Tuesday, June 10, 2008

Consumption Over Production Equals Decline

The "Almighty Dollar" of yore has fallen on hard times because of one thing---the loss of the basic American values that made us the wealthiest country in the world, since about 1880 if you read the economic historians. Of course, the Americans still produce over 25% of the world's goods & services [The Economist has 28% in a cover-special about a year-and-a-half ago], We are not going to hell in a hand-basket as liberals continually howl at the moon about. But David Brooks, who on politics is about as mushy centrist as Andrew Sullivan used to be before he switched sides [As did Arianna Puff-Huff who was a ranting conservative a decade ago] has a real point in his Op-Ed in Pravda-on-the-Hudson:
The United States has been an affluent nation since its founding. But the country was, by and large, not corrupted by wealth. For centuries, it remained industrious, ambitious and frugal.

Over the past 30 years, much of that has been shredded. The social norms and institutions that encouraged frugality and spending what you earn have been undermined. The institutions that encourage debt and living for the moment have been strengthened. The country’s moral guardians are forever looking for decadence out of Hollywood and reality TV. But the most rampant decadence today is financial decadence, the trampling of decent norms about how to use and harness money.

Sixty-two scholars have signed on to a report by the Institute for American Values and other think tanks called, “For a New Thrift: Confronting the Debt Culture,” examining the results of all this. This may be damning with faint praise, but it’s one of the most important think-tank reports you’ll read this year.

The deterioration of financial mores has meant two things. First, it’s meant an explosion of debt that inhibits social mobility and ruins lives. Between 1989 and 2001, credit-card debt nearly tripled, soaring from $238 billion to $692 billion. By last year, it was up to $937 billion, the report said.

Second, the transformation has led to a stark financial polarization. On the one hand, there is what the report calls the investor class. It has tax-deferred savings plans, as well as an army of financial advisers. On the other hand, there is the lottery class, people with little access to 401(k)’s or financial planning but plenty of access to payday lenders, credit cards and lottery agents.

Jesus said "The Poor Will Always be with Us." He might have mentioned the stupid at the same time. The Democrats remind me of the lottery sales pitches----higher taxes on the rich and everyone will be financially equal. Of course, no one except a Krugman-type could believe that----the wealth that the so-called "rich" invest leads to greater amounts of wealth for all, in an expanding pie. The Dems always want the socialist static pie with rearranged slice-distribution. Which never works, and you can check out Cuba, N. Korea, Zimbabwe, Burma for some recent socialist success stories. But Brooks' point is clear:
The loosening of financial inhibition has meant more options for the well-educated but more temptation and chaos for the most vulnerable. Social norms, the invisible threads that guide behavior, have deteriorated. Over the past years, Americans have been more socially conscious about protecting the environment and inhaling tobacco. They have become less socially conscious about money and debt.

The agents of destruction are many. State governments have played a role. They aggressively hawk their lottery products, which some people call a tax on stupidity. Twenty percent of Americans are frequent players, spending about $60 billion a year. The spending is starkly regressive. A household with income under $13,000 spends, on average, $645 a year on lottery tickets, about 9 percent of all income. Aside from the financial toll, the moral toll is comprehensive. Here is the government, the guardian of order, telling people that they don’t have to work to build for the future. They can strike it rich for nothing.

Brooks goes on to castigate payday lenders and credit card companies who boost interest rates through the roof with one late payment..... But the malefactors wouldn't thrive if there were alternatives, of which he hypothetically muses upon:
The list could go on. But the report, which is nicely summarized by Barbara Dafoe Whitehead in The American Interest (available free online), also has some recommendations. First, raise public consciousness about debt the way the anti-smoking activists did with their campaign. Second, create institutions that encourage thrift.

Foundations and churches could issue short-term loans to cut into the payday lenders’ business. Public and private programs could give the poor and middle class access to financial planners. Usury laws could be enforced and strengthened. Colleges could reduce credit card advertising on campus. KidSave accounts would encourage savings from a young age. The tax code should tax consumption, not income, and in the meantime, it should do more to encourage savings up and down the income ladder.

There are dozens of things that could be done. But the most important is to shift values. Franklin made it prestigious to embrace certain bourgeois virtues. Now it’s socially acceptable to undermine those virtues. It’s considered normal to play the debt game and imagine that decisions made today will have no consequences for the future.

Sadly, once the irresponsible baby-boomers' opening of Pandora's Box made everything relative, there is little chance of getting that toothpaste back in the tube [metaphor alert!]

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