One benefit of the current economic crisis is that financial news is now interesting; we’re all trying to find out why our banking system crashed and why the whole system is so vulnerable (at least I am). Until recently I would rarely read an article about business but now it’s like reading adventure stories.
Eventually I worked out my own theory of what is wrong with our economic system. The key word in understanding the crisis is leverage. The meaning of this comes from the word lever, a metal bar which enables you to lift objects which are much heavier than you could normally lift. American and British bankers took this concept to an extreme. They would have a dollar in the bank and they would make loans of up to $30. They were lending money they didn’t have. It was a confidence trick, a pyramid scheme. And it was allowed.
The other American practice that is effecting us all is toxic or sub prime loans, and what this means is they would give out mortgages (money for people to buy their home) even if they knew those people couldn’t repay them. Although this was a specifically American problem, the globalised structure of the banking system has ensured that the effect has spread worldwide. One result of all this is that banks no longer trust each other, as they don’t know who has toxic loans or who might go bust next. This is why banks are not lending any more. It turns out that our banks are not the honest guardians of our savings, as we had assumed, but are really just a bunch of gamblers.
What has shocked me most about this whole farce is that shopping, it turns out, is the basis of our whole economic system. I had always assumed that industry, agriculture, services and trade are what keeps the system going. But no, I was wrong, those things are merely the mechanisms that produce goods that are demanded by shoppers. Now that people are buying less cars, for example, the entire global car industry is in a state of crisis. And the same is happening across all sectors of industry: demand is falling (in other words people are shopping less) and factories are closing. Is this really the best way to run the global economy?
I’m still struggling to get my head round the fact that our whole system is based on people going to the shops. Newspapers still describe the process in grand and clever economic terms that somehow makes it seem more stable and impressive than it is, and it is hard to find real insight in the media. I was missing the perspective of a real shopper, and I realise that the media never really give ordinary people the chance to express themselves, to write an article for example. They are only ever quoted in very short bursts, and are always under the control of the journalists and editors. When have you read an article by a shopper, or a person living in Gaza for that matter? These people are not considered worthy of having an opinion worth reading
But then I got an email from my friend Michou Jardini, whom I first met in Sadova village in Suceava 17 years ago and who now lives in Portland, Oregon. She is married to a doctor and has become a regular suburban Mom (or so she claims). We keep in contact now and again and I asked her to describe her experiences at the centre of the global financial crisis.
Initially she dismissed my request and said who would want to listen to the ramblings of a housewife, but I said American shoppers seem to be the driving force of the global economy and I am looking for an insight.
This is what she sent me:
The Guardian just published an article saying that I am responsible for the world’s financial downfall. I kid you not. They just published an article titled Twenty-Five People at the Heart of the meltdown.
It lists all of those who are (supposedly) responsible for pushing us on the road to ruin. It doesn’t matter which side of the political aisle you think you adhere to, you’ll find friends and foes on that list. Plenty of them. And on that list, somewhat buried amidst famous and obscure names – there’s ME and everybody I know on this side of the Atlantic.
After a heavy list of politicians and bankers there is a list of “Others” and there we are in our entire splendor – The American Public. I wish I could say that it made me mad, but really, it didn’t. It is the truth. If there would be such thing as the Olympic Games of Consumerism, America would take the gold in every single category.
For that is what we did best for years on end. We consumed. We wanted stuff. All of it. We shopped as means of entertaining. Not because we needed things. But because we were afraid we won’t be up to date. Maybe it wasn’t so much fear, as it was pure want. I’m not quick to point my finger and forget about myself. Yes, I own one (seven? seventeen?) too many frocks.
Also quite a few pairs of jeans (not the 19.99 a pair kind). We won’t even mention the shoe department (I can easily blame that on my childhood – poverty and deprivation and all), but I could open a small store in some town.
But even when I did over do it (trust me – I did, just like everybody else), I didn’t not left bills unpaid, or my kids unfed. Sure, there really wasn’t a lot of saving going on, but I wasn’t Debtor’s Prison material. And, since last September, I have slowed down. Don’t tell this to my well dressed fabulous friends, but it’s not all bad. In truth it is rewarding not giving in into one’s own impulses (not to mention saving the money I don’t spend). I cannot be hypocritical and deny that my lifestyle is quite comfortable and I’m not in the same situation with those who struggle to pay their bills and feed their kids. It is because there are so many people that are in that situation, that makes the buying craze even more obscene.
Did I just say people? Sorry. I meant the American Public. The very same one that took loans on their overtly inflated homes so they could buy cars, and take trips to just buy stuff. A few years back the American Medical Association put Compulsive Shopping on the mental illness’ list. Need I say more? It is an easy way out to blame it all on the bankers and politicians and “others”. Reality is that we are all grown ups and we should know better than to gorge ourselves on things that we know we can’t afford.
Yes, I am sorry for the ones that are losing their homes because they lost their jobs and cannot make the payments. But I can’t be sorry for the guy who lived on Social Security and refinanced his house so he could buy a used Camero. The car turned out to be a piece of crap and stopped working altogether. Now he is losing his house because he cannot make his payments. This is pure idiocy and I challenge anybody to tell me that I should show the guy some sympathy.
And there are so many people in this situation. That spent their money on crap. Yes. Crap. They spent it because things had a good price. Or they looked cute. Or the ubiquitous ads said you must have them. Or they just got bored of their own old crap (not that it stopped being functional). Pure want, rarely need.
I am curious now as to what is going to happen next. After months of avoiding the stores, I went out last week to do some returns (yes, America is the haven for those). And you know what? There were as many people around as there were a year ago. Or two, or three. Were they buying, or just looking? I don’t know – I feared sticking around – I’m weak and I love instant gratification as much as the next person. But it awed me.
I know how we got here – we’re addicted to buying. But I wonder what it would take to make us stop. How do you put a whole nation in rehab?
By Rupert Wolfe Murray and Michou Jardini
“Pure want, rarely need.” Indeed. We need very little to need but we want more. We want to win the lottery so that we can buy more stuff.
Sometimes I’m very glad that I am an average Romanian guy. If I WANT something i must me very careful in choosing what i want because i can’t afford it.
I think that this video is suitable for this article:http://www.ted.com/index.php/talks/benjamin_wallace_on_the_price_of_happiness.html
Sorry this is the correct link: http://www.ted.com/index.php/talks/dan_gilbert_researches_happiness.html
“Shop ‘Till You Drop” has had dire consequences. The whole system is reeling now.
Funny to have the experience of judging things which are going on around you somewhere in the subconscious area of our being, maybe hardly ever spoken in words and sentences in your mind, and suddenly you read the words you have never spoken to find out that you agree, that they come as a proof of your own thoughts and opinion.
I have been trying (and miserably failing as it turned out) to help a friend in New York State get hold of a standard daylight lamp fixture for an art studio. Suddenly realised how ridiculous the total lack of standardisation on the US market has become (I had no idea). Every single producer of a light bulb has his own producer of fixtures and they´re all different. I mean how many different types of light bulb does a nation need? They ended up shipping the product over from England. I am now wary of taking my kids for a long promised trip to the US as I have a vision of “water water everywhere and not a drop to drink”
On the other hand – are we Europeans not going overboard with our EU Norms ……..
A lot can be learned by looking at the micro detail of things…
In my opinion there is a whole vicious circle around this problem and we don’t really know who to blame. If it’s either the government who isn’t able to handle the situation, or the banks who give out loans without any consideration, or the advertisers who try to manipulate us every day into buying more and more things. I would say all of them, but particularly advertising has a big part in this. I am currently studying for a degree in Advertising & Media but that’s just because I’m attracted to the artistic part of it, rather than the commercial one. But I can tell you that it’s mainly because of advertising that shopping has reached such a level. People just go into shopping centres and buy things randomly on buzzes given by ads. In Romania, for instance it’s very hard for an average person to buy anything more than a pair of jeans without getting a loan, due to low income. This issue is caused by badly developed economy, which is poorly managed by the government, led by people who only act in their own advantage. I guess this would be the answer for all those who are trying to look for the root of the problem. In other countries the problem is similar, but on a larger scale. I currently live in England and my flatmate has just bought his second xbox last week and in America you can find an IPod in the hands of 98% of people aged 14+. Do we really need all this nonsense stuff?
Thanks for the article Rupert. Can’t say that I learned something really new from it, but I enjoyed how it is written. Again you found a problem and are good in attracting attention to it, letting people think about themselves and their behaviour. It’s true that instead of just blaming banks, governments, any external circumstances we should pay attention to ourselves, simple people who feed economical monster.
Consumerism isn’t just a problem of Americans of course. I assure you that in modern Russia is the same. We buy a lot of crap and become more and more purchase addicted working just for feeding our craving and losing real aims in our lifes. Maybe we can just allow a little less to ourselfs than Americans, so scales are smaller, but the essense is the same ;).
On the other hand, there is a theory that the world crisis is natural thing. In the beginning of XIX century Russian economist Nikolai Kondratiev found out that global capitalism economy delelops by waves: http://en.wikipedia.org/wiki/Kondratiev_wave .
Each wave has about 40-50 years period and become a bit smaller from cycle to cycle because of scientific and technological progress.
Wave starts with mass production of some new goods usually invented on the slump of the previous wave (like cars on the 3rd wave, or microelectronic stuff on the 5th wave, look here http://is.gd/kkIJ). Growth is related to large consuming of those new goods by ordinal people. Then at some moment the market become saturated. People have all they need (“are buying less cars” in your article) and don’t buy that much as before. Companies have less incomes and start to pay more attention to different financial tricks, plays money that don’t exist. It helps to support wave grows for some time, but then it crashes and falling of the wave starts. Crisis. Until most of financial pyramids will fall AND something really new will appear in our life. What it will be? Who knows. But according to the idea, the invention has been already done, but just haven’t been applied and haven’t been made cheap enough. [http://is.gd/kkKn]
Anyway if don’t concern economical theory and use it as excuse, it’s evident that we should buy only things we really need. As for me I guess that one of the best approach to buy less crap is start to travel. 😀 Not to live too much time in one place. When you are on the way you just cannot afford yourself unnecessary things. They are too heavy too carry, also you should pay for excess weight, and moreover they can be stolen or lost (this is a road!) and you can lose everything in one moment, thus why to work for them?
Together with my wife we brought two trunks, two back packs and some additional bags of different stuff from Tomsk moving to new place. We thought we really need all of this. Believe me we were SO wrong! Now we gave HALF of our things to people just because we realized we don’t need it really. And that was not bad things at all, some of them almost new. Old and not good things we just threw out. We realized how little we need and how much we loss being seized by accidental shopping bursts. Can’t say we completely free of shopping now, but it least not so liable to it as it was before.
What if you cannot or don’t like to travel, but want to be become free of buying craps? Maybe it would help to imagine that you are in some trip? I really believe that one person usually don’t need more than it’s possible to carry.
Very interesting comments. Thanks. I particularly agree with the point about luggage. You don’t need more than you can carry…
Totally agree with your take on the economic/financial crisis. Having study this myself, indeed leverage and consumerism are key words in explaining the crisis. Appartently the leverage ratio is actually around $300 for every $1 – in other words, £299 are simply virtual money (made through the use of fancy financial derivatives), toxic debt, not backed by real investments and real assets. Consumerism as an engine of growth is not surprising in economics, our societies have always been demand-led, i.e. industries and businesses have responsed to what people want and demand. The problem is over-consumption, shopping way beyond our means, obtaining easy credit from banks so that we can shop endlessly. And when reality bites everyone gets hurt, especially in this age of global inter-dependence…. I would also probably add the misuse and loss of trust of people in the banking sector, as another key word, that could and is wrecking havoc in the system. And would even go further to say that in order to restore this trust pumping hundreds of billions of pounds into saving the banks will not help; a better start in solving the crisis would be instead that bank managers responsible for this be named and shamed, sacked and put on trial!
I am no economist so I fail to understand questions of market mechanisms. Mind you, the world is full of economists who understand all these things and yet they can’t prevent, or even predict, economic crises. Classical economics in terms of Adam Smith Malthus, Mill etc and Kondratiev cycles, Keynsianism, monetarism, Marxism and so forth seem to me to explain nothing. My own wonder is where all the value comes from? A banker gets a bonus of $5m – who has created the added value to pay for this? Productive made a little film some years ago of a Romanian farmer saying that if he had more water his maize plants would produce more. This I understand.