Romantic Consumerism and US Debt

The United States current culture is best characterized by “Romantic Consumerism”, which is a type of materialism that refers to the idealization of consuming goods and services.

This value system leads to the endless pursuit and consumption of more and more products and/ or services (experiences).

I’ve been thinking about some qualitative questions:

  • Why does the USA have so much debt?
  • Why does the USA public and private debt highest compared to all developed nations?
  • Why is public and private savings the lowest in recent US history?
  • Why have real wages stagnated since 1975, while real GDP has increased 350% since then, and inequality become the highest of any developed nation?

Is this increasing debt and consumption a good thing?

When I was in college studying economics, I took some “macroeconomic policy” courses and “history of economic thought” courses that at blew my mind…

There are a number of factors at play with Romantic Consumerism, and US private debt:

  • Sociological: Keeping up with the Jones’s (Veblen) is key to understanding Romantic Consumerism
  • Psychological: we are not rational creatures, and we don’t do what’s in our best long term interest, and advertising and marketing really exploit this (Kahneman, Tversky)
  • Federal Banking: the monetary policy used to justify “growth” incentives lending, which really just helps the people with money get more money (Galbraith)
  • Lack of regulations: Lenders have more power than borrowers , and they can lend irresponsibly and fuck borrowers
  • Financialization: it used to be that lending was a capitalist enterprise, where money was used to invest in business or things that would yield returns to grow the economy, such as a business or a house or education. But now you can borrow for anything: appliances, food, lingerie, etc. “revolving credit” or CC debt has exploded… which historically was never really a big thing. (Freidman)

Financialization refers to the growth of the finance/lending industry as a % of gdp. This is not good in the long run, because lending creates money from thin air, which inflates the actual prices of things higher than their real value… this leads to economic shocks and depressions etc.

Financialization is bad for a number of reasons, but mostly because it drives inequality: lending just gets the rich richer.

How or why is it bad?

The wealthy lend to the poor, charge interest to make money, so the poor can buy things from the rich (1% own like 90% of stocks, aka Corporations) so that the rich/ corporations make more money/profit, which they then use to lend to the poor again, so the poor can buy from the rich, etc etc, round and round.

Hence you see this massive inequality since 1975 when they did away with the gold coin act and instituted fiat currency which allows for monetary policy… which directly incentives lending etc round and round

This is exactly what “trickle down economics” refers to.

Also, monetary policy (aka adjusting the money supply to modify lending behaviors, which according to the prevailing “neoclassical economic theory” used by the fed) is “supposedly” good because it stimulates consumption by increasing the money supply by lending more money.

HOWEVER, the inflation rate and the unemployment rate are causally inversely related in the short term, but NOT in the long term, as the natural rate of employment always prevails. (Friedman)

Why is this significant?

Stagnating in Real Wages

Why? Current neoclassical economic theory says “inflation” is good. Like we just said, more money supply = more lending = more consumption. If the inflation rate is 3-4% your dollars today are worth more than your dollars tomorrow. You spend your money today, and don’t save it. (Also probably why we have the lowest historical savings rates.)

How does this effect employment rate?

The higher the inflation, the more consumption, and hence more jobs. So workers can bargain for higher wages. Great. This causes a decrease in unemployment. Great. But on the long term? They have their job, but inflation is causing CPI prices to go up and up, but their wages don’t. They maintain the same. Hence stagnating wages.

But the fed doesn’t want to decrease the inflation, because they believe this stimulates lending and spending and consumption.

But the reality is this whole policy is the Primary economic driver for inequality

Monetary policy also impacts wage bargaining power. By preventing full employment, workers cannot bargain for higher wages.

Who knows if this analysis is 100% right, but these are my current intuitions.

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