Friday, March 18, 2011

A Really Big Question, part 3

The U.S. today is 3 to 4 times richer than it was 50 years ago, yet we can't afford many of the basics that we took for granted back then. Why is that? Where'd the money go? That's where we left off last time, after concluding that the nation's massive accumulation of debt (a.k.a - living beyond our means) is probably a big part of the answer. Related to that is the sad story of consumerism gone mad in the U.S.

During the 1950s and 1960s, the nation grew ever more prosperous, while memories of hard times (the Great Depression and WWII) faded from people's minds. The last really tough economic times were the late-1970s and early-1980s, when the twin devils of high inflation and high unemployment spiraled the nation into a pessimistic funk. Ronald Reagan, supply-side policies, the collapse of European communism, advances in technology and communication, and improved monetary policies out of the Federal Reserve (rank these according to your political views) led the country into the fabled "Goldilocks economy" of the mid-1980s to late-2000s. Notwithstanding the dot-com bubble collapse of 1999 and 9/11/2001, the country enjoyed an unprecedented period of low unemployment, low inflation, and high growth - a near miracle that made it the envy of the world.

In this glorious economy Americans, aided by the increasingly finely tuned instincts of the advertising industry, responded by demanding more of .... EVERYTHING. Whereas the typical 1950s family of six managed just fine with an average house of 1100 square feet and a modest four-door sedan, average new home size grew to over 1500 square feet in the late-1980s, and a ridiculous 2200 square feet by 2005 - while average family size dropped to less than four! Meanwhile, the basic sedan was replaced by the 1990's larger, signature vehicle - the Ford Explorer. But by the turn of the century, the Explorer didn't convey the idea of conspicuous consumption quite enough, and Americans traded up to even larger Expeditions, Excursions, Escalantes, Tahoes, etc. Yup - $40,000 four-wheel drive vehicles that seat nine, for families of three, who lived and stayed in the city. WTF?

It was the same across the board. Why buy $25 Levis when you could buy $100 designer jeans? Why eat at a modest local diner once a month when you could dine finely a couple of times a week? Why watch a the 26" inch TV that was plenty big in 1980, when you could get a 60" flat-screen for about five times as much? We never felt the need to be connected previously to everyone we know, minute by minute, but now how many people can get by without their cell phones, the minute-by-minute texts and tweets, the e-mails - all for a low, low $150 a month?

Americans spent, then spent more, then borrowed to spend even more. Meanwhile, the thought of saving money receded into the distant memories of "back in the day...." In the 1960s, the average American saved about 8% of what they made. In 1975, the rate was as high as 14.6%. But then it started dropping, as we all decided that "wants" were actually "needs". By the early 2000s, the nation's average savings rate was essentially zero; for every person who saved, there was another person with no savings, but debt instead. As a country, we stopped saving and just spent, spent, spent.

We became stupid. We equated happiness, success, and personal worth with - vast amounts of stuff. Expensive, unnecessary, superfluous stuff. So the money, hundreds of billions - trillions, actually - of American wealth went into the pockets of the advertisers, manufacturers and merchants that told us what we needed, and then happily gave it to us. Average Joe and Jane Smith became real estate wizards who made millions on the idiocy of millions of other Smiths trying to keep up with one another and the Joneses. Techie geniuses came up with devices so appealing that we simply couldn't live without them. The world (China!) opened up to us, offering their unlimited quantities of every-damn-thing to us at ridiculously low prices. Americans bought and bought and bought, their money lining the pockets of realtors, developers, entrepreneurs, and foreign businessmen at incredible rates.

The world's multi-millionaires became multi-billionaires. Broke-ass Chinese, all riding bikes 25 years ago, have come to have the second largest number of billionaires (64 of 'em) of any country in the world today; additionally, almost half a million Chinese are millionaires. CEOs in the U.S. regularly make millions of dollars a year, plus bonuses. The stock market, as measured by the Dow Jones Industrial Average was around 1000 in 1980; it's twelve times that today.

All the money we've made in the last 40 or 50 years, apart from being financed from borrowing, from debt, has gone into all the stuff we own and the pockets of the people who made and sold us all that crap. We've got bigger houses and cars and fancier and more of everything than we need, and that's where the money went. From there it lined the pockets of the bankers, the entrepreneurs, the stock owners, the real estate scammers, the foreigners. Instead of into better schools, roads, parks, health care for virtually everyone, a cheap college education, government offices open 5 days a week, every week.

Don't blame them. They're doing what they do: they create, they produce, they promote; they capitalize on opportunities. It's not their fault they've got our money. But that's where a lot of it went.


corina said...

I honestly agree with this essay because I think it's true: the reason why so many Americans are broke or hardly have enough money to pay bills and such, is because they keep spending it all. People need to learn how to save their money and not spend it all on large things that they don't necessarily need, such as large trucks and a new T.V. when the one at home is working just fine.

Anonymous said...

I agree with the essay's reason why American people are broke. They have no sense of money management since they squander money over items that are for show, not for practical reasons. However, this doesn't apply to every American. There are Americans who are in poor conditions that face similar problems to majority of money squandering Americans.

Alan Tam

Corina Virk Period 3B said...

I honestly agree with this essay because I think it's true: the reason why so many Americans are broke or hardly have enough money to pay bills and such, is because they keep spending it all. People need to learn how to save their money and not spend it all on large things that they don't necessarily need, such as large trucks and a new T.V. when the one at home is working just fine.

Anonymous said...

My generation can be described in a single phrase “the new is a must and the old is in the dust” With the continues pressure to buy and buy, applied by large corporations it gets harder and harder to resist these tempting temptation.I believe that it is the fault of who ever spends unnecessary money and has the crave to purchase unnecessary items, NOT the industries or any one else's. There are many unique problems with this generation and by looking at the past it doesnt guarantee a correct answer. What worked decades ago isn't guaranteed to work again.
Although the idea of not living within your means does not apply to all American’s, it applies to enough of them to cause an economic recession. As my parents told me when I was younger ‘Life’s not fair” and the actions of other people can negatively impact you. Although the majority people who wisely saved aren’t in as bad of hole, there are some who did save and lost there jobs.
Although these large industries do advertise in very persuading ways, they are not brain washing us. The priorities of people in these younger generations are all screwed up now a days...
Dustin Pina

Emily Charter said...

I agree with this essay because all Americans know how to do is spend all the money they make. Thats also why we are in trillions of dollars in debt. The recesion a couple of years ago made people think twice about spending, but they are still so caught up with money they dont even realize that prices went up, and they cant afford anything anymore. Now a days people are so concerned with brand new electronics and everything brand new they dont realize they dont have any money. Everyone in debt, got that way because they bought more than they needed.

Anonymous said...

I agree with this essay, Americans are broke because they do not how to save. Instead of saving they are out spending their money on things that they don't need. -Jazmin Juarez