The Devolution of the Consumer Economy
by Charles Hugh Smith Previously by Charles Hugh Smith: Why the World Is Financially Doomed in Four Charts
The U.S. transformed into consumer economy that is exquisitely sensitive to debt and the costs of servicing credit. In other words: the bill is finally due, Baby. One of the foundations of modern economics is the belief that insatiable demand for more goods and services is a permanent feature of humanity. This is also the basis of that other foundation of modern economics, the extension of credit so consumers can buy more now than their savings would otherwise allow. It was a match made in Heaven – insatiable demand and nearly unlimited credit. Want a shiny new car, but have saved no cash? Not a problem. It will only take a modest monthly payment for 5 years (or longer) to indulge your impulse to have a shiny new vehicle to reflect your individual glory and unique personality (never mind the vehicle is mass-produced; it was "customized" just for you). The "invention" of mass-marketed credit was one of the great innovations of capitalism. In the Depression, my grandfather paid $1 a week toward my Mom's first bicycle. The town's shopkeeper extended the credit, took the risk of non-payment and earned the interest. Credit in modest amounts has positive features; with cash in short supply, the storekeeper probably had to extend credit just to book enough orders to keep the doors open.
On the consumer side, if servicing credit costs $1 out of a weekly paycheck of $25, then it's a modest tradeoff with substantial benefits. In the late 1960s, a new innovation appeared: credit cards, a magical rectangle of thin plastic which enabled consumers to buy virtually anything they desired right on the spot. "Impulse buy" became a reality for anyone who qualified for the magic card. There is of course a "marginal return" aspect to consumption. The first piece of chocolate cake is heavenly, the second is rewarding, and the third, hmm, no so amazing. Each succeeding piece carries a higher cost and a lower reward/return. Thus is consumer ennui born. After a steady diet of continuous buying and consumption, the consumer finds less and less satisfaction from the ownership; soon, only the act of acquisition/purchase creates the "high" of satiation and excitement. Alas, this hit of self-renewal and self-expression via consumption is also prone to habituation. The satisfaction of buying something new only lasts a brief time, a period that becomes shorter as the purchases pile up. Like the rat on the wheel in the cage, it becomes increasingly difficult to buy enough to keep the high going. There are also some practical limitations, such as where to put all the crap you've bought. Luckily, ever-resourceful capitalism has the answer: self-storage units, which act as "cheap" extensions to store your valuables. April 7, 2011 Copyright © 2011 OfTwoMinds.com
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