Breaking the Consumption Addiction

Economics Professor Atrios notices that the housing industry is–predictably–asking for its share of the bailout and points out that it’s probably not a good idea to try to reinflate the housing bubble.

 Department Of Really Bad Ideas

While I’ve been more than a little skeptical about Treasury and Fed shotgunning trillions to their rich friends, there are at least germs of arguments here and there for why some of it may be desirable. But the home builders are serving up an even stinkier shit sandwich!

The builders’ lobby is ramping up its sales pitch for a $250 billion stimulus package called "Fix Housing First," arguing that financial markets won’t recover until home prices stop falling. They are calling for a generous tax credit for home purchases and a federal subsidy that would lower a homeowner’s mortgage rate.


But that’s a problem with bailing out our economy, in general. You can’t bail out the housing industry–at least not in the way they want–because that’ll just encourage the same kind of foolish investments that got us into this problem.

Similarly, though, we need to make sure any auto bridge attempts to shift the profit calculation for manufacturers, because right now, producing gas guzzling behemoths would be the quickest way to pay off federal loans.

And what about the retail industry? While the emails listing tons of retail closings are over-stated, you’ve still got outlets like Ann Taylor and Footlocker and Macys closing stores and crappy chains like Circuit City going into bankruptcy–and that’s before what promises to be a dismal Christmas shopping season. That means that a lot of people who can least afford it–those with minimal education, seniors returning to the workforce, and so on–may lose their jobs. Nevertheless, I sort of regard it as a good thing that people aren’t going to spend $3000 on a fancy new teevee this year–that much money would feed entire families for a year in some developing nations. Eventually, we’re going to need to cushion the losses of the retail sector–but hopefully we don’t do it in such a way that encourages the orgy of conumption we’ve been on in recent years.

Granted, with sound policy decisions, we might be able to help out these struggling sectors while still encouraging sounder consumption choices: focus housing stimulus on those building denser housing to encourage less driving; use a gas tax to bail out the auto pension plans and, at the same time, invest in more efficient technologies; focus money on more local retail stores that buy American products and keep more money in local communities.

But all of that should happen after a national conversation about our consumption addiction. We, as a country, need to understand that, in addition to the evil CEOs making stupid decisions and the regulators abdicating their oversight role, this crisis was caused by our rampant consumerism. We need to discuss publicly what kind of consumption we should protect, and what really isn’t worth the $3500 credit card bill. Obviously, individual consumers are making these decisions on their own (or there wouldn’t be so many stores closing), but we as a society need to reach some consensus about what parts of the massive infrastructure supporting consumption we fold up and let die off.

36 replies
  1. klynn says:

    Perhaps the marketing industry can stop the “cocoon society” marketing and start the “butterfly society” marketing. It’s time we stop the “cocooning consumption” and get done with the metamorphosis so that we can fly and be constructive contributors to society.

  2. FrankProbst says:

    Sorry, but I’m with the housing industry on this one. If we’re going to blow half our GDP bailing out a bunch of big businesses who are going to continue to give their CEOs obscene yearly bonuses for their spectacular failures, then I at least want to get a cheap house out of the deal.

    • Rayne says:

      Nope. There’s too much capacity already sitting around doing nothing.

      Better to help communities with infrastructure assistance — perhaps help them with grants to install more sidewalks and bike routes, ask construction folks to migrate away from housing and to heavier construction instead for a while. If you’ve seen Michigan’s roads and Michigan’s housing market, you know that the former was grossly shortchanged by the bubble in the latter.

      • emptywheel says:

        Um, Rayne? Did you guys have a housing bubble where you’re at? Because last I checked, I lived in the economically brightest spot in MI, and while we had price increases, we didn’t really have a bubble (though my house is worth about 20% less than it was when I bought it in 2002).

        • skdadl says:

          (though my house is worth about 20% less than it was when I bought it in 2002).

          Oy. Well. That brings it home. I’m afraid to check.

          I try to share radiofreewill’s vision @ 7, but I keep remembering the fantasy industries — advertising, film, TV, especially — which in North America are now more than just business, although they are for sure that. But they are culture, too, deep culture. They reinforce the consumerist sickness, but for a lot of people, that’s the main culture they’ve got, and most of us are at least a bit affected by it.

          I also doubt that they are going to go quietly. They depend on a vast audience that believes in sentimental myths; they make a lot of money creating that audience, and we have responded, I’d say for a lot longer than forty years.

          Written, I guess, in a bit of resistance to the notion that consumerism is a moral failing in all us individual plebs. It still takes a pretty strong iconoclast to stand against the consumerist tide. (Heh: I know. I married one. He made me strange too.)

          • emptywheel says:

            You know, I’ve been thinking a lot about what’s going to happen when advertizing severely contracts and TV and newspapers lose funding (note, this is one of hte biggest reasons why people are freaked out about the Big 2.5 going under).

            We really ought to anticipate an opportunity to change that funding model and with it the quality of the material.

            In any case, have you noticed the difference in TV adveritising yet? Sure, viagra has still paid for every other ad. But there’s a lot fewer big ticket items, even during diamond=love selling season. And more new alcohol ads.

    • emptywheel says:

      Um, Frank? This plan isn’t about cheap houses–it’s about subsidized houses that do nothing to get the home market back in line with real value.

      The builders’ lobby is ramping up its sales pitch for a $250 billion stimulus package called “Fix Housing First,” arguing that financial markets won’t recover until home prices stop falling. They are calling for a generous tax credit for home purchases and a federal subsidy that would lower a homeowner’s mortgage rate.
      The homebuilders’ proposal would offer home buyers a tax credit equal to 10% of the home’s value, capping it at $22,000, nearly three times the $7,500 credit Congress offered to new buyers earlier this year. Builders say the earlier credit didn’t work because it wasn’t big enough and had to be repaid.

      This would be as stupid as subsidizing the sale of Lincoln Navigators because they’re by far Ford’s most profitable car.

      Oh wait. We already did that. And that was a colossally stupid decision, too.

      • FrankProbst says:

        Um, Frank? This plan isn’t about cheap houses–it’s about subsidized houses that do nothing to get the home market back in line with real value.

        This would be as stupid as subsidizing the sale of Lincoln Navigators because they’re by far Ford’s most profitable car.

        Oh wait. We already did that. And that was a colossally stupid decision, too.

        I absolutely agree with you that it’s a stupid decision. But we just gave Paulson several hundred billion dollars to buy Big Shitpile (which was dumb), and he decided to give the money to his banker friends instead. So I’m viewing this proposal through that lens. If you’re planning on buying a house in the next year, you should expect it to drop in value for a little while before it’s ever worth what you paid for it. Under the builders’ plan, my house will still drop in value (which I would expect, anyway), but I’m giving $22,000 less to Paulson’s friends.

    • opiejeanne1 says:

      I’d say that if you want a “cheap” house, buy one pretty soon. No idea where you live but prices are way down in most areas, 40% in mine, and my bet is that when the glut of bank-owned properties goes away the prices will head back up. YMMV.

      • Hmmm says:

        But who exactly would you expect to soon be buying that glut of bank-owned properties? I think we are not yet at the bottom. I have considered selling the house and holding the money until we’re closer to the bottom. Because all our money is in the house, and we are going to have to do a reverse mortgage in our dotage if we’re to avoid dining on Little Friskies.

        • nihil says:

          Don’t think those reverfse mortgages will be offered in a falling market. Better sell now, and camp out in a camper until you die.

    • nihil says:

      I hate to telll you, but giving people money to reduce their personal or mortgage debt costs real money, like tax-payer dollars, and the Treasury will never get a penny of it back directly. If there are “multiplier effects” as therfe will be, the Treasury will get money back in taxes, but it won’t know that it was caused by the mortgage relief program. Giving imaginary money to banks in exchange for preferred stock to pep up their depressing balance sheets costs nothing if the banks don’t collpse. Look at the government’s balance sheet — its borrow $350 billion from the banks (who buy T-bills and sit on them)and the Treasury’s Assets have not changed — debit $350B T-bills, credit $350B preferred stock. The banks are in the same situation: credit $350 federal reserves, debit $350 preferred stock owing deferred dividends if the banks ever make a profit. The banks can use the $350 billion to buy T-bills which earn them something,or to make business or consumer loans, or keep it in “cash” which perks up the appearance of the balance sheet, creates confidence, and prevent bank runs. I call the original $350 B “funny money” because the Treasury can borrow as much as it wishesfrom the fed, or China, or anybody and pay trivial interest. The WSJ is profoundly shocked by such monetary indiscipline leading to a rise in the value of the dollar and a real shortage of T-bills. Every week billions in T-bills are auctioned by the Treasury, and the buyer willing to accept the lowest interest rate gets his bills, and so on up the interest rate offers. I suppose the point is that the Treasury can produce as many T-bills as people can be persuaded to buy. No backing, no gold or silver, just the good faith of the American government (and everyone knows just how good that faith is!). Most of the T-bills are just bits on a computer. Can’t we always print more T-bills and sell them?
      money is even weirder than. Weirdly enough the Federal Reserve System, that club of bank-owned banks has the exclusive monopoly right to create dollars(except for coins). All one has to do is to borrow a dollar of “money” from a bank. This creates an obligation for the bank to deposit 5 cents in its the reserve account at the Federal Reserve Bank If the bank lends $100 it must have at the “fed” $5 onat the end of the day. There is a huge business in which banks borrow and lend reservesto each of, making sure that they have neither excess reserves (which done pay interest) or insufficient reserves which earns a notice from the fed The new borrower’s cash is then spent, several times through the banking system, and ultimately causes the creation of $20 for each $1 borrowed. (”multiple deposit creation.” Our money is a figment of an elaborate hoax. But upon this shaky found the US sends fleets and armies around the world, eockets and telescopes into space, and buys billions of dollars worth of junk from China. If you really want to raise hell, pay off your debt to a bank, Every dollar you pay destroys $20 of money. Obviously the trick is to keep everyone borrowing and not paying off the debt, like a giant ponzi scheme. You can see that if Paulson can lend $30 biollion of new imaginary money to banks, and can talk them in lend in vn 10 per cent of that, the Treasury will have $350 billion in circulatio plus $350 billion in preferred stocks issued by the banks. The banks will make a vast fortune if they lend all of the money ($7 Trillion dollars),” of which the Treasury tax rate of , say,20% will collect $700 billion. Itd a two-for, or a three-for if we count the preferred stocks (and the banks don’t fail. Now if we could only get businesses or consumers with good credit to borrow and the banks to lend.
      Tomorrow’s lecture: “Inflation — why or why not?”

  3. Tortoise says:

    But rampant consumerism has been official government policy for decades. IMO Obama isn’t going to discourage any kind of spending anytime soon, for fear of making things worse.

  4. TobyWollin says:

    My two cents: I think that if we looked at what the retail sector looked like thirty years ago, before widespread credit cards were available, and what happened to it, I think we basically see that the whole thing, from teh building of malls on up has floated on this illusion. The only way to support this is to create the illusion again – because right now, people are NOT spending money that they don’t have. The wallets have been snapped shut. What we’re going to do with these thousands of empty malls in the US is something I can’t wrap my head around right now, but they are emptying out fast(see the listing of retail chains that are closing stores even before Christmas). What this will do to the value of commercial real estate is another issue.

    • emptywheel says:


      Make sure you link through to the second part of my link on those closing stores–Snopes debunks the notion that it is as total as portrayed.

      That said, perhaps the take would be to fund a program to get locally owned stores to replace those chain stores, selling better built, locally produced goods? Plus subsidized wellness clinics and adult education centers and stuff like that.

    • TobyWollin says:

      Yep – best ‘take-away’ is this:
      “GM said that it was taking all of the technology it could get its hands on — whether from the labs or elsewhere — and fully deploying it in China.

      GM felt that this was a way to embed itself deeply in the Chinese economy over the next three decades and would keep the car manufacturer ahead of the more technologically-stingy Japanese firms as well as Daimler and Chrysler which had already had hiccups at that time in their China activities.”

      Which makes you wonder why SAIC wants to buy GM in the first place — GM’s highest tech is in China ALREADY — if the Chinese haven’t found a way to steal it already, it won’t be because GM has not put it out on a silver platter for them.

      • emptywheel says:

        I haven’t read the SAIC/GM partnership agreement, but right now, GM still owns that technology. Their use of it in China is a completely rational decision dictated by their need to get a high volume of high profit sales to offset their unprofitable sales in this country. If SAIC bought up chunks of GM, they’d own that technology outright.

        • TobyWollin says:

          OH, you are right; if SAIC buys GM, then they own the technology fair and square – they buy all the assets and they get the whole deal. Absolutely. I have, however, read more than once about people’s laptops and hard drives being stolen on trips to China, copied and so on; my only point, and perhaps not made well, is that the chances of that technology ending up in someone’s hands when it is already in China, even without SAIC’s buying GM, are possibly pretty good.

          • nihil says:

            Give me a break! Legend bought the PC business from IBM and now probably produces more laptops (e.g. “Thinkpads”) than anyone else. China is the biggest market for PC’s in the world. Intel already has a big software lab working on Chinese language software in China, and is building a $2 billion fab to produce microprocessors in China. China can buy anyhing they want. They don’t have to steal anything. Probably do it just to keep their hand in and their fingers nimble.

    • emptywheel says:

      Uh, except that it is completely ignorant about the global structure of GM and Ford.

      I’m all in favor of tying a bailout to domestic production guarantees. But telling GM it has to cut its efforts in China is tantamount to telling it to go broke simply because it’s making smart decisions to try to offset its competitive disadvantages here.

  5. radiofreewill says:

    I couldn’t agree more!

    We need to consciously move ‘away’ from Quantity (of Personal Consumption) and ‘towards’ Quality (of Shared Experience.)

    The Slow Food movement knows this already – they know that natural, wholesome things are pretty good – just as they are – but Most of US have yet to put down our addiction to accelerated, short-term, throw-away pleasures.

    Slowing down our Instant Gratification Consumption Addiction will naturally take US down a path of Discovering for Ourselves that, with a Qualitative approach, We can maintain dynamic, harmonious and fulfilling relationships – pretty good relationships – to Each Other, enjoying 21st Century Life and All that it has to offer.

    On the Other Side of Our Consumption Habit – at the Ending of the Age of Consumption – is a Higher Quality Life – at the Dawning of the Age of Community.

  6. JohnLopresti says:

    I visited a small town the other day, population about 5,000. Last time I had seen it was decades ago. Like many small towns, the urban center was tastefully constructed homes and a few small-business commercial streets, fringed by outlets with noticeably more acreage, like the old wholesale district in a band around the former town center. Yet, entering the village now entails traveling on a multilane boulevard thru yet further commercial districts adjacent to modern housing, a sprawling city in modern times. The entire city seems thriving, and its chosen emphases seem to have remained smallbusinesscentric. Admittedly, its remoteness tends to make its artisanry-based commerce attractive, somewhat like tourism for places in scenic settings. But I do not see in the crystal ball suburban metropolises becoming like that charming little village. Suburbia has a different set of legacy ailments and resources. I like the sound of a construction housing industry bailout share, always a key component of Democratic party administrations. I found a funny, brief interview with an architect who, evidently, from his easily condensed review of the key concepts of a more economically and environmentally friendly new building value-system, is part of a new interest in redirecting the way “home” is part of our daily experience as well as a huge part of our fiscal path. One of the individuals he cites, is a former state government official known as the state architect, someone also renowned for interest in changing the way we build and regard our cities and towns. It will be interesting to see where BObama takes the US housing industry; there is a lot of room for new leadership in integrating it into the budget, both domestically, as well as in developing countries.

    • readerOfTeaLeaves says:

      JohnLopresti, I call what you seem to be describing as ‘new urbanism’, and it’s good not only economically, but also seems to be more socially (and emotionally) healthy. It draws from a number of areas, including psych research (engineers tend to use the term ‘human factors‘, in assessing how to best design for scale, sound abatement, and lower crime.

      Their used to be a national program called “CPTED” (Crime Prevention Through Environmental Design), but under Bu$hCo the idea of helping local city and county police departments enhance public safety by studying, analyzing, and implementing better housing and neighborhood design regulations lost out to Blackwater contracts and militarization.

      However, it turns out that the kind of community you describe tends to have more healthy social interactions, lower crime, and much of this seems to be based on the ‘walkability’ and scale of the construction and design.

      As for the building industry — I’m not one bit surprised that the McMansion builders and subdivision sleazebots are bellying up to the Big Government Teat. If they get money, we’ll have more sprawl. Which seems incredibly counterproductive.

      As for all those crap retailers, let ‘em fail.
      Then use government money to pay people to take care of children and the elderly, and put a lot more money into parks and rec programs. People who whine about low math and reading scores don’t grasp the fact that helping kids play, climb, crawl, run, skip, slide, twirl, swing, prance, and jump helps their growing brains develop a whole range of ‘reading readiness’ and learning skills.

      The world doesn’t need more shops selling crap that’s going to end up in garbage bins.

      The world needs more playtimes, more swings, more golf, more tennis, more rope-skipping, and more solid kids (and senior, and adult) recreation and art programs.

      Government money used to pay people to supervise kids playgrounds and games would be far better spent than bailing out failing businesses in Big Box retail outlets that sit on acres of asphalt.

      But enough time on the soapbox for me tonight!
      I must go play…

  7. Arbusto says:

    The idea of living within our pay check is a radical, if long overdue readjustment for the American family. But is only part of a solutions for what ails not only the US, but the world.

    ZPG is more critical now than when Paul Ehrlich espoused the need. Dwindling resources, such as oil and water will lead to more conflicts. IMHO only a new economic model of slow or no growth and based on environmentally friendly, locally manufactured products, will sustain us. Of course that’ll never happen

  8. nomolos says:

    The builders’ lobby is ramping up its sales pitch for a $250 billion stimulus package called “Fix Housing First,”

    Years and years ago, before Raygun, it was possible to get tax breaks for winterizing a house, for installing a new furnace and for building up to 6 unit apartment buildings. All of that went out the window with the ef you generation.
    Bring back those tax breaks and the housing industry will boom.

  9. randiego says:

    In a rational society, these things would be greeted and embraced as great ideas BEFORE it was too late to save big pieces of people’s wealth.

    But we’ve seen that the American public (and in turn their politicians) won’t embrace positive change until the pain reaches a certain level. Exhibit A: Millions of people didn’t think that maybe owning a fuel efficient car was a good idea until gas hit $4.50, despite a zillion warnings that it was coming…

    Not that I think that folks aren’t feeling any pain yet, but it hasn’t yet hit the critical mass required for people to wake up and demand real solutions and better ideas. That critical mass is coming.

    A shame.

  10. jdmckay says:

    But all of that should happen after a national conversation about our consumption addiction. (…) but we as a society need to reach some consensus about what parts of the massive infrastructure supporting consumption we fold up and let die off.

    Bingo!!! Can we start now? s Fred Barnes, Jonah & AIPAC invited? Do I need to buy a ticket to this thing?

    I applaud BO’s Christina Romer nomination as Chair(wo)man of the Council of Economic Advisers.

    Encouraging to me. Heard her lecture many times. She brings outside-Wall-Street views, and much less finance centric. Much closer to Laura Tyson than Summers.

    Big step in right direction AFAIC.

    Same w/Melody Barnes Director of the White House Domestic Policy Council. I would think Chris Bowers may be partially assuaged w/her. I would hope she gets significant voice in things.

  11. DeadLast says:

    …this crisis was caused by our rampant consumerism…

    Yes, no, and maybe. The biggest problem was BushCo. After 9/11, they knew they had to drive interest rates down to keep the economy from imploding on their watch. They also realized that flooding the pond with sewer water raised all boats, even though it would later be condemned as a chess pool.

    Low interest rates made people think they were wealthier than they otherwise thought. Yes, I thought my $400K house was worth a million because that is what my neighbors were selling their homes for. Year after year. So we actually felt wealthier. Now, maybe BushCo or Rove had read the behavioral science literature and realized that we tend to act like rats in a maze rather than as “free” agents.

    Consumption addiction makes it sound like the junkie is the only one to blame. If that is the case, let’s let every junkie fail including the banks, the Big Three, the Big Four, and the Big One. We are all in this boat together and if we continue to blindly cling to the Social Contract, the Commerce Clause, and In God We Trust (to save our sorry asses), we are in trouble.

    A new report states that 4 million American families have lost economic security between 2000 and 2006. Add what has happened since 2006 is anyone’s guess. Our soft infrastructure has been crumbling since the 1980s (yes, Clinton did it too).

    I think Obama is going to spend as much as he can as smart as he can to avoid disaster. We are also going to have to restructure most of our credit obligations (one step down from bankruptcy). Many economists expect that we are going to have to endure high inflation to keep the balance sheet digits aligned. But something has to give.

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