Don't get guilted into overspending now!

Conflicting signals are being sent by the Mainstream Media on the subject of thrift and frugality in the current economic crisis. Take for example Newsweek, which is one I happen to read. One week it carried had a story by a fellow whose parents were so frugal that they could have written the Tightwad Gazette:

In today's cratering economy, my parents are looking pretty smart all of a sudden. President Obama talks a lot about personal sacrifice, and we all need to look for ways to cut costs these days. Maybe he ought to consider Bill and Joyce Tuttle as the nation's first thrift czars, because when it comes to pinching pennies and saving for the future, my parents are extreme.

They dry their clothes outside, don't have cable TV and heat their (self-built) home with wood they chopped. Although the author acknowledges that the model is a tough one to replicate, the conclusion is admiring:

But there are still valuable lessons to be gleaned from their example, which boils down to this: the people who have been living the thrifty life all along, doing the right thing—crazy stuff like buying houses they can afford and saving up money for things they want to buy—are the smart ones now. And they'll be the ones who adjust most easily to a leaner time.

and the very next week there was a story whose title says it all: Stop Saving Now!

For our $14 trillion economy to recover and thrive, hoarders must open their wallets and become consumers, and businesses must once again be willing to roll the dice. Nobody is advocating a return to the debt-fueled days of 4,000-square-foot second homes, $1,000 handbags and $6 specialty coffees. But in our economy, in which 70 percent of activity is derived from consumers, we do need our neighbors to spend. Otherwise we fall into what economist John Maynard Keynes called the "paradox of thrift." If everyone saves during a slack period, economic activity will decrease, thus making everyone poorer. We also need to start investing again—not necessarily in the stock of Citigroup or in condos in Miami. But rather to build skills, to create the new companies that are so vital to growth, and to fund the discovery and development of new technologies.

The copious qualifiers notwithstanding, it is hard to believe that he's not talking about designer handbags and speciality coffee. After all, if one still has a job they're not likely not to be spending on food and other daily necessities - albeit perhaps at a lower level than before. What has suffered in this economy is precisely the credit-fueled consumerism of large-screen TVs and stainless steel kitchen appliances.

If you really want to see what the problem is, check out this posting from Nate Silver:

Per-family household debt increased by about 130% in real dollars between 1989 and 2007, from roughly $42,000 per family in 1989 to $97,000 eighteen years later. Most of that increase has come during the past six or seven years -- household debt increased by 52% between 2001 and 2007 alone.

(snip)

All of his wasn't that much of a problem so long as the value of the housing stock was appreciating at 10 or 15% per year, keeping pace with the additional debt that households were assuming. But of course, it stopped doing so about 2-3 years ago. Translation: look out below. When people talk about the destruction of the household balance sheet, this is what they're referring to (or at least what they ought to be referring to).

In other words, the paradox of thrift notwithstanding, the growth in the economy and the reliance of it on consumer spending was built on an unsustainable bubble in the value of one particular asset - housing. The decline in those values -and the resultant tightening of consumer credit - means we couldn't return that economy right now even if we wanted to.

Which we shouldn't. It bears repeating that building an economy on handbags and Starbucks and large screen TVs doesn't do a single darn thing "to build skills, to create the new companies that are so vital to growth, and to fund the discovery and development of new technologies." That kind of activity is above the paygrade of most consumers anyway. For now, the best thing that we (the consumers) can do is to pay down debt, increase savings, and continue to sensibly buy those things we need to our daily lives - not foregoing them, but not buying more (in quantity or in designer label "quality") than we need.

That's the way to get our own "toxic assets" off our balance sheets. When, in the future, the economy and the credit markets return to some measure of normalcy, we will then be in a much better position to invest and spend planfully and wisely than we will be if we allow ourselves to be guilted into over-spending now.

So go ahead, hang your clothes outside. Drive your car till it dies. Pay cash for what you buy. You have my permission.

Drastic times call for hopeful measures

Thomas Friedman in the Times brings up a similar point to the one in the Alternet article I linked to the other day: that the current economic crisis shows that the economic-growth model of the last 50 years has run its course. Money quote:

We have created a system for growth that depended on our building more and more stores to sell more and more stuff made in more and more factories in China, powered by more and more coal that would cause more and more climate change but earn China more and more dollars to buy more and more U.S. T-bills so America would have more and more money to build more and more stores and sell more and more stuff that would employ more and more Chinese ...

We can’t do this anymore.

The piece points out that economic growth based on the exploitation of our natural resources isn't really wealth at all, but an elaborate Ponzi scheme, the consequences of which we pass on to our children.

“Just as a few lonely economists warned us we were living beyond our financial means and overdrawing our financial assets, scientists are warning us that we’re living beyond our ecological means and overdrawing our natural assets,” argues Glenn Prickett, senior vice president at Conservation International. But, he cautioned, as environmentalists have pointed out: “Mother Nature doesn’t do bailouts.”

The solution is sustainability, on the macro level:

For starters, economies need to transition to the concept of net-zero, whereby buildings, cars, factories and homes are designed not only to generate as much energy as they use but to be infinitely recyclable in as many parts as possible. Let’s grow by creating flows rather than plundering more stocks.

This of course is what this blog and other sustainability and frugality blogs have been advocating all along: living within our means, taking out only as much as we need, not wasting, recycling and reusing as much as possible. Unfortunately, the mechanisms of society as a whole are built to use exploitative and non-sustainable means and technologies. Changing that will be our biggest challenge.

How much nest with the nestegg?

Here's an interesting article from Alternet that asks whether, with the collapse of housing prices and people's retirement funds, there will be a rethinking among baby boomers of the one-house-per-family paradigm. To make housing costs more affordable and to stretch those entitlement funds (that are in many cases - more than we thought a couple of years ago - going to be the main means of support for many of tomorrow's seniors), people will be thinking about such "new" arrangements as co-housing, boarders, group homes and more.

“In the last few months we've experienced explosive growth in interest by homeowners age 50-plus to find rooms and roommates,” says Jacqueline Grossmann, Chicago coordinator for the National Shared Housing Resource Center, "The trend now is getting younger and younger. People in their 50s and 60s are losing their nest eggs and increasingly willing to give up their privacy in exchange for rents of $500, $600 a month.”

The article goes on to ask if this might not be one of those silver-lining opportunities of our current financial situation.

As more and more boomers scale down their retirement plans and consider alternative living arrangements, it's worth asking: Is shared housing such a bad thing for aging boomers? Does a return to the Communal idea, borne of economic necessity, also have emotional, social, and environmental benefits? Why wait for the retirement home or hospice to live with other people? With the nation full of worthless, ridiculously large, and mostly empty houses, why not fill them with the newly penurious and like-minded boomers in need of housing?

When Joe Rodriguez of Your Money or Your Life fame retired from Wall Street at the age of 30, he had investments that guaranteed him an income of $6,000 per year, and that was before the massive inflation of the 70s reset the value of the dollar. One of the main mechanisms I remember him mentioning as to how he made this arrangement work was the sharing of housing and housing costs.

In addition to the savings, as the article mentions, there are advantages in terms of environmental impact (more people in fewer houses means fewer homes to be heated and cooled) and social connectedness (as people form families-of-choice, they are emotionally invested in others' lives in a way that aging grandparents miles away from their kids rarely are). Not to mention that a more communal lifestyle will counter a lot of the YOYO (your on your own) propaganda of the past 30 years, which sees any social connectedness beyond blood and church as invasive. Is it any wonder Americans are so neurotic?

Our current financial mess can be useful if it causes us to rethink our goals, both individually and as a society. Rather than just Humpty Dumpty back together again, it may be time to move past the failed models of recent years and toward a way of living that is less focused on acquisition and economic growth, and more focused on sustainability and the sharing of resources.

On polar bears and politics

(cross-linked to the COEJL blog - To Till and to Tend)

At a recent meeting of the steering committee of Kansas Interfaith Power & Light, on which I serve, we heard two presentations back to back, and they could not have been more different. The first, on the most-current science of climate change, was similar in tone and content to the movie, An Inconvenient Truth; the second, by one of the two evangelical members of the committee (in a room full of liberal Christians and yours truly) was about how you can’t really talk about the science in churches, because when they hear “the science” they think “Al Gore” and “partisan politics” and won’t listen to it at all. At the time it struck me as an odd (to say the least) juxtaposition, and thought that ignoring the science in a community like mine – educated, largely secular in outlook - would have you laughed off the bima.

On the other hand, of course, we all know that you can lay science and the polar bears on people all day long and not have it affect their day-to-day decisionmaking one iota. So maybe, after a fashion, the second presenter was on to something.

Today on Daily Kos, Meteor Blades linked to a report on a study by the Pew Research Center showing that, on a list of 20 voter concerns, the economy ranks first, addressing the nation’s energy needs ranks sixth, while “the environment” ranks 16th and “global warming” dead last. The same study shows that the concern of voters for environmental issues has declined 15% in the past year – roughly the same timeframe as the collapse of the economy. Given the state of the economy and the fact that we’re still in two wars, this seems unlikely to change during the term of this Congress.

So does that mean we give up on addressing the environment and climate change? No, according to Pew, it means coming at the problem from a different angle – through the things people are concerned about: jobs, the economy, and energy:

The takeaway message for journalists is that those "stewardship" frames will not be sufficient in terms of galvanizing support for clean energy. In the pursuit of public engagement, the press would be better advised to link sustainability issues to economic growth and "green" jobs.

According to Matthew Nesbit of the Framing Science blog, analyzing the Pew report and also linked from Kos:

Only by "reframing" the relevance of climate change in ways that connect to the specific core values of key segments of the public - and repeatedly communicating these multiple meanings through a variety of trusted media sources and opinion leaders- can the Obama administration and allies generate the widespread public engagement needed to move major policy action forward. (snip)

It's also time to stop focusing narrowly on remote polar impacts, looming environmental disaster, or symbols such as polar bears. These exemplars are either not personally relevant enough to most audiences, are dismissed as remote and far off in the future, or easily re-framed as "alarmism" sending interpretations back into the mental box of lingering scientific uncertainty. ...

In order to generate widespread public support for meaningful policy action, the communication challenge is to figure out how to shift the climate change focus away from the traditional frames and devices towards a new perceptual context that resonates with the values and understanding of a specific intended audience. These new meanings for climate change are likely to be key drivers of public resolve and eventual policy action.

In other words, articulating the potential remedies to climate change through the frames of what people say they are concerned about – the economy, jobs and energy independence – in an intensive, unified way, will be much more effective in getting “the change we need” than 100 slides of Amsterdam under water. That’s just effective politics, which we need a lot more of in the environmental movement, especially now that we have a Congress and president who are willing to listen to what we have to say.

And speaking of effective politics, see also this post by David Roberts on grist.com, claiming that the carbon tax, a beloved approach of climate progressives, is a dead letter in Congress, and that judging by the support it has from business and the right wing, it probably isn’t such a great idea anyway. Rather, he encourages us to return to support of cap-and-trade, which can pass this Congress, may well be more effective than a carbon tax at least in the short term, and is much more easily “messaged” (and less easily demagogued) in the ways described above.

The vision thing

Excellent piece in the current issue of the Nation, by Benjamin Barber on the opportunity the current economic crisis presents to rethink the way we organize our society - economically, and in terms of the values we pursue. I wish that Obama's inaugural speech had had a little less talk of "responsibility" (although that's part of it, of course) and a little more soaring rhetoric like this:

Economists and politicians across the spectrum continue to insist that the challenge lies in revving up inert demand. For in an economy that has become dependent on consumerism to the tune of 70 percent of GDP, shoppers who won't shop and consumers who don't consume spell disaster. Yet it is precisely in confronting the paradox of consumerism that the struggle for capitalism's soul needs to be waged.

(snip)

The convergence of Obama's election and the collapse of the global credit economy marks a moment when radical change is possible. But we will need the new president's leadership to turn the economic disaster into a cultural and democratic opportunity: to make service as important as selfishness (what about a national service program, universal and mandatory, linked to education?); to render community no less valid than individualism (lost social capital can be re-created through support for civil society); to make the needs of the spirit as worthy of respect as those of the body (assist the arts and don't chase religion out of the public square just because we want it out of City Hall); to make equality as important as individual opportunity ("equal opportunity" talk has become a way to avoid confronting deep structural inequality); to make prudence and modesty values no less commendable than speculation and hubris (saving is not just good economic policy; it's a beneficent frame of mind). Such values are neither conservative nor liberal but are at once cosmopolitan and deeply American. Their restoration could inaugurate a quiet revolution.

I've written in similar terms before. One of the enduring curiosities of the human condition is how little people are able to imagine things being to even the smallest degree different than how they are now. I'm not even talking about capitalism; I'm talking about the idea that the economy "has to" be based on consumer spending and the internal combustion engine. All current thinking about stimulus etc. are based on these assumptions.

The very best and most important thing about the triumph of progressivism in the recent election is that it allows us to dream again, to think about the world as we might want it to be and to begin to plan ways to get there. One important element of this at the current stage, perhaps the most important given the way Obama was able to harness this energy, is the bully pulpit of the White House. The president must continue to keep hope and change in the forefront as the primary goals of this administration, even as he works on the many difficult, intractable issues that he and we face.

In the campaign, suggesting convincingly that it could be done was the single important element in causing it to happen. And that needs to be applied ever more so the redefinition of the American economy - or is it American values? - that this article underlines.

"Why did we buy all this stuff in the first place?"

is the question posed by Anna Quindlen in this week's Newsweek. The answer: cheap credit, a "keep up with the Joneses" ethos, and lots and lots of advertising.

Now, though, times have changed:

Oh, there is still plenty of need. But it is for real things, things that matter: college tuition, prescription drugs, rent. Food pantries and soup kitchens all over the country have seen demand for their services soar. Homelessness, which had fallen in recent years, may rebound as people lose their jobs and their houses. For the first time this month, the number of people on food stamps will exceed the 30 million mark.

How long has propaganda in the business pages told us that we should be happy that we don't have as much of a social safety net as European countries do, because that's what allows our economy to grow at such higher rates? Of course, most of the benefits of that growth go to the upper-upper percentages. But I would venture to guess that there are now more than a few people in this country who would gladly give up gaudy salary and stock option packages for CEOs for the sake of affordable health care, the certainty that one could stay in one's home, and the availability of a college education.

For years we have been told that consumer spending is the driver of the economy. Yet that never took into account the unsustainability of that approach - in terms of natural resources, and in terms of our own resources. Now we look at our credit card statements - and our economy, and the climate - and wonder, like a drunk after a binge, where all that money went. Well, the economy better find a new engine, because I'm not sure the "good old days" are ever coming back.

Maybe trading slower growth for a more secure life wasn't such an ignorant choice after all. I wonder if it is one that we will in this country will still be able to make.

"The Paradox of Thrift"

Tom Toles gets it right, again:

There's pain - but will there be gain?

From today's Times, a report on consumer spending going down as Americans look at their declining 401K statements and, one might add, express their lack of faith that the bailout is going to solve anything. You could see a similar report in any newspaper in the country this week.

For some Americans, the pain is already acute: jobs disappeared at a faster clip in September. For many others, day-to-day finances are fine for now, but the financial outlook is uncertain: 401(k) accounts are dwindling, loans are hard to get and house prices continue to fall.

What this understates is that lot of people have been doing their spending on credit, whether it be home equity loans that have been pulled back or credit cards that might have skyrocketed in fees and interest rates.

I'm somewhat of two minds about this. The economy is driven by consumer spending and a lot of people will get hurt if that goes down for any length of time. This is a common criticism of simplicity - that if everybody did it we'd be in the deep doo-doo. But we're in the deep doo-doo already, the getting-and-spending economy is proving unsustainable, and (oh by the way) materialism and living-to-buy is spiritually ennervating.

We must re-order our economy so that it is more focused on developing green technologies and less on private consumer spending. I only hope that this economy helps get us (force us) to that point. As I've said before, if we only go back to our old gettin'-and-spendin' ways as soon as conditions ease, the opportunity will have been wasted. If the current economy helps us make the changes we need to move to a new mode of living, that's the only possible way it could be considered worth it.