | Reply | Permalink
Now you can begin to appreciate my dilemma when I talk about energy issues and energy policy.
Still and all, these economists are the very same people who got us in this mess to begin with. Much of what I see your statements to be are a reprinting of things you've read and have informed your viewpoint(I'm not saying this in a negative way).
But you haven't commented, for example, on my actual experience with these banks.
Economists, by and large are academicians. And that puts us into the realm of the spherical cow:
http://en.wikipedia.org/wiki/Spherical_cow
It's therefore a bit aggressive to claim you have a lock on the truth here.
September 25, 2008 5:55 PM | Reply | Permalink
You got it, G. I await your rejoinder.
September 25, 2008 6:24 PM | Reply | Permalink
Not hardly. There were several other things:
a) bad weather screwing up ag
b) a transformation from ag to manufacturing based economies for most people (remember, electrification happened in the 1920s)
c) loss of faith in societal institutions. I supposed you could claim that that contributed to deflation but recall that back then the dollar had real value and was backed by precious materials (gold standard/silver certificate, etc.)
d) a global crisis that prevented us from selling out goods overseas. Odd as it sounds, we were once a net exporter.
September 25, 2008 5:07 PM | Reply | Permalink
Yes, hardly. Those factors created and contributed to a deflationary spiral which caused the Great Depression. This is econ 101 stuff. Google: depression deflationary spiral.
September 25, 2008 5:27 PM | Reply | Permalink
You are arguing we must bailout to prevent another Depression -- my point is that there were other factors involved that a bailout won't fix.
September 25, 2008 5:37 PM | Reply | Permalink
Destor suggested propping up the dollar. I explained that tightening the monetary supply during a recession is a very bad idea. As one of my two examples, I cited the deflationary spiral which created the Great Depression. Again, this is econ 101.
September 25, 2008 5:54 PM | Reply | Permalink
You aren't going to build market confidence by throwing away the value of the dollar.
Remember how much of our debt China owns?
Remember how much they hoard their own currency?
You haven't globalized your thinking.
This is called a market correction: it's because prices have inflated beyond all reason.
The US is in debt (serious debt) -- and so that $700B isn't sitting in the treasury. It's being printed. Everyone knows it. That's why the stock market is deflating rapidly.
Once upon a time, with a sound, long-term, fiscal policy, the lower dollar would have brought back jobs to the US. Unfortunately, we have turned our economy into financial, rather than manufacturing, based.
Therefore, it will be hard to capture those jobs. Which puts us into double jeopardy.
It's time to tighten belts and pay for the sins of the irresponsibility. Printing $700B may do a number of things, but producing confidence is not one of them.
September 25, 2008 2:42 PM | Reply | Permalink
And I cannot recommend this Bill Moyers interview with John Bogle enough. It's a year old (for people like Ripper who seem to think no one was saying this would happen), but Bogle describes it perfectly. We transformed our society from one that creates value to one that just marks up value on pieces of paper and then trades that paper around. Now we've got a lot of paper. Oops.
September 25, 2008 2:59 PM | Reply | Permalink
One of my fellow bloggers at www.dagblog.com who goes by Deadman makes a good point about the mistrust of the rationale for a bailout.
September 25, 2008 2:15 PM | Reply | Permalink
Genghis,
I hope your new website is a success and I have no doubt you are excited about it's launch, but it's a bit weird to constantly be using TPM as it's launching pad.
September 25, 2008 2:35 PM | Reply | Permalink
This comment was an exception--Deadman is not on TPM, and I liked his post--but do you consider anything else out of line? It's not unusual for people to tout their own blog sites in the footers of their posts.
September 25, 2008 2:59 PM | Reply | Permalink
Honestly?
a) Usually people say things like "crossposted at www.xxx.com" and leave it at that. That's not what your footers do.
b) Usually it's not a group of people touting a site.
c) Because it's a group of people, it leaves the realm of "personal blog" behind and begins to look like a business (profit or otherwise).
d) I actually read your posts and comments -- unlike some of the more spamming types -- so I set the bar higher for you. ;-)
But that's just me. I'm not sure what the ultimate end-game you guys had in mind, but having essentially identical content with identical posters on another board looks like you have some dissatisfaction here. In which case, why not just strike out on your own?
These are personal reactions, of course, and I'm not attempting to tell you a course of action in the least. It just strikes me as your trying to advertise something that is more than a personal blog on TPM -- which is a bit odd.
September 25, 2008 3:11 PM | Reply | Permalink
I appreciate your honesty. I neither want nor plan to leave TPM. There's a community here that can't be replicated. The new site is not a business venture--there's no advertisement. We started it because we wanted the flexibility to control the environment (for example to be able to post images/media and see webstats) and because we wanted to write about other topics in addition politics. I suppose that it's more ambitious than most personal blogs in that there are three of us, and we are trying to grow an audience (though doesn't every blogger dream of an audience?) In order to grow an audience, you need google ranking and viral growth. That's why I encourage readers to digg at the bottom. I thought of it as simply getting help from my friends and readers, but if it's coming off as exploitation, then I'll rethink.
September 25, 2008 3:26 PM | Reply | Permalink
And thanks for your understanding that I wasn't attacking you personally! I would have preferred to put comments like that in a private email -- my goal, of course, was not to make you feel like I was chiding you in a public forum. But it takes two people to make that work, glad to have you as a partner here.
Good luck with the site.
September 25, 2008 4:20 PM | Reply | Permalink
I was just fascinated by the name.
Why not dagnabbit.com?
And if you leave G, will they change to dablog.com?
September 25, 2008 4:32 PM | Reply | Permalink
dagnabbit.com is not available. Along with just about every other url you can imagine, including dablog.com.
September 25, 2008 5:57 PM | Reply | Permalink
For me, Destor, if I look to the fundamental economic "restructuring" required, beyond financial issues... productive capacity ones... and how people get paid... I find the missing side of the ledger - consumption. Which is the black hole of modern economics (i.e. they pretty much take "preferences" as given.) Modern "consumption" is based on destroying people's independent means to meet their needs... then "meet" them, but only after being loaded up with fat... then pumped up by advertizing... and hyperstimulated by conspicuous/social comparisons... and then people encouraged to take on debt, with the extra interest that goes with it. No wonder we're all drowning. If the US WAS a corporation, surely to God we'd look at the expenditure side with less waste? Because if not, even if you clean up finance, and policy, and get exchange rates right, how are you gonna compete? Your workers are also consumers, and if they're only offered fatter means of meeting their needs... they'll do worse.
e.g. The average house today provides 4X the square footage per person than it did after the war. Footage that has to be heated/cooled, furnished, taxed, maintained, and interest paid on it all. e.g. The average car has 2X the horsepower that it did in the 80's. e.g. Modern education is an ever-extending endurance race that is based on escalating credentials - it's the only serious explanation I could ever find in my economics research, that you're staying in longer to get a limited in number credential. e.g. In most states today, 10% of residential load goes to automatic on "vampire" features for tv's, cell phone rechargers, etc. - that simple regulations can eliminate. e.g. Bottled water? e.g. Massive obesity from our foods. e.g. Our heating primarily comes from natural gas & heating oil, while Sweden has 97% heat pumps (in a colder climate) and Japan sells millions of air/air heat pumps. e.g. Funerals? e.g. Birth? It's all the same.
The point is that, once upon a time, self-sufficiency, or an emphasis on austerity, or on quality, or cooperative movements and mutuals, of the old Left of the New Deal, or Municipal enterprise in the UK, or even the old German Democratic Socialist parties - all aimed to CUT WORKING PEOPLE'S COSTS. They set up bulk-buying deals, they set up utilities, they kept down the conspicuous consumption madness - but they all CUT BILLS for people. I mean, would you rather be exposed to volatile heating bills every year, or to install one heat pump that would do the job for 20-40 years at a fixed cost?
But the Democrats have gotten lost in a world of debate around expanding "Wealth" or "Distributing" it, and they think this is "deep." The fact that every pound of Wealth comes laden down with 30 pounds of fat doesn't seem to even appear on their radar.
As Dean Wormer once said, "Fat, drunk & stupid is no way to go through life, son." Same thing holds for countries.
September 25, 2008 4:26 PM | Reply | Permalink
To take this a little further along the cultural tangent, we've been sold Isaiah Berlin's negative liberty with Ed Bernay's propaganda. We've been taught that freedom means being able to buy things we don't need, right now, with money we don't have. In the meantime, we've apparently lost appreciation for real freedoms, like the freedom of speech and freedom of movement. Hell, you can yank those right out of our hands with little protest, but watch people howl when they can't take their credit cards to the mall anymore.
Infinite exponentially increasing consumption is simply not possible.
September 25, 2008 8:48 PM | Reply | Permalink
Berlin. Bingo.
September 25, 2008 9:04 PM | Reply | Permalink
Yeah? Well, what about my right to sleep under the bridge? Let's have a little negative liberty, here!
And I'm saving a dry spot down there for poor Mr. Fuld.
September 25, 2008 10:10 PM | Reply | Permalink
For what it's worth:
I have started a small business. It actually produces things that are critical for improving life. I don't make iPods or other hand gadgets.
I can tell you about investments, venture capitalist, etc.
It's not what you read about in the papers.
Most VCs are scared to death. Many of even the biggies made a single investment that paid off handsomely -- and then people believe they have the magic touch. Bob Metcalf is one such glowing example. But there are plenty of others on Sand Hill road and elsewhere.
If you approached these people with a new way to save 1 penny on the manufacturing of a fork, they would pass you by. But try to sell them a time-machine: well, if your pitch is good, you can start backing up the Brinks truck.
Investment bankers make loan sharks look like soft teddy bears. They are piranhas with the implicit notion that if you want access to their money, you will be an indentured servant to them. If you are successful, you might be allowed to join the club.
All of these people are the ones hurting right now. They should be treated in kind. As I have been told be countless people in finance
Yes, there are. And now they can survive like the rest of us.
For what it's worth, money wasn't flowing around for investments in the past several years. It was being invested in *Chinese* businesses. And in software. Lots and lots of software. Because of low overhead capital costs.
And, by the way, I have created jobs. And been told by these same VCs to expect to scrap these jobs if they were to invest because they wanted to see them go to India and China.
The arguments you are hearing now, about how we just must save our banks by throwing money at them, don't wash with the reality that most any entrepreneur will be able to talk about.
Money was never easy and VCs and investment bankers weren't part of some grand patriotic scheme.
September 25, 2008 4:44 PM | Reply | Permalink
Remember that when it was just the little guys losing their meager 401k money we were told it was just a market correction. Remember that every time two companies merged, Wall Street insisted that there had to be big layoffs to insure "profitability." Remember that it has been Wall Street that has cheered all of the many main street layoffs during the last eight years. And now that some of them are getting laid off? We should bail them out? Why? Sorry guys, who cares? It's just a market correction.
I agree that the finance sector as it now functions adds no real value to our economy. I say let them crash and lets see if we can come up with a better way of life than we have managed so far. The American way of life is killing the planet.
September 25, 2008 6:02 PM | Reply | Permalink
To be sure there is evidence that productivity gains have gone to the richest Americans while the average American's wages have stagnated or gone down. This injustice is a large of the problem. But that is not the whole picture.
It appears to me that most people desire to live beyond their means. In the government, the finacial sector, and people's personal life everyone thinks they can get something for nothing. Like the Queen song, I want it all, I want it all, I want it all and I want it now.
I was raised in a middle class home. We had 2 cars, one for my mother to use and the other for my dad, but never once bought one new. My parents never went into debt to buy a car and as an adult I have never had a new car nor have I ever borrowed money to buy the used cars I drive.
We had one television set, one phone, that the whole family used. Today 66% of american households have 3 or more tvs. For what? People are borrowing money to buy big screen tvs and all sorts of other tech gadgets they don't need and can't afford. And then paying interest on the debt. As a country we're living beyond our means and attempting to hide from that reality behind a mountain of debt. From the average american, the wall street broker, to the members of congress each within our sphere of influence are wanting it all and wanting it now. And getting it leaving behind a mountain of debt.
Quite frankly I have no sympathy for anyone with a brand new car, multiple tvs, cell phones for every member of the family, tons of do-dads and gadgets in their house most bought on credit who can't afford their damn house mortgage.
The reality is most of us can't have it all and can't have it now. We have to pick and choose and we have to save to get it. Any attempt to escape that reality with massive debt is bound to fail in the long run.
September 25, 2008 7:56 PM | Reply | Permalink
Oceankat: we finally found something we agree about wholeheartedly!
September 25, 2008 9:45 PM | Reply | Permalink
Ditto.
September 25, 2008 10:29 PM | Reply | Permalink
Granted, this story is six months old, but I gotta, I just gotta, ask Genghis if he thinks we should be shelling out $700 billion so Ms. Moore can get her loan.
A 26-year old woman who started an asbestos removal company six years ago, who doesn't own a house but did buy a used car, who has never taken a salary "because I always have to make sure the crew is paid first," thinks that she's entitled to a $250,000 line of credit.
The security being offered? Who knows. Her repayment plan? God only knows. Maybe a contract she might get in the future?
It isn't "lenders' credit woes" that's at the root of the denial, New York Times! It's the three C's: character, credit, and collateral. Ms. Moore may be a wonderful person but any loan officer who based on that story gave her $250,000 would be nuts.
September 25, 2008 8:05 PM | Reply | Permalink
Co-sign. Big time.
September 25, 2008 9:46 PM | Reply | Permalink
Destor,
On your big general point about consumer credit culture, keep in mind the reality of what it was like without it. I'm not getting into disagreeing, because in the end I don't know what my opinion is.
But I'm a boomer, and I remember what it was like for my parents, and even for me when I was a kid and a teen. Forget houses and cars. If your TV broke, you didn't have any TV until Dad could scrape enough together out of the paycheck to pay for a repairman. If you ran out of cash before payday, you had to borrow $10 from your daughter's babysitting money so you could get gas for the car to get to work. If you didn't save enough for school shoes for the kids, and you couldn't afford to buy them at a fancy department store with revolving credit, they didn't get any. If you moved and needed curtains on the windows, you couldn't have them until you got them off of "layaway." they didn't get any. If the kid needed glasses, it had to wait until you could afford them.
Before consumer credit, it wasn't the case that people had all their needs met. It was the case that they did without until they could afford, and suffered in the meantime.
Granted, it has grown way way way out of control. (And here I'll throw in tech junkies as the worst...no one needs an I-phone, and planned obsolescence is back with a vengeance--the move from music tapes and records to CD's to I-Pods happened in a wink of an eye, and we don't really need a stinkin new Windows version every few years.)
I was lucky, at 16, I got a part time job waiting on tables with fantastic cash tips which did not get reported. I would have never been able to afford to go to (state) college without that job all through college, even though I got one of those newfangled college loans. There was a limit on those loans according to your parents income, the way need was figured was very coarse and unfair, and they weren't anywhere near enough.
One thing consumer credit gave people is the power to do things the upper classes always had power to do. I think if you talk to "greatest generation" folks and ask them if life is better for average folks than in the 1950's, most will tell you it has been. And I'll throw this in there, as I think it relates--as for the "we've got to produce more" harange, how many people you met from that era say "I wish my kids went to work at in a factory line like I did"?
September 26, 2008 3:17 AM | Reply | Permalink
Those are great points, aa.
But you know, we do produce more than the Greatest generation ever did, productivity has gone through the roof over those decades. Earnings didn't keep pace, that's the problem.
September 26, 2008 9:08 AM | Reply | Permalink
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