So This Is What Happens With a Consumption Economy…

Last month the unemployment rate rose. The governmental unemployment rate.

In short, enough people lost their jobs and actually went to the government to declare this fact. Which means a lot of people lost their jobs, period.

Meanwhile a lot of stores have been closing down. Not just the “Mall Stores” Restaurants have been closing down like crazy, as well. A Long-Standing (Okay, been around NW Indiana longer than I have) Mexican Restaurant closed its doors, along with quite a few along US 30 and a couple other areas. Elsewhere, a few restaurants have added hours long unused (one place now open Sundays, another expanded their their hours closer to dinner hours).

Meanwhile home sales have fallen through the floor, so much so that the government has had to save a bunch of banks. You’ve heard about the recent actions to save Fannie Mae and Freddie Mac (Sallie Mae is still solvent. Make of it what you will.); and while “I’m preparing to foot the bill,” I’m not sure I have enough KY Jelly to do a proper preparation.

– – – – – – – – – – – – – – –

So what’s the linkages in all this? The “Service Economy,” or our basing our economy on consumer consumption.

Think of it: If you base the health of your economy on how much people are buying, you’re going to do everything to make people buy stuff. Credit suddenly becomes big, and easy credit becomes the ticket towards a bigger economy (I’ve heard and read that $1.00 can be multiplied to $8 or $9, if not more, by loaning it out to people everywhere). Stores suddenly become more important than other places, malls become Meccas and Brands take on religious meanings (Apple, anyone?).

Question is, what happens when the credit runs out and people no longer are able to spend what they need to?

Here’s a hidden secret behind the malaise of this economy: Credit has an impact of depressing the amount of money usable for purchase later on.  Think of it: If what I’m purchasing for $1,000 now has a total cost of $1,100, that’s $100 dollars that didn’t go towards other items. Maybe we’re talking about a choice of Wonder Bread vs a brand made with multiple grains. Maybe it’s some clothes that didn’t get purchased because that $100 needed to be used on interest relief. Maybe it’s money not saved because of a necessary purchase.

And when that money needs to go for necessities, we’re talking about people forced to pay off today with tomorrow. Present/furure money that could go towards savings or improving one’s life is forced to cover for present/past money that wasn’t there when needed.

I know of no better definition of wage-slavery. I also know of no better way of making people accept wage-inflation.

And when people are forced to pay off the past with their present income, their wages had better have improved over what they earned, more than even the rate of inflation. Otherwise we’re going to see what’s now happening: Store closings, restaurant closings, increasing unemployment and a sluggish economy that has its money going to people whose sole reason for making money is that they lent some money out months/years ago, expecting interest.

Is it any wonder people have hated banks? Is it any wonder religions have railed against usury (to the point that one, Islam, has banned loans at interest)? Is it any wonder people rail for the gold standard (I’ve always been a bit leery of this, probably because I doubt that a gold standard ALONE would cure this country’s ills).


2 thoughts on “So This Is What Happens With a Consumption Economy…

  1. Excellent article Don! I very much like your analogy of how credit plays into the consumerism economy. Heh! heh! Wasn’t it Henry Ford, who popularized this idea, of have it today and pay tomorro? I suspose, I’ve never really thought about it but your concept of credit actually hindering consumerism in the long run, is spot right on! I never connected these dots before..

    As I see, after the bust, 9/11, among other things the country, made one last attempt to obtain growth. Of course, by lowering interest rates and loosing credit (refinancing) the housing boom (among other buying) was on! Driven by specualtion. This did put America back to work, as most home building products and services are made in America… How many tomorro’s does the average American have to pay back their personal debt? Especially in a declining atmosphere?

    Now the boom has went bust and we’ll be lucky to have decline Japan has endured since the early 90’s. Even though Japan has seen periods of partial recovery, they have not reached the high they once enjoyed and likely never will, as they reached their “limit to growth” back then.

    Loans are made in anticipation of growth and interest is only realized after it….

    Thanks, yooper

  2. This reminds me of a classic quote attributed to Robert Frost: “A banker is someone that will loan you his umbrella when it’s sunny, then ask for it back when it rains.”

    It doesn’t take a mathematician or a rocket scientist to foresee that if you squeeze folks from all directions, while making it impossible for them to survive — let alone pay their bills, or save for the proverbial rainy day — that the whole credit bubble leaves everybody totally soaked.

    Ah, well, maybe the feds can start selling naming rights to all these companies they plan to bail out…just in pro football. How about, “The Bear Stearns White House”? Or “The AIG Washington Monument?” “Lehman Brothers Lincoln Memorial”, anyone?

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s