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. With Pessimism (or: Is Main Street a bunch of spoiled overspending babies?)
As a counterpoint to the anonymous J, mentioned yesterday, there was an unbelievably gloomy roundtable on This Week Sunday, most interesting to me because in addition to the usual beatdowns to government and Wall Street, the participants went after Main Street consumers.
Here’s a link to the video, but I’ll give you the highlights, or lowlights (with selected bolding to underscore the most interesting stuff). The first 10 minutes or so is boilerplate hemming and hawing about the bailout and craven politicians and all that. Then about halfway through, Washington Post writer Steven Pearlstein said:
We’re a country that has lived beyond our means for more than a decade. Seriously beyond our means. The rest of the world was going to finance that; they no longer are. And it’s not exactly a great campaign slogan to tell the country, ‘You’ve been living beyond your means, you’re going to have to cut back.’ But when you get to be president you’re going to have to deal with that reality.
Robert Reich countered that it’s not about people living beyond their means and needing to cut back — it’s about stagnant wages: “Some pepole are living beyond their means, but median wages and median family income are below today adjusted for inflation than what they were eight years ago. Most people are struggling.”
Newt Gingrich chimed in to say the problem is government failing to invest for the future (he cited everything from oil drilling to education), and predicted a rerun of 1970s gloom. Then Pearlstein piped up again:
I’m pretty pessimistic about the next four or five years …. Bob with all due respect I disagree with you. The average American was living on debt; their lifestyle was maintained by debt. That’s not sustainable. And not only debt, they weren’t even saving, so they have to go back not only to zero, they have to go back positive so they’re doing some saving.
Again Reich made his point about incomes failing to keep up for most Americans. Then George Will had this to say:
We’re coming dangerously close to the truth, which is the sainted American people are the problem here. That is, they have 105 billion credit cards, that’s nine per cardholder. Self-reporting, they have about $12,000 credit-card debt per household; household debt is 139% of household income. I mean, they can’t go on like this. The refusal to defer gratification is a fundamental attribute of childishness.
Ouch!
Reich tried a different way of making his point, citing stats showing wealth concentration at the top, etc., and saying most Americans don’t have the same purchasing power they used to. Pearlstein waved that away: “If there’s not adequate purchasing power, then you don’t purchase.”
Gingrich pivoted back to the “childish” point by saying that’s what the government has been doing — spending for the short term, not investing for the long term.
Back to George Will:
For as long as I can remember, the slogan in this town has been – I mean, political rhetoric – ‘the federal government ought to behave more like families, because families balance their budgets.’ Turns out the families turned around and said let’s behave more like the government.
This got a big laugh.* And after some more discussion of spending v. investment, it was a wrap.
I was most interested in the degree to which Will and Pearlstein picked on consumers. I have no idea if Will’s stats are true, but it was a pretty convincing spiel. (And it reminded me of a David Brooks column I wrote about earlier, here.)
So have Americans been living beyond their means? Have you?
Is it because we’re a bunch of spoiled babies, or because of stagnant wages — or both?
Can we change?
Do we want to?
Do we need to?
And as I’ve asked in various ways before and nobody has given me anything close to an answer: What might the role of the commercial persuasion industry be? Has it contributed to living-beyond-our-means, if that has been a problem? Can it contribute to a solution?
Anybody?
[* I don’t know if George Will is a Laurie Anderson fan or not, but she said something very similar to this back in the 1980s. In fact, in one of those moments I was surprised I got away with, I cited her observation in this May 14, 2000 (yikes I’ve been at this a long time!), NYT Magazine essay about the rise of “personal branding”:
In the 1980’s, Laurie Anderson had a funny line about how she figured out how to live life. Basically, she said, just look at what the government does and, you know, scale it down to size. That, of course, was back when people paid attention to the government. Now nobody cares about the government; we care about hot companies. And when we try to figure out how to advance our careers and live our lives, we figure out what hot companies do and scale it down to size. Ours is the age of personal hype.
Go ahead. Tell me I was wrong.]
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Reader Comments
I’m siding with Reich here, and, also –
yes Americans have been living beyond their means. Because they’ve been granted the means and provided the argument to do so for the last decade. Credit card companies-investment banks-mortgage lenders-securities swappers (which is to say, all the same people, and all the people wailing for a bailout here) helped promote the notion that housing prices would go up forever, and that it was okay to live on the forseeable future value of your house. They also gave out credit for those houses to people they shouldn’t have (and here, it’s BS that people should know better – people cannot be expected to be savvy enough financially that they can second-guess the “experts” [mortgage lenders giving them more $ than they should] telling them it’ll be okay), and credit card limits they can’t reasonably repay, either.
An n=1 example: I have a few credit cards, and try to keep the balances mostly pretty low/paid off (sometimes difficult as a student, but, so it goes). On one of them, I recently received an increase in credit line to an amount greater than I’ve ever earned in a year. I never asked for an increase in credit line. Clearly I shouldn’t use all that credit. But also I hardly think it’s a responsible move on the part of the issuer to give it to me in the first place. Also: this happened yesterday. They still haven’t learned a thing.
Wall Street is really the one that’s been living beyond their means, unsatisfied with solid, honest yearly gains of single or low-double digits, and obsessed with massive and immediate executive compensation. This economic expansion will end with the lower 95% of Americans worse off than when it began – the top 5% (and really, the top 1% [and really really, the top .1%]) have taken not only all of the proceeds of that expansion but money on top of that. And they wrecked the whole thing. And it’s Main Street that’s to blame? Please.
As far as commercial persuasion – of course they keep selling us stuff, and helping to create and sustain a culture that’s about material acquisition. But I don’t put this crisis at their feet.
One year ago I had zero credit card debt, and low interest student loans. Today I have $20k in credit card debt that was used to fund emergency structural repairs to my house (support, masonry, and plumbing). My home, that I bought at $220k, is now valued at $180k. In total I’ve lost $60k of value in my home, a staggering 30%. A forced job change relocated me to another state, and I’m trying to sell the home at a loss. I’ll need a loan to cover the loss, and I’m not sure if one will be available.
I have excellent credit, and always have and will continue to pay my bills on time. I’m covering a mortgage for a house in a different state along with rent. So go ahead, tell me that I’m a child and that I’m irresponsible. Tell me that I shouldn’t be bitter that Wall Street executives are getting bailouts and multi-million dollar golden parachutes for creating this crisis.
Lending and investment institutions should not be publicly held companies. Then they legally become entities that must focus on short term shareholder gratification, which acts directly against the interests of our national economy.
I’m responsible, and I’m hurting. Where’s my bailout?
Isn’t the credit card debt situation most likely to be analogous to the mortgage situation? There isn’t as much ridiculous speculation and risk-ignoring when it comes to credit card debt as there is when it comes to mortgages over the last several years, but the fact is there was a lot of incentive for banks to take on high risks and give out more credit cards than necessary to more people than could strictly pay for them–I’ve lost count of the number of “no application necessary” credit card offers I’ve gotten in the mail.
Buoyed by the ease of access to credit, it’s natural that people have been spending more than their means, particularly when they’re told by the government that spending, rather than saving, is good for the economy. We weren’t supposed to save our tax credits, we were supposed to spend them and help the economy.
It’s not surprising to me that this cycle should end up where it has–out-of-control debt in the 1920s was what brought about the Great Depression, wasn’t it?
Let me be blunt, Robert Reich is an idiot. Look around … do you think that twenty something kid driving that Hummer is living beyond his means … I think he most likely is.
It’s fairly simple. If you don’t have the money to buy something then don’t buy it. It’s a choice you make. Nobody, not even a professional commercial persuader like myself can make you lay down the plastic. With the exception of a house, using credit for anything (including college and big screen TVs) is asking for trouble. And if you don’t have enough money for the things you simply can’t live with out, then get a better job – people do it all the time. I will teach my kids to save and be patient. Good things come to those who wait, right?
Americans need to stop thinking of themselves as CONSUMERS. Check out BuybyBrian.com. Or pick up Rob’s book. Or log onto Dave Ramsey.com.
“Let me be blunt, Robert Reich is an idiot.”
Okay. Why? What’s idiotic about him or his assertions?
“do you think that twenty something kid driving that Hummer is living beyond his means … I think he most likely is.”
Argument by anonymous anecdote is not a very convincing way of making your point.
“With the exception of a house, using credit for anything (including college and big screen TVs) is asking for trouble.”
This is a very easy argument to make if you’re not, you know, poor. An extraordinarily large number of the U.S.’ college students could not be there without credit. Asking to entirely remodel the financing system of American higher education needs a little more explication than “asking for trouble.”
“And if you don’t have enough money for the things you simply can’t live with out, then get a better job – people do it all the time.”
Again, easy to say if you’re not poor.
“Check out BuybyBrian.com. … Or log onto Dave Ramsey.com.”
Hunh? Oh.
Okay now, first of all, let’s all be nice. We’re all friends at Murketing.com. Except for me, of course. (huh?)
Anyway, I suspect the underlying problem here is that there is more than one answer. Stagnant wages for many, and increasing income inequality, are real. But I’m not prepared to believe that this cancels out the idea that an awful lot of people have lived well beyond their means, and would have done well to live by the simple advice: If you don’t have the money, don’t buy it.
Once again it’s a four or five Americas situation, I suspect (referring to earlier writing on this subject at Murketing.com). It’s misleading to talk about Americans as one mass group, I think Americans are four or five mass groups. And individuals of course, but that’s not the point. The point is that it’s not a thumbs up thumbs down, like “it’s all our fault” vs. “it’s all Wall Street’s fault.” It would be nice if it could all simply be blamed on a handful of manipulating fatcats, but I don’t think that’s the whole story. I think it’s PART of the story, but not the whole story.
I’ll try to respond more fully tomorrow. Thanks for the thoughtful feedback from all.
It sounds like George Will’s comments on ABC were foreshadowing his Washington Post column that appeared yesterday:
http://www.realclearpolitics.com/articles/2008/10/publics_fury_noted_now_is_time.html
I agree with Rob – there is culpability in practically all sectors of the American economy, and all parties will have to modify their behavior going forward if we’re to have a sustainable system.
Chris: Your story is a harrowing one, and I don’t know what to say about it. I’m sorry to hear it, and I’m sorry that no bailout is likely to be forthcoming.
jkd: The only thing to add to my earlier reply is about that credit card company upping your limit or whatever. I don’t know what you mean by saying they haven’t learned anything. Credit card companies are not in the business of helping you be responsible. They are in the exact opposite business. They want you to pay the minimum payment, forever. You’re right that it isn’t a “responsible” move by the issuer — but they’re not the ones who need to be responsible. Consumers are. Credit card companies not only want but NEED for you to remain in debt, indefinitely. That’s the whole point of their business.
Nick W.: Thanks for the tip on that. Yes, looks like he was road-testing is column. I guess the pundit class does that a lot, I always wonder if the column is already written, so it’s on their mind while they’re on some show, or if they use the shows to float trial balloons to see what sounds good, then bang out the column.
Lastly, in a general way, I understand and even sort of agree with some of the demonize Wall Street and Washington sentiment, but on the other hand I don’t see it as terribly productive in trying to figure out what happens next in our individual lives. I’m working on a post about that.
“I don’t know what you mean by saying they haven’t learned anything. Credit card companies are not in the business of helping you be responsible. They are in the exact opposite business. They want you to pay the minimum payment, forever. You’re right that it isn’t a “responsible” move by the issuer — but they’re not the ones who need to be responsible. Consumers are. Credit card companies not only want but NEED for you to remain in debt, indefinitely. That’s the whole point of their business.”
What I mean is that “credit card companies” isn’t an entity distinct from this larger crisis. I mostly agree with the rest of what you’re saying. But I disagree that they don’t also need to be responsible, and not just for altruistic reasons – when, e.g., Wachovia keeps issuing more credit for their credit card issuees they’re not just enabling customers of their credit cards to run up larger and everlasting debt. They’re also making that debt riskier, and they’re enabling their customers to become even more of a credit risk on the rest of their outlays. Some of which, e.g. Wachovia may also own. And even if it’s not them, it’s Washington Mutual. Who was doing the same thing as Wachovia with their credit cards.
There aren’t many of these big banks (even fewer now) and they are all in all of these businesses. And all of these businesses are connected, because when you get down to it it’s actual people who are or aren’t making payments on which their profits are based. That’s why they’re failing: through many interconnected actions, they artificially ran up the levels of risk across all of their businesses. And when the real-world consequence of higher risk – actual financial downturn – started happening, it led to exactly this cascading chain-reaction, because risk was leveraged on risk.
And so when I say they haven’t learned their lessons, what I’m saying is that a company that’s at the center of the imploding financial situation is still actively making the situation riskier. And yes, the consumer – that is, me – needs to be responsible here. Mostly I am, and fortunately I’m fine here – but while economic downturn isn’t the fault of the large financial institutions, long-term responsibility from corporate officers should acknowledge that economic downturns will happen and that leveraging risk on risk forever in anticipation that nothing bad will happen is fundamentally massively irresponsible. And that that is the root cause of these financial implosions.
see also Andrew Leonard with a succinct version of the same basic conclusion:
“No matter how much the Republicans attempt to dub the current turmoil the Fannie Mae Financial Panic of 2008, they will have great difficulty in obscuring the fact that Wall Street investment banks and hedge funds were the prime players who loaded up on risk that could not be sustained and that put not only their own companies but the entire global economy in peril. Fannie and Freddie are a piece of that puzzle, but so are unregulated credit derivatives, absurd levels of leverage, failures by rating agencies, and a culture that had, quite simply, forgotten that for most of modern capitalism, crises have been the rule, not the exception.”