Robert Reich: From Consumers to Commons

[marmar]

from the American Prospect:



From Consumers to Commons

Consumer spending is unlikely to return to the levels it once reached, and so the economy will not recover until the government finds ways to invest in the common goods we all share.

Robert B. Reich | January 26, 2009


Not long ago, I was talking to someone who once had been a deficit hawk but had been turned into a full-blooded Keynesian by the current recession. He wanted a stimulus package in the range of $500 billion to $700 billion. "Consumers are dead in the water," he said fervently, "so government has to rev up the economy so they'll start buying again." I agreed. But I didn't tell him that his traditional Keynesianism is based on two highly questionable assumptions in today's world and that Keynes' underlying logic inevitably leads us toward something bigger and more permanent than my friend has in mind.

The first assumption is that American consumers will eventually regain the purchasing power needed to keep the economy going full tilt. That seems doubtful. Median incomes dropped during the last recovery, adjusted for inflation, and even at the start weren't much higher than they were in the 1970s. Families went on a spending binge over the last 30 years despite this because women went into paid work, everyone started working longer hours, and then, when these tactics gave out, went deeper and deeper into debt. This indebtedness, in turn, depended on rising home values, which generated hundreds of billions of dollars in home-equity loans and refinanced mortgages. But now that the housing bubble has burst, the binge has ended. Families cannot work more hours than they did before and won't be able to borrow as much, either.

The second assumption is that, even if Americans had the money to keep the spending binge going, they could do so forever. Yet only the most myopic adherent of free-market capitalism could believe this to be true. The social and environmental costs would soon overwhelm us. Even if climate change were not an imminent threat to the planet, the rest of the world would not allow American consumers to continue to use up a quarter of the planet's natural resources and generate an even larger share of its toxic wastes and pollutants.

This would be a problem if most of what we consumed during our binge years were bare necessities. Instead we binged on stuff. And surely there are limits to how many furnishings and appliances can be crammed into a home, how many hours can be filled manipulating digital devices, and how much happiness can be wrung out of commercial entertainment. The current recession is a nightmare for people who have lost their jobs, homes, and savings, and it is part of a continuing nightmare for the very poor. That's why we have to do all we can to get the economy back on track. But most other Americans are now discovering they can exist surprisingly well buying fewer of the things they never really needed to begin with. .......(more)

The complete piece is at: http://www.prospect.org/cs/articles?article=fromconsumers_to_commons

[maseman]

1. Great article

He nails it again. We need to get to economic growth through real growth and not bullshit materialism.

[BR_Parkway]

5. In total ageement with you , what would you define as real growth?

[maseman]

11. Creating jobs with growth in

fixing our infrastructure such as roads, highways, bridges, school buildings, etc. Getting wi-fi across the country especially in rural areas. Increasing our energy independence from foreign oil by creating new technology, science and other "green" solutions. Using American companies to build more fuel efficient cars.

I would rather we focus on these areas rather than hoping for another material bubble in housing or retail.

[whistle]

2. So what will it be, fascism or socialism?

[muriel_volestrangler]

6. Some might call it 'socialism', but it sounds like 'social democracy' to me

Just a well-run social system for health care, education, public transport and so on. Reich isn't advocating socially-owned industry, banking or similar enterprises - so that's why I'd say it's not 'socialism'.

[geckosfeet]

3. Thanks. I love this guy. Even when he is the bearer of bad news.

[jwirr]

4. All too many of us are so broke and so far in debt that it will take a

miracle to allow us to spend like we used to. I do not know what would get me to spending again. Winning the lottery?

[marions ghost]

7. good article...but I object to this word (& concept) --"binge"....

I went through the boom years living fairly frugally. This was just out of necessity and lack of faith in the stock market (having grown up poor, I was never schooled in it). Now we didn't save much, but put most discretionary income into an older house. The money is in the house, not in the things in it. This isn't anything brilliant or clever to brag about, it was just what happened. And we haven't cashed in, just broke even while the house appreciated. I live in an area where a lot of people are on academic teaching salaries, so therefore they are not all that wealthy, but it's relatively stable.

OK so....what I'm getting at...I'm not quite understanding what people were buying during these years of heavy consumption that constituted what the article calls a "spending binge." I was either at Home Depot or the grocery store, occasionally bought books or CDs. Also bought computers, software, upgrades--that would be a significant expense. I know that many of my friends have even less cash than we and have more child-related expenses. They have lived frugally as far as I can see.

"Spending binge" suggest that that consumers were totally out-of-control. DO we really have houses full of useless junk? Most people consider TVs, cars, & a certain amount of furniture to be necessities. In mostcases, acompuetr is now considered an essential, and I would argue that it is (and can actually save time and money). Were people supposed to forego these and live like monks? I have a hard time believing the whole country is made up of shopaholics. While I can see that much advertising promotes a "must have" mentality I just don't see that American consumers were consuming so excessively on non-necessities that they should be chastised for going into debt. A lot were merely trying to have a reasonable lifestyle on lower incomes (relative to purchasing power) these days. Not talking about houses here, I'm talking about things, products, consumables.

How about people who don't have too many corners to cut? Aren't we a large segment of the population? I'm not so sure that people can weather it by "buying fewer things they never needed to begin with"...I don't see that type of consumption around me. That seems to be the style of the rich, not the middle class.

I'm just trying to figure out what is reality and what is mythology about American "overconsumption" in the recent past. Any thoughts appreciated.

[spinbaby]

8. Yes, there are people with houses full of useless junk

I've seen them and it's an illness. My in-laws are being buried in their own junk and keep buying more.

[marions ghost]

9. And you wouldn't call them rich?

...they've done it all on extended credit in the belief that they needed to go into debt for it? They are solidly middle class in other words, these in-laws who have this illness? And do you think they represent a lot of people? Why do they have this illness?

I'm trying to understand how widespread this really is...because I know more people who are like this:

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x4918010

[Greyhound]

12. We have been on a traditional binge, defined for example, by;

those that claim to be "addicted" to QVC, HSN, online shopping, vacations at the mall, that kind of thing. Buying for the sake of buying, buying so much so often that attic, basement, and garage are all full of unopened boxes, and the closets full of unworn clothes and shoes.

Beyond that though, we've had another kind of binge created for us.

Until about 30 years ago people would buy, say a bedroom set. A bed frame, a dresser, a couple of night stands, maybe an armoire. It was a major purchase, well built and made of fine materials by craftspeople, to be kept for decades, frequently becoming a family heirloom. Today it is still expensive, but made of shit and stapled together by near slaves or prisoners in a far land, disintegrating in a few years and ending up in a landfill, requiring replacement. Multiply this by millions of families and the furnishings of the living room, dinning room, etc.

This is just one bit of the picture that, I hope, demonstrates how much the transition to consumerism has, and continues, to cost us.

[marions ghost]

13. good points

about the quality of products factor...how so many things need to be replaced because they fall apart even though they weren't cheap to begin with. Most people don't really want to live with delapidated household stuff beyond a certain point. In the manufacture of much of this stuff, it's deliberate, it's planned obsolescence. It doesn't have to be this way. But we have very little consumer protection in this country. What appears to be consumer advocacy is just smoke and mirrors it seems to me. Most people aren't aware of this.

As far as the shopping addiction...buying for the sake of buying, well I just wonder how real that is. I know it's out there and my theory is that it substitutes for low-cost and safe forms of recreation which are lacking in our neighborhoods. It also can be a form of social bonding. We get together to talk about and seek out certain products like the whole world is one big Tupperware party. OK I know this is a factor, but just how widespread it is I do not have a good feel for. It seems to me that the rest of us might be taking the rap for the few of us who have gone overboard in the way you suggest (ie. buying stuff that's never used).

I still question whether consumers on a mass scale can be said to have been on a true binge (ie. way beyond necessities) for so many years. Guess I need some numbers from somewhere...I realize this speculation is anecdotal, but it's can help as a starting point.

I remain skeptical of this meme that American consumers are all amassing huge piles of unused consumer goods and now they must wean from that addiction. I can't believe that this really the norm. It smacks of one of those "common assumptions" that are used to snow people about the truth.

[The2ndWheel]

14. "It doesn't have to be this way."

It does if you want everyone to have a job.

[marions ghost]

15. So you think

that "planned obsolescence" is a way to create jobs? I thought it was away to maximize profits, first and foremost.

No I don't think we need to have an economy based on shoddy merchandise.

[The2ndWheel]

16. Well I don't think we need a mass economy

Mass production, especially, needs to go.

[marions ghost]

17. How do you support the masses

without a mass economy?

[The2ndWheel]

18. How do you support a mass economy without a constant need to consume?

The better question might be; how did we get the masses that has required a mass economy?

I don't know if you can have it both ways. If you want to support the masses with a mass economy, then you need things to break down, become obsolete, etc, with as much turnover as possible. Yes, the masses are then expendable, are then interchangeable, but that's the whole point.

[marions ghost]

20. Assuming the masses

cannot be downsized in any humane way, then how do you create an economy that's based on quality not quantity. You're saying it can't be done.

[The2ndWheel]

22. I don't think it can be done for an economy

You build a single global economy, and it's going to be about quantity. It's going to be about standardization. It's going to be about every cog in the machine being the same so that the process of production is never interrupted.

We're always going to have problems, no matter what we would end up doing. However, the drive for the most efficient single way for the most amount of people to live on this planet, is diminishing life on it, on an ever increasing scale. In this economy, diversity is men and women, black and white, all being able to work for the same corporation.

[Greyhound]

28. No, it really doesn't. The single indisputable fact in all this is that our economy is going

to change, has to change, and in that change somebody is going to be hurt.

Now, the question is, who?

Like the prime rate, the option to go lower is gone. Those on the bottom don't have enough left to take to make any difference.

The middle still has quite a bit, but has been squeezed too hard, too fast and they are many. They are the heart of everything that defines a nation and they are already bloodied, badly.

OTOH, those on the top have far more than they can possibly use in several lifetimes and further, have demonstrated that they have no intention of using this vast overabundance to improve the situation that they have caused. They are the primary, arguably the only, beneficiaries of the insane economic policies of the last 30 years.

The choice seems pretty clear to me.

[Greyhound]

19. Back at ya.

The extreme shopping thing does happen, but you're right, it is not a major influence. But it does indicate what is a major factor.

Over the last half century, due to purposeful, conscious decisions, we have altered our communities to encourage this behavior. We now have at least two generations of people that have had little or no access to community. Just look at a map of older cities, especially those that have grown significantly in the last 30 - 40 years. The old parts have parks and recreation facilities, ball parks, open fields of grass, basketball courts, swimming pools, etc., every mile or two. As you move away from the older parts, you will see fewer and fewer of these "unproductive" areas replaced by malls, places where spending is virtually (sometimes literally) required.

It creates a mindset, there is no way to deny it. We have been converted from citizens, members of a community, into money vending machines for business.

Our entire economy depends on it. If people in general lived within their means the economy collapses, just as we are seeing now (due to other systemic issues, not a desire to live reasonably). Our economy is based on, not only debt, but an ever increasing amount of debt. It is a Ponzi scheme, more and more has to come in at the bottom to support the top, when the increase slows, the structure collapses.

This is, I believe, a binge.

[marions ghost]

21. Right, but if we have been

"converted" --implying this has been done to us insidiously --then it's not a binge that we have much control over. So when you say "if people lived within their means," then you mean it just as fact, not with moralistic overtones I assume.

But what I'm interpreting from the media message is that people will need to get used to being poor. Somehow I don't think that psychologically, people are going to accept that bitter pill very easily. Bad things happen when you remove the feelgood drugs, not to mention the necessities.

So the consumers have been duped in this Ponzi scheme and their distress is the only known cure? This sounds a lot more serious than what I think of as a "binge." So are they trying to suggest that a little consumer self-discipline is all that's needed to get us out of this fix...this historic collapse which even I in my ignorance can see has far-reaching repercussions.

[Greyhound]

23. That is the problem, isn't it?

BTW, I don't believe this is the result of a specific conspiracy, at least not in the popular sense (perhaps the establishment/invasion of the European banking industry, but that's another thread). It is the inevitable result of the definition of success in our system. Parks & recreation are non-productive from the strictly commercial viewpoint where nothing matters but profit.

Can it be that the basic problem is that this system can only lead to one end and therefore has to be fundamentally changed? The American Economy, as defined for the last half century cannot exist without constant over-consumption and constant over-consumption cannot be sustained indefinitely. At the root of it all lies the financial system and industry.

Yes, there is no intended moral overtone to the issue, just a statement of fact. Just as the morbidly obese person's body adjusts to the continued intake of more than can be utilized until the intake is required, our over consumption of products and things, exceeding our ability to pay for it, has become necessary to keep the system going.

When the credit card(s) is maxed out and our income is insufficient to pay it off and maintain bare necessities. The individual's only recourse is bankruptcy, debts are discharged, the creditors eat their losses, and the person gets a fresh start. With no credit, in theory anyway, the person now has to live within their means.

The repercussions are far reaching and frankly terrifying. This is the reason that so many of the people that really understand how it all works and is interconnected are totally freaked out. Warren Buffet for example, has been warning us for over two years about the derivatives market. This largely hidden and completely unregulated monstrosity is 10 - 15 times larger than the gross global product, and is a waiting disaster that will make the current (dep)recession look like dropping a $20 bill into the sewer by accident.

I think this is what Krugman was writing about in the article he penned a couple of months ago. In it he said that, at this point, caution and pragmatism are dangerous, that this crisis can only be addressed by radical changes. Changes, I might add, that the people that matter will not like at all. I'll try to find it later, maybe tomorrow.

[marions ghost]

24. Hey thanks Greyhound

:thumbsup: for that excellent reply. I'd be very interested in that article by Krugman and I'm sure others would be too. Post it if you can find it. Does Krugman believe we can avoid the derivatives disaster you say is only waiting (gulp), by radical measures? Doesn't sound good.

Too much emphasis on what is a strictly commercial viewpoint. It could be a whole different world if intrinsic value were recognized...

I'm curious about the Krugman ideas, being (more than) sensitized. Believe me before THIS I wasn't too interested in knowing about anything to do with macroeconomics. That has changed.

[Greyhound]

27. Here's the one I was referring to.

http://www.nytimes.com/2008/11/14/opinion/14krugman.html

I would recommend reading more of his columns and, if you have the stomach, some of his papers from the mid to late 90s. It is pretty dense, but there are reasons he got the Nobel and Bernanke, a class mate, did not.

This has no specific recommendations of what to do, it is an op-ed piece, but gives a good indication of he direction he is thinking. Also bear in mind that this was written in November...

[marions ghost]

30. thanks Greyhound

I will read it...

[marions ghost]

31. excerpts...

Depression Economics Returns
By PAUL KRUGMAN
Published: November 14, 2008

(snip)
"...with no possibility of further interest rate cuts, there’s nothing to stop the economy’s downward momentum. Rising unemployment will lead to further cuts in consumer spending, which Best Buy warned this week has already suffered a “seismic” decline. Weak consumer spending will lead to cutbacks in business investment plans. And the weakening economy will lead to more job cuts, provoking a further cycle of contraction.

To pull us out of this downward spiral, the federal government will have to provide economic stimulus in the form of higher spending and greater aid to those in distress — and the stimulus plan won’t come soon enough or be strong enough unless politicians and economic officials are able to transcend several conventional prejudices. One of these prejudices is the fear of red ink. In normal times, it’s good to worry about the budget deficit — and fiscal responsibility is a virtue we’ll need to relearn as soon as this crisis is past. When depression economics prevails, however, this virtue becomes a vice. F.D.R.’s premature attempt to balance the budget in 1937 almost destroyed the New Deal.

Another prejudice is the belief that policy should move cautiously. In normal times, this makes sense: you shouldn’t make big changes in policy until it’s clear they’re needed. Under current conditions, however, caution is risky, because big changes for the worse are already happening, and any delay in acting raises the chance of a deeper economic disaster. The policy response should be as well-crafted as possible, but time is of the essence.

Finally, in normal times modesty and prudence in policy goals are good things. Under current conditions, however, it’s much better to err on the side of doing too much than on the side of doing too little. The risk, if the stimulus plan turns out to be more than needed, is that the economy might overheat, leading to inflation — but the Federal Reserve can always head off that threat by raising interest rates. On the other hand, if the stimulus plan is too small there’s nothing the Fed can do to make up for the shortfall. So when depression economics prevails, prudence is folly. (snip)

So the question becomes, will the Obama people dare to propose something on that scale? Let’s hope that the answer to that question is yes, that the new administration will indeed be that daring. For we’re now in a situation where it would be very dangerous to give in to conventional notions of prudence."

[northernlights]

26. go hang out at a mall on a Saturday evening

and look at how much crap there is for sale and how many people are there buying it.

My former manager, a single woman with a 2 bedroom/2 bath apartment, had her team over for lunch once. One entire bedroom and one entire bath was filled with shoes. Literally. She had the shower curtain pulled closed in the extra bath. I peeked behind it. Yup -- shoe boxes stacked to the top of the rod.

Years ago I had an apartment in a house. The owner's livingroom was filled with "hummers." Hideous (sorry Hummer-lovers) bug-eyed clay figurines that were "collectibles" and sold for $60+/apiece. And that was in the mid-80s.

How many people commute in fairly new SUVs? I know singles and childless couples that use them for everything from one person commuting to work to running errands.

It's amazing how much money people have wasted on useless crap, all to hide the fact that they're miserable inside.

[The2ndWheel]

10. What?

"Where does this logic lead? Given the implausibility of consumers being able to return to binge spending, along with the undesirability of our doing so even if we could, and the growing scarcity of common goods, there would seem only one sensible way to restore and maintain aggregate demand. That would be through government expenditure on the commons. Rather than a temporary stimulus, government would permanently fill the gap left by consumers who cannot and should not be expected to resume their old spending ways. This wouldn't require permanent deficits as long as, once economic growth returns, revenues from a progressive income tax refill the coffers."

So economic growth will return even without people consuming because the government will permanently have enough revenue via taxes from jobs that won't be there because consumers cannot and should not resume their old spending ways which are implausible and undesirable?

[Ron Green]

25. The necessary message that no politician dares to utter:

"We must separate human happiness from economic growth, and concentrate on the former, letting the latter go."



edit for tpyo.

[JCMach1]

29. All economists are dead-enders at this point... they don't know shite from shinola