Guest Post: That Which Is Too Fearful To Speak: The Demise of the Consumer Economy

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

That Which Is Too Fearful To Speak: The Demise of the Consumer Economy

The consumer-debt-based economy is doomed; good riddance. It was nothing more than an elaborate cargo cult based on marketable anxiety.

The consumer-debt-based economy is toast, but everyone's too terrified by its demise to acknowledge this reality, never mind consider a new model. The entire creaking economy is based on a few ideas which no longer work:

1) Create "aggregate demand" (i.e. consumer demand, which then creates business demand) and the economy "grows," people are hired and get paid, and that's good.

2) When consumer demand slumps because people are over-indebted and can't afford to buy more of anything, then "stimulate" demand with massive Central State spending to replace the vanished private demand.

3) Demand is endless. You can never have enough stuff, food, vacations, education, healthcare and toys. Give people free money, or the ability to borrow nearly-free money, and they will spend, spend, spend. This creates "growth" which is always good.

A funny thing happened on the way to the infinite demand/consumption model--or actually, two things:

A. People borrowed all they could afford, and then borrowed more. Now they can't borrow any more, even if the interest rate is low. By some estimates, American consumers need to pay down $4 trillion in debt just to restore the income-to-debt ratios of the early 1980s, never mind the early 1960s.

B. Infinite demand met marginal return in a dark alley, and infinite demand is in the gutter, whoozy and bleeding profusely.

That horrendously costly master's degree has only a marginal return in the real world--or perhaps a negative return.

That expensive McMansion provided no better shelter than a much more modest home, and its investment return is atrociously negative.

That $120,000 5-day stay in the hospital paid by Medicare didn't fix the health problem; it made it worse, because the patient didn't need hospitalization or the procedure, and the previously moderately-ill patient caught a drug-resistant bug in the hospital and is now very ill--and therefore needs more treatment at $120,000 a week (this was the actual bill for my friend's father's 5-day stay in a hospital, a stay he was forced into accepting lest he be a "bad patient." He could have easily been treated in an out-patient clinic.) Nice return on a $120,000 "investment" to meet the "infinite demand" for sickcare.

You see the point: "investing" disposable income in debt service to borrow more money to blow satisfying "infinite demand" has left consumers over-leveraged and insolvent, crushed under impossible-to-pay debt loads, while all that debt-fueled spending has yielded increasingly marginal returns.

The amount of debt that can be leveraged has diminished to near-zero, and so has the return on that spending.

There's another deeply pernicious facet to a consumer-based economy: our identity and meaning now flow from consumption, not from production or inner resources. I spent a considerable amount of Survival+ explaining how marketing and consumption are two side of the same coin.

The marketing complex has hijacked our sense of identity by engendering a deep, soul-destroying anxiety that only buying more stuff can assuage: since we are judged and valued solely by our purchased externalities, we are constantly in danger of being rendered worthless if we fail to measure up to the current metric of brand-group identity (wearing all black and a tattoo for one "brand," a BMW and designer clothing for another, reading the New Yorker and claiming to only wear vintage clothing for another, etc.)

What we do in the real world is simply part of the "brand" which we must project, or cloak, to sooth the gnawing anxiety that is the bedrock of a consumer society. The iconography and totems of consumerism define our identity, our strivings, our sense of purpose and our experience of meaning: what I call the politics of experience, a phrase coined by R.D. Laing.

Consumption is our god, our faith and our religion. Like a cargo cult dependent on a magical connection to prosperity, we are terrified by the prospect that our religion is based on a false god--that is, that consumption and consumption alone leads to prosperity and happiness.

Like a cargo cult that we mock in our infinite industrious superiority, we worship the equivalent of rocks painted to look like radios that we can use to "call" the gods of endless prosperity.

This rock that's painted to look like a radio is called "debt," and we call upon it to magically provide us with prosperity from over the seas.

This other rock that's painted to look like a radio is called "aggregate demand," and it's carefully worshipped by a special troop of voodoo-wielding witch doctors called Keynesians.

We are chanting magical phrases to these rock-painted "radios," pleading for a return to easy prosperity, but nothing's happening. We fear the magic no longer works, and that possibility terrifies us so much we can't even bear to speak of this loss.

The consumer economy is expiring for two good reasons: we borrowed too much and will never be able to pay it back, never mind borrow even more, and we have too much crap and useless services as it is. Instead of paying people to dig a hole and then fill it, we give millions of tests that serve no real function other than to bill Medicare or the provider.

An economy can only sustainably spend what it generates in surplus. The U.S. has been exchanging paper with funny green ink on it for real stuff, far in excess of the surplus generated by our own labor and production. That is our trade deficit. To extend "aggregate demand" to the moon, we borrow trillions of dollars via Federal deficits to fill the gap left by imploding consumer borrowing. This is not spending a surplus we have earned, it is borrowing against future surpluses, surpluses of national income which we are now committing to debt service.

Future generations won't get to spend their surplus; they will have to devote it to servicing the debts we have gaily borrowed and blown on digging holes and refilling them, part of our worship of the magical painted rocks of our false and hollow religion, Consumerism.

By degrading ourselves from producers to consumers, we have not only lost our identity and our meaning, we have lost the ability to create surpluses and invest those surpluses wisely.

My new book An Unconventional Guide to Investing in Troubled Times is an attempt to chart a path from the anxious, unhappy dead-end of consumerism back to a decentralized, self-reliant productive economy.

That is the transformation that terrifies the Status Quo, for it is a transformation for which there is no model of control and exploitation: the demise of the consumer economy and the rise of a productive economy with no need for Wall Street or rocks painted to look like magic radios.

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Debtless's picture

Quick let's bomb something!

anynonmous's picture

In the Apple store yesterday I saw evidence of the demise of the consumer economy. I only had to wait in line for 15 minutes to by an accessory for my iphone.

Conrad Murray's picture

Far worse is the evidence of the intellectual demise, the existence of Apple stores.

anynonmous's picture

they are quite a spectacle those stores, this one is in a mall (that was also  packed with demised consumers) it took 2 minutes just to push my way to the 'genius bar' and you're  correct the fact that you have all those morons who don't even know how to upgrade the OS so they have to go to the store for help

azzhatter's picture

and especially that a functioning human being would want to spend a sunday there

StychoKiller's picture

I want me one of them painted-rock iPads (iRocks?)  :>D

Sudden Debt's picture

And you still bought it?

I only buy 30 minute waiting line stuff. Just because it's better quality. Why buy stuff that not everybody wants...

 

Sudden Debt's picture

 

 

YES WE CAN!

STARTING OPERATION NOBEL PRIZE 2!

BUT WHAT ARE WE LOOKING FOR THIS TIME?

Kayman's picture

The tipping point is when Obama is awarded the Nobel Prize for Economics, summer 2012.

midtowng's picture

Isn't BofA foreclosing on homes just to tear them down? Sounds like digging a hole to fill it back in to me.

snowball777's picture

More like digging a hole then squatting over it for a sufficient amount of time to fill it.

narnia's picture

a testament to central planning efficiency: a perfectly livable home is bulldozed to make way for a state park to provide a lawn for a homeless person to sleep on because the tax benefit from deducting the land to the profitable loss covered bank was greater than the future value of its Section 8 revenue less property taxes, insurance & administration.  

toady's picture

Lets bomb something?

How about consumers?

I was late to the game on this one. I wasn't aware of the 'consumers are 70% of the economy' number until W was saying 'everybody go shopping' after 9/11.

I guess I'm old school, but I only buy what I need, I try to save up for large purchases, and pay off my credit cards every month. To do otherwise is financial suicide.

Bomb the consumers!

dolly madison's picture

Yeah, I was mostly not good for the consumer economy either.  I did have a brief spendfest right after I got done with college, and had some good money for the first time.  But mostly I enjoy frugality.  Keeping up with the Jones' stresses me out. 

Haole's picture

Right you are, unfortunately it is ongoing figuratively and could likely take place literally within U.S. borders any day now...

km4's picture

By DAVID LEONHARDT
Published: July 16, 2011

We're Spent http://t.co/xDq6UQb The old US consumer economy is gone, and it’s not coming back

THE notion that the United States needs to begin moving away from its consumer economy — toward more of an investment and production economy, with rising exports, expanding factories and more good-paying service jobs — has become so commonplace that it’s practically a cliché. It’s also true. And the consumer bust shows why. The old consumer economy is gone, and it’s not coming back.

We are living through a tremendous bust. It isn’t simply a housing bust. It’s a fizzling of the great consumer bubble that was decades in the making.

CrashisOptimistic's picture

Welcome to the post Peak world.

A consumer society can't exist at $118 Brent.  That's just the way it is, has been, and will be for the fairly short period of time remaining for "modern" society.

You'll know that it's time to leave town and find a farm labor job in Iowa the day that a Chinese frigate stops a Nigerian tanker enroute for Houston and makes use of no force, particularly, other than to detain the ship long enough to close the deal on offering them 20% more for their cargo than Houston is paying and diverting the ship to Shanghai.

When that ship diverts to Shanghai, get away from the cities.  No US president can permit a cutoff of US oil imports, even if it does not happen by force.

It won't be much longer for that, either.

Marco's picture

What comparitive advantage does the US have for production exactly?

thewhitelion's picture

I think our big advantage is in producing coffee.  If not, I should have scheduled my economics class for later in the day.

Tense INDIAN's picture

Consumer economy in Europe and America gone ....what will happen to the Indian IT now...

falak pema's picture

you will change your pseudo and become 'relaxed indian'! 

no2foreclosures's picture

What is a cargo cult?

Cognitive Dissonance's picture

 

That is the transformation that terrifies the Status Quo, for it is a transformation for which there is no model of control and exploitation: the demise of the consumer economy and the rise of a productive economy with no need for Wall Street or rocks painted to look like magic radios.

But make no mistake about it, the scociopaths will try to control it. And if they can not control it they will destroy it.

BTW my latest article, which is about addiction in all its forms.

http://www.zerohedge.com/contributed/fiat-crack-addict-convulsing-and-headed-straight-dts

GeneMarchbanks's picture

Somehow overseas 'enemies' are a much easier way for the Status Quo to redirect the rage. It will be attempted no question and we'll see if it works. Keeping this domestic is half the battle, I mean, look at Greece. They are inbetween right now. They've diagnosed the problem in their system yet still are falling for the 'Get Goldman' nonsense. We know they won't bring down Goldman, but maybe they can get some citizen representatives who won't make room for banks to bribe them within their governement. So that's my little dream for today...

baby_BLYTHE's picture

great piece, CD.

Everyone I know (ages 19-29) has no net savings, most our in debt and the others live paycheck to paycheck (if they even have jobs).

The problem with our economy is there is no incentive whatsoever to save. QE to infinity, zero interest rates, decline wages, offshore manufacturing and run-away cost of living are being felt FULL FORCE right now.

I can't imagine it being any worse, but get worse it shall. I don't even know why I am in college, as I do consider it worthless for the most part. The only reason I decided to stay is because I am having fun, have a great group of friends, am working at a pretty decent job on campus, am able to save and have no debts (thanks to the multiple academic scholarships I got out of High School).

The economic system is totally broken. The understanding of credit/money/savings/capital/investment has been totally botched by the entirley flawed economic system we have been living under for the past several decades. Like many here said before, it must get a lot worse before it gets any better.

Cognitive Dissonance's picture

I agree. It will probably get much worse before it gets better. But bottom line we can choose our own bottom. We can say stop.

But as long as we choose to see ourselves as victims of 'the system', powerless to do anything but go with the flow, the bottom will be rock hard and very ugly.

Zero Debt's picture

An indirect effect of people living paycheck to paycheck is that they become dependent on the system and hence will seek to defend it. Like a "Stockholm syndrome" but you don't even know you're a captive.

 

GeneMarchbanks's picture

'Everyone I know (ages 19-29) has no net savings, most our in debt and the others live paycheck to paycheck (if they even have jobs).'

I've observed this also. Yet who do you blame? Or a better question: who sets the morale amongst US youth? Hollywood? Family? Popculture? As always things get more complex the deeper you dig but there is certainly isn't an easy answer.

I'm reminded of that quote from The Coming Insurrection: 'the future has no future.' If you're 19-29, indeed.

Cognitive Dissonance's picture

 

Yet who do you blame? Or a better question: who sets the morale amongst US youth?

Same question. It seems we have oursourced the rasing of our children to the boob tube and popular culture. Since we are no longer responsible for the product of our loins (because we oursourced it stupid) it can't be us.

So we are all victims. Help. I've fallen and I can't get up.

snowball777's picture

Yet who do you blame?

Their ersatz parents. These are learned behaviors.

Cathartes Aura's picture

why on earth are you looking for someone to blame?  the poster admitted he/she was content with the choices made, and why do people in that age group think there should be "net savings" while they're in school?  if they're in debt, they've made a choice to be "there" - that's an age group where choices are great learning tools, as they have consequences.

speaking from a personal space, when I was in my 20's I chose not to "get a paycheck" but to live creatively, with others of the same ideals - the experience "took" and the whole consumer-identity just didn't apply to me/us. . . granted, I wasn't in amrka for my 20's, so wasn't subjected to the constant conned-sumer propaganda - but moving back & witnessing firsthand how immature it is to go into debt for TOYS, or to conform one's appearance to dumbed down standards, I can honestly say I'm content with my life choices.

no one's to blame for any one's personal choices, self-responsibility is a mark of maturity.

Iam_Silverman's picture

"The problem with our economy is there is no incentive whatsoever to save."

Wrong.  What you are implying is that there is no monetary reward for savers.  Once you have lived in a situation where no savings exist and every small occurrence can be made into a larger tragedy, you now have incentive to save as an adult.  I would love to have more return for my savings - but because I am not getting over 1.5% doesn't mean that I will blow it all.  I still see the need for an emergency nest egg should something happen (here on the ranch lotsa stuff breaks - ever replace a clutch on an older tractor?).

baby_BLYTHE's picture

What I am implying is that the FED and Government are 'hammering on a string' trying to force people to spend their money as quickly as it is earned in effort to stimulate the economy. Thus, having an negative incentive upon consumers which alters economic behavior on the whole

Yes, you are correct there are no monetary rewards which was a large part of my point. Over a long enough period of time however, it has been going on for well over a decade, the economic behavior of individuals change leading to malinvestment and distortions in the economy. In the long-run this is very damaging to the economic system at whole, which is where we find outselves today. That is why we have high unemployment, declining real wages and record levels of consumer debt to which I argue cannot be reversed until the system is purged, debt and malinvestment is liquidated and the ENTIRE economy restructures.

Iam_Silverman's picture

"What I am implying is that the FED and Government are 'hammering on a string' trying to force people to spend their money as quickly as it is earned in effort to stimulate the economy."

Yes - they are stealthily pushing commodity inflation and wage deflation in order to accelerate "income reclamation", or otherwise known as money velocity.  I can understand how many younger folks today are living paycheck to paycheck with zero savings.  But, we still need to instill a sense of being prepared to handle emergencies on your own.  The government (as much as they like to) will not always be there to give us shiny new SNAP cards and never ending unemployment benefits.  I have been working on my own college age son to give him a sense of fiscal responsibility.  It's almost working, although he has ditched the iPhone for another phone as the cost of the data plans were more than his budget allowed (budget for him is: money in = money out with no deficit spending).

baby_BLYTHE's picture

I could never live with myself if it came to the point I was dependent on the government. Honestly, I would rather starve.

No debt, living on one's means and no credit cards for major expenditures is good sound advice for anyone.

StychoKiller's picture

Check out/buy:

"Uncommon Cents - Benjamin Franklin's Secrets to Achieving Personal Financial Success", ISBN: 0-939817-06-3, by Lynn G. Robbins

Hint:  Pay yourself first by taking 10% of each paycheck and saving it (somehow!)

baby_BLYTHE's picture

cool. thx. I'll check that out. Franklin is my favorite founder :>

Commander Cody's picture

You are steps ahead of the others.  Stay focused and prepare for the debt implosion.

Caviar Emptor's picture

Agree. Now that they can't control through addiction, they'll revert to the old ways: force. 

falak pema's picture

Well we see already how this global oligarchy play will occur to shift from demand/consumer side to producer/thrift side : 

1° Control WW media including Internet.

2° Control strategic resources, typically continuation of OIL/Arms/Money/Food/pharma play. 

3° Regulate the "resource limited" economy to their profit.

The people of first world, w/O their consumer power, w/o their political clout, will be toast trying to skimp off diminishing pensions and cut backed salaries.

The people of third world, (there ain't any second world), will fight to produce and bring down the labour rate world wide to bare nuckles economy. Grapes of Wrath times.

The fourth world will just be sold to the devil w/o any resource base, not even food and water. 

Until the Oligarchy sorts itself out.... Will take time. 

But the biggest millstone is lack of 'cheap' energy resources.

oldmanagain's picture

Basically, consumption is not the cuprit if it goes into our economy. Ipods are made in China. etc. There's the rub.

 

FEDbuster's picture

The real trick is to make the Ipods, Ipads, etc.. in the US, then sell them to China.  Those days seem to be lost forever, and with that goes our Country.

Hasten the Collapse, OBAMA 2012

Iam_Silverman's picture

"make the Ipods, Ipads, etc.. in the US, then sell them to China."

My bet is that they would only buy.....one.

Then, we'd see knockoffs all over the world, and any advantage the U.S. had on price point or novel availability would be squashed.

Iam_Silverman's picture

"Hasten the Collapse, OBAMA 2012"

Interesting idea - do you mean that the collapse will occur in 2012, or sometime after if Obama is re-elected?

 

clever attempt to disguise a double-tap post.....

DormRoom's picture

allowing consumers to borrow off future cash flow, helped owners of capital, by giving 1% of the US population, 10% of the national income. And this 1% used excess reserves to gain access to the body politics, and perpetuate the mechanism, which helped them accumulate vast wealth, in a quick, and scaleable way.