Tuesday, October 28, 2008

Consumption

Consumption [14th century. Directly or via French< Latin consumere "take up completely" < sumere "take"]
1. act of eating or drinking: the eating or drinking of something, or the amount that somebody eats or drinks;

2. act of using something up: the use of natural resources or fuels, or the amount of resources or fuels used;

3. consumer expenditure: the purchase and use of goods and services by consumers, or the quantity of goods and services purchased;

4. wasting disease: any condition that causes progressive wasting of the tissues, especially tuberculosis of the lungs.



With all the taxpayer money being poured into banking and financial institutions, many might have thought by now that the bubble would be discernibly re-inflating, like a water mattress beginning to rise from its senescence. Alas, deflation is a grim reaper, and it's not at all clear that this particular inflatable toy has the desire to be be blown back up.

Consider: two-thirds of the American economy is based on consumer spending. Sixty-six percent of the economic activity of this nation consists of people buying things from other people with something to sell. "Consumers" - as we are now called - never had that many trillions of dollars to spend: since the 1980s - call it "morning in America" - when our economy became consumption-based rather than production-based (coinciding with the peak of U.S. oil production, and the cessation of our own ability to power our economy), the personal savings rate has steadily declined until it went into the negative just over a year ago. Anyone who watched this decline was keenly aware that the end was nigh: an economy based upon debt-driven consumption could not be continued indefinitely with a populace that was spending more than it was earning. Anyone with eyes to see (apparently not Alan Greenspan, in spite of his Coke-bottle glasses) knew that a reckoning was nigh.



The effort by our GOVERNMENT to "recapitalize" the banks is essentially an effort to prime the consumption pump. They are hopeful that the banks will begin lending again - using the money of taxpayers (or, more accurately, the taxpayers of the future, since it will be our children and theirs who will be paying for this largesse) to encourage more indebtedness in the form of new home mortgages, new car loans, new consumer debt. The problem is twofold: the banks are unwilling even to spend money that's not theirs (they're making a nice killing on the spread, thank you very much), and the "consumer" is not asking for the money. Their houses are worth less than the amount they owe on them (or they fear that will soon be the case); their jobs, ever precarious, now seem deeply fragile; a level of common sense has arisen from our crisis, as they are beginning to see with new eyes that wanting something is not the same as needing something.

An article at Salon.com notes the paradox: our public policy to promote renewed and deeper indebtedness is a perverse and self-destructive policy goal. Our GOVERNMENT is seeking to encourage us not to govern our appetites, but to spend our way out of this deflation. There is even new talk of a new "stimulus" package, given that the previous handouts (oops, "rebate checks") proved to be a failure to the extent that "consumers" saved the money and didn't spend it on plastic gimcracks and elective cosmetic surgery. If the government succeeds, it ultimately fails, as my Georgetown (Law Center) colleague Adam Levitin has pointed out:

The U.S. economy is fueled by consumer spending. In order for the economy to grow, consumer spending has to grow, and consumer spending is fueled by debt. Consumers largely spend not out of current assets or current income, but out of future income. Consumers are able to do this because of their assumptions about their current assets -- especially their retirement savings. Unfortunately, consumer behavior for the past seven years has been shaped by the unrealistic expectations formed in a bubble. Consumers have saved less because they thought they had a bigger investment cushion. This sets us up for a retrenchment in consumer spending, which is exactly what Treasury does not want to see. In order to keep consumer behavior the same, Treasury needs to reinflate that bubble. But doing so just sets us up for another crash.

General consumer financial health would be helped by a shift to greater savings. But any shift will cause a short term contraction in consumer spending, which will mean economic pain for a while. This is a bitter pill to swallow. But it might not be as bad as the alternative, namely the economic effects of consumers becoming so overleveraged that we see massive defaults on all sorts of debts.


To become more economically sound, we will have to cease "consuming" so much - saving for a future rather than spending what we don't yet have. It is arguable that human culture exists to turn us from instinctual profligates into savers: culture is an informal grand-marm who reminds us that the future is our eventual present, a sure knowledge that comes from the past. It is the hard won habituation of ingrained thrift over instinctive profligacy (or its cousin, gluttony). By contrast, our "culture" actively encourages us to embrace these vices. Our liberal civilization was premised upon a rejection of such hard-won forms of cultural formation, and was based rather upon the demand that we acquiesce to our worst instincts of living in the present. Only by discounting the eventual reality of the future - by staying slightly behind it - could the grand self-deception be perpetuated that we could live in obliviousness to our future present. Our retirements were to be assured by "investing" in markets that were sure to return 10% a year in spite of the fact that overall economic growth runs at about 2-3% and inflation at roughly that same amount. In the meantime, we were to accumulate all our heart's desires, certain that the American dream was an everlasting slumber.

Will we have the discipline to live poorer, to become citizens ("ruling and being ruled in turn") rather than aspiring again to be defined most fundamentally as consumers? Will we govern ourselves better than - even in spite of - our GOVERNMENT? Will we have the capacity to joyously live within our means, looking not to our 401Ks for our future security but to our own resources, our capacity to live by thrift and restraint, counting on our children, our families, our friends, our communities - as every civilization but ours has done? Will we again realize that children ARE our future, not because they are tools in the grand international ponzi scheme, but the continuity between the past, present and future - the bearers and promise of culture? As long as we remain focused on the state of our portfolios and our purported material wealth, we will be governed by a GOVERNMENT that we deserve (no matter what happens on election day) - a GOVERNMENT that seeks to make us ungoverned. If this rupture in the fabric of our assumptions shakes us into a recognition of the truth of human life - of what matters - we will bless this moment as one of liberation, the inauguration of a time of true self-government, and thereby gain the discipline of freedom.

2 comments:

Brandon Chase said...

Our culture has caused definition #3 to turn into #4.

Henry said...

Right on. I just stumbled across this piece while looking for G.K. Chesterton's What I Saw in America.

What you say is all quite true. The road of higher savings though is a difficult one. It may turn out even to be impossible. Our entire economy (thanks to years of government stimulus and encouragement of indebtedness) is geared toward the expectation of ever greater inflation, debt, and economic stimulation.

If we experience significant deflation our economy is likely to go into a catastrophic death spiral (great depression or worse). The only way out of the current situation is to follow our past policies to their logical conclusion. That is, to perpetrate a hyperinflation. This alone can erase our debts and give us a fresh start.