Archive for May 16th, 2008

I Don't Believe in Market Fairies: The Tinkerbelle Economy Starts to Falter

Sharon May 16th, 2008

Here are 10 Things Americans are doing to help deal with higher energy and food prices.  These are getting nasty. Among other things now mean that the average American family will spend 6K on gas and other oil prices (and don’t think other energy sources, like electricity, are going to get cheaper either), and will struggle to deal with rapid rises in food prices.  What they amount to is pulling out all the stops to keep things going - and once those stops are gone, they are gone:

1. Putting it on the credit card: This is the overall winner, as US credit card indebtedness rose to 6000 per working American.  The dramatic rise in the first quarter of this year seems to reflect people falling back to the only resource they still have.  One analyst argues that many Americans don’t ever expect to pay - and this may be true of some.  But I suspect more likely most Americans have no idea *how* they will pay, but hope to.  That hope is likely to be in vain.

But the truth is that most Americans have only the vaguest sense of where their money goes, or how to use it effectively.  Poverty will not magically make them better at it.  Some will learn - some will not.  And while certainly some of the responsibility for that rests on individuals, other portions rest on the endless cultural messages that teach us that spending is saving, that saving is bad, that frugality is cheapness and meanness, that buying stuff is how you express your individuality, deal with stress and meet all your needs.  I forsee an awful lot of people blaming Americans for not getting that this time is different - even as the same voices cry out that it really isn’t.

2. Giving up luxuries like eating out, taking drives, buying new stuff.  The rising rate of bankruptcies at chain stores like Linens N Things show how quickly these changes ripple through the economy. 

3. Not paying their mortgages. Foreclosure auctions in CA are now up to 1000 every day.  They not only exceed home sales, but more than 70% of the houses don’t sell.

4. Buying smaller portions - after all, we wouldn’t want the recession to hurt Sara Lee.  Almost certainly a false economy, resulting in greater net spending.  But then, that’s always the way - many studies over the years have shown it really does cost more to be poor for a host of reasons - you can’t pay for advance purchase contracts, buy in bulk, etc…, you pay fees to fix problems created by your poverty, you are likely to have to live far from services and resources.

Fortunately (for them), multinational corporations have been practicing for years on ways to keep you hooked on their products - in impoverished countries you can buy a french fries by the fry (at a hefty markup over a package) and single serving sizes of everything. Expect to see lots of hard work at keeping us from buying really inexpensive whole foods, growing gardens or otherwise finding real solutions.

5. Going on Food Stamps and making use of poverty relief services like Food Pantries and the Salvation army.  Apparently, however, while incomes have contracted stupidity remains abundant - a friend who works at a charity that helps families avoid eviction tells me she fielded 9 requests last week for help paying the cable bill ;-P.  Her explanations that cable was not considered a necessity seemed to fall on deaf ears.

For the larger chunk of people who really aren’t idiots, but simply can’t make the money meet their needs, there’s also the exciting new trend of going hungry and feeling bad about themselves for needing charity.

6. Pawning their possessions and selling them at Garage Sales, on Craigslist and Ebay 

7. Working more.  I have mostly anecdotal reports of rises in second and third jobs, but I suspect the data will start showing this more.  Particularly as companies, trying to keep the illusion that the economy is not collapsing, cut back on hours, instead of laying people off.

This is probably a prelude to working less, however, as unemployment, already wildly understated by government slanting, begins to rise in earnest, and people costs of gas and food begin to equalize with salaries. 

 8. Cutting back on trips to the mall, vacations and driving…finally!  On the other hand, some seem to be taking the “steal gas” strategy.

9. Experiencing panic, anger,  depression and anxiety.  Oh, no disposable income to spend on treating them.

10. Getting drunk, using more drugs, beating their spouses and children and occasionally killing themselves.  Misery and fear breed anger and depression and abuse and drugs.  And all those things make the situation worse - the drugs and alcohol suck up money that could be used for food and housing.  The rising divorce rate means that now two incomes have to support two households. 

Meanwhile, of course, the government tells us it isn’t that bad (as long as you don’t eat, drive or fly), and Wall Street keeps reassuring us that the problems are basically over.  The issue, of course, is that markets depend on belief in their success even more than money. 

We have a Tinkerbelle economy - in Peter Pan we’re told that every time you say “I don’t believe in fairies” one drops dead.  The same is effectively true of our present economy - every time someone actually admits that they don’t think the magical wish-fulfillment fantasy that is our market system can fix it, a little piece falls down dead.  So it is important that the media and public figures say, as loudly as possible, “I do believe in market fairies.  I do believe in market fairies” so as to drown out any doubts we might have, caused, say, by the actual evidence that we’re getting poorer.

But all of this, sad and horrible as it is, is merely the prelude.  Right now, many people are able to delude themselves that this situation will stabilize soon, because we are drawing down our back up options.  What happens when most Americans have nothing left to sell on Craigslist?  When the credit card companies cease to extend credit, and there is no equity left?  What happens as state budgets begin to crash and more and more households lose benefits, and have to absorb those costs?

The truth is that as long as the voices keep saying so loudly that everything will be all right, most Americans have no idea that they need to make fundamental changes - we’re being told this is just a downturn, and that if we all believe in market fairies hard enough, we can keep it from being bad.  Alan Greenspan tells us that the housing market will bottom out in 2009, and we’ll see the market saturation stabilize.  But how on earth is that going to happen, with thousands of unsold, foreclosed upon houses that no one wants even at 50% of their appraised value?

The fact is, just saying you believe in fairies doesn’t make Tinkerbelle appear at the bottom of your garden.  And as unpleasant as it is to hear the bad news, unless people know that it is going to get worse, they won’t start using what resources they have left in a coherent way - instead of starting gardens and dumping cars and relying on carpools and public transport, moving towards the more stable informal economy, they will try, as long as they can, to maintain their basic lifestyle.  And that only brings about a greater disaster.  But only a big pile of fairy corpses will be visible enough to make this clear. 

I’m dropping market fairies as fast as I can.  Because I don’t believe.