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.