Another Basic Point about the Economy, or Today’s Downer

Do You Want to Know the Real Problem with Our Economy?

I’ll answer that rhetorical question right up front: no, you don’t. Because, fundamentally, what we consider our current high standard of living is based on almost everybody being consistently stupid, selfish and greedy. If too many Americans started acting reasonably, generously and with prudent frugality, our economy would collapse.

Don’t believe me? First, let’s establish, if there’s any doubt, that we all tend to act like idiots when making economic decisions. Looking in the paper this morning, I see ads for Ford F-150 trucks – common, heavy-duty pick-up trucks that you might assume your local contractor and plumber might buy. The list price for a basic F-150 is around $18,000 – reasonable, I suppose, if it’s a necessary tool for your job. However, in the paper, the prices for F-150s run from $40,000 to $60,000. You might imagine these trucks are fully equipped with some sort of specialized equipment do some specialized job, but you’d be wrong – they’re just ‘tricked out’ with fancy rims, bigger engines, premium sound packages, cool paint jobs and so on. They are not being sold primarily to people who need a truck for work, but are instead targeted at people who want to look cool from a couple of feet higher up than lowly sedan drivers.

So, to recap: there’s a large group of people who will spend an amount about equal to America’s per capita annual income for upgrades to a truck they almost certainly don’t need, since it’s unlikely they’ll do anything in that truck they couldn’t do just as well in a $15,000 sedan. For the next 5 to 7 years, they will be paying hundreds of dollars a month extra to drive the tricked out truck.

And this is just an example. Even if we accept the premise that a necessary part of having a good life is having lots of stuff, we’d still find that huge sums are spent and huge debts incurred by just about everybody to buy stuff that it would be a stretch to claim they even really wanted. The 28th T-shirt. The 3rd car. The extra 1200 square feet of a house that 2 people are going to live in. A back-up bag of potato chips. Yet another pair of shoes. And on and on, in big and small ways, we voluntarily, eagerly, wed ourselves to stuff.

Make no mistake: if this sort of spending declined significantly, let alone stopped, the economic activity in this country would seriously contract. Consumer spending is about 2/3rds of the economic activity in America. If people cut back just 10% on their spending, that would cause at least a 7% decline in economic activity – which would be a major recession, the largest since the Great Depression.

So, think about it: if you’re like me – and the well-studied purchasing patterns of Americans strongly suggests you are – you have a huge collection of stuff that someone a) paid good money for; and b) you have hardly ever used, if at all. Off the top of my head, stuff I’ve got but rarely if ever use include clothes, musical instruments, books, DVDs, tools, hardware, lumber – thousands of dollars worth. Not to mention the extra thousand square feet of house I felt I needed in order to have a place to put this stuff – the garage is full, the closets are full, and we pay over a hundred dollars a month for a storage building.

The American economy is built on this pile of junk. No wonder it is tottering! If we all, in a moment of blinding clarity, chose simply not to buy any more stuff that’s just going to get added to the pile, entire industries would cease to exist and millions of Americans would loose their jobs. This is the true nature of our current ‘credit crisis’ – as a nation, we long ago reached the point where we spent every penny we earned, and now spend even the money we haven’t yet earned, particularly via credit cards and home equity lines of credit. No wonder the politicians are in a tither to get the credit markets ‘unstuck’, so that we all can eagerly resume burying ourselves beneath debt and the junk we bought with it. Because, if we don’t, the economy as we know it is GONE. DEAD. OVER.

Let’s recap again: Americans, as any marketing guru can tell you, buy an awful lot of junk they don’t need, from Super Sized meals to vacation homes, to the tune of hundreds of billions of dollars each year. As any retail banker or financial adviser can tell you, we go deeply into debt to buy this junk. Yet, if we stop, as all our Senators and Representatives and Treasury and Fed officials and Wall Street bankers are telling us between the lines, the economy collapses, industries shut down, millions of us lose our jobs and can no longer buy anything.

So, like I warned you up front, you don’t really want to know what the problem with our economy is. But it’s even worse: the hidden cost of all this junk and debt is nothing short of our freedom. We Americans are, in effect, selling our freedom in exchange for stuff we don’t need. We accept years of labor and economic insecurity in exchange for a better car, a bigger house, more clothes, fancier food, and so on. Then, instead of being free to do what we want (if we only knew what we wanted!) we work until we can work no longer to maintain the illusion of freedom that buying stuff gives us.

Put this another way: how many working people do you know who have no credit card debt, money in the bank, and plans for an early retirement? If you know any – I don’t – compare that number with the number of people you know who have lots of credit card debt, a home equity line of credit, little if any savings, and who have no idea how they will ever be able to afford to retire, or even if they ever can.

I rest my case.

Author: Joseph Moore

Enough with the smarty-pants Dante quote. Just some opinionated blogger dude.

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