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Author Topic:   Replacing Consumerism
Straggler
Member
Posts: 10333
From: London England
Joined: 09-30-2006


(1)
Message 31 of 89 (643255)
12-05-2011 7:00 PM
Reply to: Message 7 by crashfrog
12-05-2011 4:14 PM


Re: Where do we Take it from Here?
Crash writes:
Consumption does equal income. They're the same thing.
Is that true if credit/debt is also added as fuel to the fire? If consumption is based on non-existent money how does that work?
Is not a large part of the current problem with western economies that, as wages have stagnated and the richest have got exponentially richer, standards of living have kept pace for the majority on the basis of unsustainable debt?
Not only are the wealthiest paying their workers less, giving them less health and pension benefits etc. - They are also lending them money to sustain what quality of life they do have. Not just wage slavery but debt slavery too.
I'm getting drunk and radical.....

This message is a reply to:
 Message 7 by crashfrog, posted 12-05-2011 4:14 PM crashfrog has replied

Replies to this message:
 Message 32 by crashfrog, posted 12-05-2011 7:24 PM Straggler has replied

  
crashfrog
Member (Idle past 1466 days)
Posts: 19762
From: Silver Spring, MD
Joined: 03-20-2003


Message 32 of 89 (643261)
12-05-2011 7:24 PM
Reply to: Message 31 by Straggler
12-05-2011 7:00 PM


Re: Where do we Take it from Here?
If consumption is based on non-existent money how does that work?
Well, you don't get loaned "non-existent" money, you get loaned someone else's money. They spend money on you, same as if they paid you to do something. In this case, they're paying you to pay them back more money later.
Economies are zero-sum, ignoring currency inflation. That's why consumption equals income, everybody's income is someone else's spending. Debt doesn't change that at all, it's just another kind of transfer.
Is not a large part of the current problem with western economies that, as wages have stagnated and the richest have got exponentially richer, standards of living have kept pace for the majority on the basis of unsustainable debt?
People say that but I'd like to see some evidence. The current American savings rate is about as positive as its been since the end of World War II. I think the first-order problem is the stagnating wage and income inequality. The debt situation is a reflection of that, not the source of the problem. Frankly when people purposefully decrease their standard of living that's when you're looking at the real problems. Austerity is a mistake, simply because consumption is income - we can't all deleverage debt without killing all of our incomes as well.

This message is a reply to:
 Message 31 by Straggler, posted 12-05-2011 7:00 PM Straggler has replied

Replies to this message:
 Message 33 by Jon, posted 12-05-2011 9:12 PM crashfrog has replied
 Message 41 by Straggler, posted 12-06-2011 9:53 AM crashfrog has replied

  
Jon
Inactive Member


Message 33 of 89 (643272)
12-05-2011 9:12 PM
Reply to: Message 32 by crashfrog
12-05-2011 7:24 PM


Re: Where do we Take it from Here?
Austerity is a mistake, simply because consumption is income
Good thing no one has advocated getting rid of consumption.
That's why consumption equals income, everybody's income is someone else's spending.
Yes. We are all aware that the wealthiest folk continue to get wealthier while others go in debt to fund their consumerism.
We know. We get it. And we know you think that such a thing is just cool beans and wonderful - so long as it all zeros out in the end.
Your system sounds great. Us 99% should be thankful we've got companies like Visa to rape us... and folk like you to hold our hands while they do.
Jon
Edited by Jon, : No reason given.

Love your enemies!

This message is a reply to:
 Message 32 by crashfrog, posted 12-05-2011 7:24 PM crashfrog has replied

Replies to this message:
 Message 34 by crashfrog, posted 12-05-2011 9:17 PM Jon has replied

  
crashfrog
Member (Idle past 1466 days)
Posts: 19762
From: Silver Spring, MD
Joined: 03-20-2003


Message 34 of 89 (643275)
12-05-2011 9:17 PM
Reply to: Message 33 by Jon
12-05-2011 9:12 PM


Re: Where do we Take it from Here?
We know. We get it.
Well, ok. You've heard what I have to say.
Now it's your turn - what's "consumerism"? What's your evidence that it's on the rise? Whats your evidence that consumer debt levels are dangerously high?
Us 99% should be thankful we've got companies like Visa to rape us... and folk like you to hold our hands while they do.
No, you shouldn't be. You should be upset about the various anti-competitive extortions the credit card companies are engaged in. But what does any of that have to do with "consumerism"?
Jon, you titled this thread "Replacing consumerism." Well, ok. What is "consumerism"? And what are you going to replace it with? Please be specific.
Edited by crashfrog, : No reason given.

This message is a reply to:
 Message 33 by Jon, posted 12-05-2011 9:12 PM Jon has replied

Replies to this message:
 Message 35 by Jon, posted 12-05-2011 9:43 PM crashfrog has replied

  
Jon
Inactive Member


Message 35 of 89 (643276)
12-05-2011 9:43 PM
Reply to: Message 34 by crashfrog
12-05-2011 9:17 PM


Re: Where do we Take it from Here?
Well, ok. What is "consumerism"?
I actually defined that back in Message 4.
And what are you going to replace it with? Please be specific.
Less consumerism, perhaps. But the question you've asked me is primarily the question I asked of everyone else at the beginning of the thread.
So I don't have a sure answer.
Jon

Love your enemies!

This message is a reply to:
 Message 34 by crashfrog, posted 12-05-2011 9:17 PM crashfrog has replied

Replies to this message:
 Message 36 by crashfrog, posted 12-05-2011 10:05 PM Jon has not replied

  
crashfrog
Member (Idle past 1466 days)
Posts: 19762
From: Silver Spring, MD
Joined: 03-20-2003


Message 36 of 89 (643278)
12-05-2011 10:05 PM
Reply to: Message 35 by Jon
12-05-2011 9:43 PM


Re: Where do we Take it from Here?
I actually defined that back in Message 4.
Not so much, really. Certainly not in any way that would allow us to actually discuss your topic.
Here, try this on for size, maybe you can get a sense of what I'm getting at: when you say that "consumerism" has increased, what measurement of "consumerism" causes you to believe that? Your cite cites the increase in home sizes but you rejected that as a proxy for "consumerism." Well, ok. So what, exactly, is increasing?
So I don't have a sure answer.
You haven't even explained what the question is.

This message is a reply to:
 Message 35 by Jon, posted 12-05-2011 9:43 PM Jon has not replied

  
nwr
Member
Posts: 6408
From: Geneva, Illinois
Joined: 08-08-2005
Member Rating: 5.1


(1)
Message 37 of 89 (643282)
12-05-2011 10:25 PM
Reply to: Message 10 by Phat
12-05-2011 4:19 PM


Re: How much is too much?
crashfrog writes:
Ok, houses are larger now than they were before.
Phat writes:
And so are cars.
Strange.
In the 60s, I owned a compact car. It got around 15 miles per gallon. Today, I own a compact car, and it gets almost 40 miles per gallon. And the compact car that I have today sure looks a lot smaller than the compact car that I had in the 60s.
Phat writes:
But again....larger houses would never be built were there no demand for them.
I could go out and buy a house for maybe $200,000 today (assuming that I had the money). And it would be far larger than I need. Alternatively, I could hire an architect a custom builder to make me a house of a size more to my liking. That might cost closer to $1,000,000.
I'm not convinced that consumers have that much control over what is built.

Fundamentalism - the anti-American, anti-Christian branch of American Christianity

This message is a reply to:
 Message 10 by Phat, posted 12-05-2011 4:19 PM Phat has not replied

  
nwr
Member
Posts: 6408
From: Geneva, Illinois
Joined: 08-08-2005
Member Rating: 5.1


Message 38 of 89 (643285)
12-05-2011 10:32 PM
Reply to: Message 27 by ICANT
12-05-2011 6:26 PM


Re: Where do we Take it from Here?
ICANT writes:
Do you have any debt? If so you spend more than your income.
This is a false inference.
I have debt, but I spend less than my income. That I have debt is a matter of the convenience of using a credit card.

Fundamentalism - the anti-American, anti-Christian branch of American Christianity

This message is a reply to:
 Message 27 by ICANT, posted 12-05-2011 6:26 PM ICANT has not replied

  
Jon
Inactive Member


Message 39 of 89 (643289)
12-05-2011 11:41 PM


On House Size
Since Crash seems bent on insisting that house size isn't a valid measure of consumerism, I figure I'll post a relevant tidbit:
quote:
Wikipedia on Conspicuous Consumption:
In the U.S., a trend toward larger houses began in the 1950s, with the average size of a home doubling over the next 50 years. This trend has been compared to the increase in SUV purchases, also often a symbol of conspicuous consumption. People have purchased huge houses even at the expense of the size of their yard, the inability to save funds for retirement, or a greatly increased commute time. Such large homes can also facilitate other forms of consumption, in providing extra storage space for vehicles, clothes, and other objects.
Jon

Love your enemies!

  
Artemis Entreri 
Suspended Member (Idle past 4228 days)
Posts: 1194
From: Northern Virginia
Joined: 07-08-2008


Message 40 of 89 (643309)
12-06-2011 9:34 AM
Reply to: Message 27 by ICANT
12-05-2011 6:26 PM


Re: Where do we Take it from Here?
ICANT writes:
Do you have any debt? If so you spend more than your income.
That is being overly simplistic. Credit is necessary for purchasing power and validity in a market. When the United States was born, John Adams traveled Europe begging for loans for the USA so we could establish a credit line. I believe it was the Dutch (Kingdom of the Netherlands), who finally gave us a loan.
You can have debt from a loan and not spend more than your income. In 2004 I purchased a 1994 Ford Tarus for $2800. My salary back then was $40,000 per year. I did not have $2800 on me, so I borrowed $3000 from my bank, and paid the bank back $100/month (for 3 years) till I covered the loan and the interest (in total I spent $3600 for that 3k loan). I technically was in debt but not due to spending more than my income. I was living within my means, yet I still needed to borrow money to make a purchase, and also to gain credit, so I could borrow money in the future.
crashfrog writes:
So people shouldn't take on a mortgage or student loans to pay for college? Even if doing so is likely to earn them much more money in the long run?
That makes no sense. Debt is a good thing if used appropriately - to make investments in yourself and your family that will pay for themselves and then some, in the long run. But the year that you buy a home is necessarily a year in which you've "spent more than your income". Should nobody be able to buy a home but the very rich? I can't believe you believe that, or live like that.
Word.
No shit. If this guy was in charge I would have never gone to college, or purchased the last 4 automobiles that I bought. I would have no credit, and no job. ICANT, I can’t defend that position at all.
Edited by Artemis Entreri, : copy paste failboat

This message is a reply to:
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Straggler
Member
Posts: 10333
From: London England
Joined: 09-30-2006


Message 41 of 89 (643313)
12-06-2011 9:53 AM
Reply to: Message 32 by crashfrog
12-05-2011 7:24 PM


Re: Where do we Take it from Here?
Crash writes:
Well, you don't get loaned "non-existent" money, you get loaned someone else's money.
The bank loans me money (via credit cards or whatever) but where do the banks get that money from? Some is from the savings of others. I get that. But does ALL of the money banks loan out add-up to the total they hold in deposits? I'm sure it doesn't. I'm sure it far exceeds what they actually hold. So what is to stop banks lending money they don't really have? And isn't this part of the whole problem with busted banks now requiring re-capitalisation because they effectively lent money that they didn't have?
Crash writes:
I think the first-order problem is the stagnating wage and income inequality. The debt situation is a reflection of that, not the source of the problem.
Sure. But however you look at it there is a debt crisis in the Western world. How did that come about?
I'm genuinely asking here rather than seeking to make some point.

This message is a reply to:
 Message 32 by crashfrog, posted 12-05-2011 7:24 PM crashfrog has replied

Replies to this message:
 Message 42 by crashfrog, posted 12-06-2011 3:24 PM Straggler has replied
 Message 43 by crashfrog, posted 12-06-2011 3:55 PM Straggler has not replied

  
crashfrog
Member (Idle past 1466 days)
Posts: 19762
From: Silver Spring, MD
Joined: 03-20-2003


Message 42 of 89 (643388)
12-06-2011 3:24 PM
Reply to: Message 41 by Straggler
12-06-2011 9:53 AM


Re: Where do we Take it from Here?
The bank loans me money (via credit cards or whatever) but where do the banks get that money from? Some is from the savings of others. I get that. But does ALL of the money banks loan out add-up to the total they hold in deposits?
Yeah, it does, basically. Banks have "capital holdings requirements" which means that the value of their outstanding debts - that is, the money they owe you, that is, your checking and savings accounts - have to be balanced by the value of their outstanding credits - the money you and others owe the bank - plus a certain amount of "good as cash" capital holdings, so that they can pay out a reasonable number of withdrawals on a timely basis to prevent a "Its a Wonderful Life"-style run on the bank. (In fact, the run on the Bailey Savings and Loan in that film is caused precisely by the failure of BS&L to maintain the legal amount of capital holdings.)
Banks can't loan out more than they have, because they would have to borrow it from someone else in order to do so. Banks have a special series of other banks that they can loan from at discounted rates, though; those banks in the US are called the "Federal Reserve Banks" and the rate at which they can borrow money is called the "Prime Rate." You have a similar system of central banking in the UK, probably, but I don't know anything about it.
And isn't this part of the whole problem with busted banks now requiring re-capitalisation because they effectively lent money that they didn't have?
Not exactly; the issue is that they loaned out money that they'll now not get back, in the form of mortgages. Now, they can repossess the home (and have) and until they try to sell it, they can count the original purchase value of the home as part of their capital holdings and stay in compliance with the law. But, none of these homes are actually that valuable.
So, these "toxic assets" are an issue because at some point you have to pay the piper and try to get pennies on the dollar for the "book value" of these homes, but doing so puts the bank well below its capital holdings requirement, at which point the FDIC legally has to come in and close down the bank.
They didn't loan out money they didn't have; they loaned out money they couldn't afford to lose, and did.
But however you look at it there is a debt crisis in the Western world.
How so? "Crisis"? I don't see it. Can you point out the crisis in this graph of public debt vs GDP:
There's no particular "debt crisis" because the ratio of public debt to GDP isn't particularly high in your country or mine. It's a political stalking horse, not an actual crisis. The actual crisis is that nearly everybody responded to a liquidity trap by reducing their spending, which caused a crash in aggregate demand.
Edited by crashfrog, : No reason given.

This message is a reply to:
 Message 41 by Straggler, posted 12-06-2011 9:53 AM Straggler has replied

Replies to this message:
 Message 44 by Straggler, posted 12-06-2011 4:53 PM crashfrog has replied

  
crashfrog
Member (Idle past 1466 days)
Posts: 19762
From: Silver Spring, MD
Joined: 03-20-2003


(2)
Message 43 of 89 (643393)
12-06-2011 3:55 PM
Reply to: Message 41 by Straggler
12-06-2011 9:53 AM


A Financial Crisis - recapped
Lemme see if I can unwind the financial crisis in a bit more of a straightforward fashion. This is what happened in the US, at any rate:
Step 1. An enriching developing world - mostly China - dramatically increased demand for investments. They had a bunch of new money and needed someplace to grow it. The US financial markets expanding something that was actually fairly old - "collateralized debt obligations", a way of selling slices (or "tranches") of existing mortgages. Mortgages are a kind of investment, you see, because you get paid back with interest. Better yet, they're "collateralized", or secured with an underlying, valuable physical asset - the land and house the mortgage is for.
Step 2. The inflating housing market meant that you could keep making new mortgages and slicing and selling them, and the inflating price of homes meant that relatively few people would have trouble making good on their mortgage - if they couldn't keep up, you could take the home and sell it at a profit because its equity value was increasing. An industry emerged of mortgage brokers, who loaned money and then turned around and sold those mortgages to investment firms, who sold those to all the people who were looking for investments.
Bad Incentive 1: If you're not the guy who has to be paid back, you don't really care about the actual risk of the mortgage borrower. What you care about is presenting evidence to the mortgage buyer that your mortgages are low risk. A lot of mortgage brokers did this by flat-out lying on the applications, convincing poor credit risks to take loans they probably couldn't have paid back, and actually buying off ratings agencies to give their mortgages AAA rating - a rating level that meant that certain investors, who are legally obligated to make only the safest investments (like the people who manage pensions), could purchase these CDO's. Some of these risky "subprime" mortgages were sold to people who didn't have the income to pay a traditional interest rate by making it a "balloon mortgage", where interest rates are low but the mortgage automatically defaults if the equity of the home drops below a certain ratio.
Bad Incentive 2: Ratings agencies are paid by the corporations that sell the CDO's, so they have to provide the ratings that their customers want, not the ratings that accurately represent the risk.
Step 3. The market for CDO's became so large that there weren't enough mortgages to make enough CDO's. So they came up with a derivative product that pays the same interest rate. In order to keep the AAA rating on these, some financial groups backed them with a special kind of insurance - a "Credit default swap", where an insurance company (like AIG) pays out if a certain portion of the mortgages underlying the CDO that underlies the derivative go into forclosure.
Step 4. The housing market peaks. The housing market actually starts to decline and people start to lose equity in their homes. For the most part this isn't that serious, but for a non-trivial number of mortgages this triggers an automatic default. A lot of people just mail in the keys and abandon the property. Banks start accruing all these foreclosed homes that they don't want to sell into a buyer's market, because they're listed on their books at the original sale price and if they take the "haircut", they risk sinking below their capital holdings requirements and getting closed down by the FDIC (that's the US agency that insures bank accounts and closes banks to prevent runs.) Insurance companies like AIG start having to pay out on their CDS insurance policies, which they didn't expect they would have to do.
Step 5. The dominoes begin to fall. People are losing their homes because they can't make ballooning payments triggered by the loss of home equity. Banks are losing their shirts because profitable mortgages are being turned into foreclosed homes with one half or less of the original sale value. Banks are going under when they can't keep pretending that their "toxic assets" are actually worth anything. AAA-rated CDO's turn out to be a lot riskier than anyone was made aware and investors are losing their shirts. Insurance companies are paying out trillions because of the credit default swaps they sold on the assumption that the CDO's were not as risky as they turned out to be. A bunch of the banks go under and the other banks stop lending so that they can assess their current risk exposure. Suddenly corporations can't get the money they need to make payroll and other payments. If you're a small business owner, maybe a few of your biggest corporate clients tell you they can't pay you what you're owed for a few months, and your business has to close down. A bunch of people lose their jobs.
Step 6. The liquidity trap. It's 2008. Businesses can't get the quick, cheap loans they need to make payroll and pay expenses. People are losing their jobs; everybody knows someone who lost their home or their job or both and most people decide they need to start saving. People start consuming less. This is Keynes "Paradox of Thrift" where everybody decides to pay down their debts at the same time and kill the economy. The US government says, oh, no big deal - these big banks got into this mess, they need to get themselves out of it or go out of business. We don't want to create a moral hazard for being "too big to fail."
Step 7. Lehman Bros turns out not to be too big to fail, and it fails. The stock market takes a nosedive and everybody freaks the fuck out. Congress passes an emergency measure to authorize many trillions in free loans to Wall Street to prevent any more mega-bank closures. Obama is inaugurated. He tries to get a stimulus through Congress to offset the massive decline in aggregate demand and forestall a depression. It halfway works because he gets about half the stimulus we needed, and the economy was already way worse than they realized.
Step 8. The present day. Banks have tons of "toxic asset" homes that they're trying to foreclose on, frequently by illegal means. Aggregate demand is recovering, but only as fast as it was originally growing - we need extra growth in GDP to catch up to where we should be. Unemployment remains high because businesses don't want to create new jobs when demand is depressed.
tl;dr: A bunch of people bet on housing prices going up and they didn't; a lot of other people bet on those first people being right and they weren't. A lot of people were sold mortgages they couldn't pay but didn't know they couldn't pay. A lot of those mortgages were sold to people who didn't know that the mortgage holders couldn't pay. The ratings agencies were paid (paid off) by the people selling the investments they were supposed to rate. A lot of people lost their jobs, lost their homes, or knew people who lost both so they decided to spend less and save more. When people spend less, a lot of people lose their jobs. That's where we are today.

This message is a reply to:
 Message 41 by Straggler, posted 12-06-2011 9:53 AM Straggler has not replied

  
Straggler
Member
Posts: 10333
From: London England
Joined: 09-30-2006


Message 44 of 89 (643395)
12-06-2011 4:53 PM
Reply to: Message 42 by crashfrog
12-06-2011 3:24 PM


Re: Where do we Take it from Here?
Straggler writes:
But however you look at it there is a debt crisis in the Western world. How did that come about?
Crash writes:
How so? "Crisis"? I don't see it. Can you point out the crisis in this graph of public debt vs GDP:
There's no particular "debt crisis" because the ratio of public debt to GDP isn't particularly high in your country or mine. It's a political stalking horse, not an actual crisis.
Oh I'm well aware of the hyperbolic claims regarding public debt and the political capital being made on the back of falsehoods regarding that. The debt crisis I was referring to was the private debt crisis of banks and individuals.
Your excellent reply Message 43 goes a long way to answering the question I was intending to ask. Good stuff.

This message is a reply to:
 Message 42 by crashfrog, posted 12-06-2011 3:24 PM crashfrog has replied

Replies to this message:
 Message 45 by crashfrog, posted 12-06-2011 5:25 PM Straggler has replied

  
crashfrog
Member (Idle past 1466 days)
Posts: 19762
From: Silver Spring, MD
Joined: 03-20-2003


Message 45 of 89 (643400)
12-06-2011 5:25 PM
Reply to: Message 44 by Straggler
12-06-2011 4:53 PM


Re: Where do we Take it from Here?
The debt crisis I was referring to was the private debt crisis of banks and individuals.
Well, like I say I really see it more as a demand crisis - aggregate demand is down in the US by about a trillion dollars below the trend. That's a big deal! That's a lot of people not buying what they used to buy, not paying for the services they used to pay for, not paying the taxes they used to pay.
The appropriate response (in my country) is for the government to make up as much of that demand as it can, and to cut big-ass checks to the states so they don't have to fire policemen and teachers. More debt, in other words. But currently the US can borrow money at a negative real interest rate, so they should take advantage. That's free cash fucking money. Reining in government spending and cutting down the deficit is something you do when the economy is strong, so that it can absorb the loss of government demand. But we did exactly the opposite because we let intellectual children run the show - Bush cut taxes when he should have raised them, so we'd have the freedom to spend spend spend now when its what we need to stimulate the economy.
Your country? I don't know; there's issues because you live in a country that doesn't print its own money. Pretty sure Clegg's austerity budget is a bad idea. Is it the least bad idea? I'm not sure.

This message is a reply to:
 Message 44 by Straggler, posted 12-06-2011 4:53 PM Straggler has replied

Replies to this message:
 Message 46 by Straggler, posted 12-06-2011 5:50 PM crashfrog has replied

  
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