"Hipster on food stamps" (2 Nov 2010)

I haven't posted for a while, so I thought something with an SEO-friendly title would be a good idea. And I thought this was a pretty interesting essay by the Jacobin's Peter Frase, about misguided hatred for the "hipster on food stamps" discussed in this Salon piece from March. He points out how that phraseology invites contempt, because it trades on the idea that anyone who is arty and "creative" obviously has cultural capital and other ideological resources that should prevent him from being poor. Therefore the impoverished hipster must simply be a slacker (to reference a 90s-era proto-hipster archetype) who is voluntarily destitute, slumming it for hipster cred, thereby abusing a system designed to help the deserving poor, i.e. those social disadvantaged folks who, as Neil Young put it, "never go to school, never get to fall in love, never get to be cool".

Frase thinks working-class people who were enraged by "hipsters on food stamps" should stop scapegoating them and start, like Duke in Repo Man, blaming society. Frase writes:

People see others whom they perceive to have lives that are easier, cooler or more fun than theirs, and instead of questioning the society that gave them their lot, they demand conformity and misery out of others. But why? ... Even if creative and enjoyable lives are only accessible to the privileged, that’s not a damning fact about them so much as it is an indictment of a society that has so much wealth and yet only allows a select few to take advantage of it, while others are forced to waste their lives chained to their useless jobs and bloated mortgages.

The working-class Joe's hatred for the hipster, Frase argues, stems from an ideology that perverts the work ethic and regards art-making as worthless and working-class drudgery as a heroic embrace of duty or something. Maybe so. The working class suspicion toward the would-be bohemian fringe certainly has a long history. For example, check out the end of this clip from the 1968 film Psych Out, where the hippies are mocked and menaced by Reagan Democrat types. And as Mark Greif of n+1 reminds us in this essay, the 2000s vintage hipster began by appropriating motifs from poor-white culture. "Let me recall a string of keywords: trucker hats; undershirts called 'wifebeaters,' worn alone; the aesthetic of basement rec-room pornography, flash-lit Polaroids, and fake-wood paneling; Pabst Blue Ribbon; 'porno' or 'pedophile' mustaches; aviator glasses; Americana T-shirts from church socials and pig roasts; tube socks; the late albums of Johnny Cash; tattoos." No wonder there's some skepticism toward the "hipster on food stamps," who can be understood as merely taking this appropriational logic to its endpoint.

Obviously, those thefts belittle and caricature an entire social group's lived experience, ironizing it, cutting away whatever integrity members of that group might feel about what they do from beneath their feet. Not only do hipsters seem to be playing at being poor (which may or may not be true) but they add insult to injury by seeming to make fun of working class culture, treating it like a costume. At play in such appropriations is the kind of capital that allows various folk practices (for lack of a better term) to become suddenly recognized as creative or hip when a non-native adopts them and exports them out of the ignored niche and into "society" -- the realm recognized by the media. The culture is then understood as a fashion choice, not the product of social realities.

What that process does is make "creativity" something that by definition is not accessible to the working class. The appropriators are lauded as "creative" (that is, they seize upon the symbolic usefulness of deracinated practices and bring that meaning value to a broader public), not the poor whites, who are treated as though they are some anthropological artifact, as though they fundamentally lack the ability to be reflexive about what they do. They are, as workers always are, a resource to be exploited. As a result of that, hipsters and the working class are mutually exclusive; by definition, you can't belong to both sets. Starving artists are not proles. The very ability to be recognized as "creative" already sets one apart and above. Rich or poor, hipsters everywhere are a sign of social expropriation, of the semiotic value of denying full humanity to certain social groups.

Frase wants to resolve the opposition between artists and proles by positing a sort of post-work future beyond the alienation of wages, where all will receive a social wage: "Against the invidious politics of the work ethic, it's time to argue that some things should be granted to everyone, simply by virtue of their humanity. Even hipsters."

Interestingly, he doesn't take this argument to the next level: free from having to do work that is necessary merely for capital's valorization, workers are liberated to pursue meaningful, socially necessary work, which all will appreciate and understand as a kind of social art. In such conditions, with no basis for connoisseurial superiority in how one lives and works (which would become synonymous), hipsters would necessarily cease to exist.

(A better title for this post, I think, would be "Artists only.")

Consumer Refusal (18 Oct 2010)

Mark Thoma linked to this analysis by Mary Daly of the San Francisco Fed, which included the following chart:

The warning the chart is intended to convey is that the U.S. could be in danger of emulating Japan's "lost decade" of minimal growth and near deflation, which makes bubble debts linger on and on and discourages consumer spending, since you can theoretically get more for your money if you wait. This in turn, if you believe economists, dampens animal spirits (which aren't so "animal" after all).

Jodi Dean, responding to this NYT article about Japan's "Great Deflation," offers another way of interpreting this slide into stasis.

Young Japanese people no longer fly to Manhattan to shop. They save their money. "They refuse to buy big ticket items like cars or television." and they lack "their elders' willingness to toil for endless hours at the office..."
The revolution? The dismantling or undermining? It reminds me of descriptions of the last decades of the USSR (not the exciting Gorbachev years but the dreary years of Brezhnev). Of course, the rhetoric is embedded in US capitalism where anything but BUY BUY BUY is a threat. To take this seriously means to note the real threat in not buying, not working endless hours at the office. To take another path.
They aren't buying it.
And perhaps increasingly we aren't either. Maybe "can't buy" is becoming "won't buy." Or maybe can't buy now means can't buy the lie that capitalism lifts all boats.
What goes along with not buying it? Making what we need.

In other words, Japan may be a model of a society in the process of rejecting consumerism. But is the "shrinking population and rising rates of poverty and suicide" that the Times article notes the price for this ideological reorientation? I daydream sometimes about the possibility of mass refusal of consumerism, but this is a purely egocentric fantasy of everyone choosing to live as I would have them for my own comfort. In reality, rejecting consumerism when you've been brought up to be a consumer is painful, and I wouldn't want to have to do it myself without much more mental preparation and institutional support of some sort.

This question ties in with what I was trying to get at in my post at Generation Bubble about consumerism in China. In the context of the Western insistence that Chinese consumers pick up the consumption slack for economies like Japan and the U.S., I wonder how quickly cultural attitudes toward consumerism can safely shift without creating ideological chaos that makes individuals' lives confusing and intolerably insecure. Will the U.S. start manufacturing more consumer goods if China rebalances? In a zero-sum global economy with respect to labor competitiveness, are Americans ready to become the immiserated reserve army poor, relatively speaking, and absorb declines in their standard of living as measured in terms of consumption?

In Cyber Marx, Nick Dyer-Witheford darkly suggests that globalization's "deindustrialising process comes full circle, by creating in the old metropolitan areas zones of immiseration so deep that they then become low wage areas which lure capital back from its flight to the one-time periphery: Scotland and Ireland are now attracting Japanese and Korean investment with industrial wage levels comparable to those in parts of Asia."

Incidentally, he also notes that globalization requires that consumption be reorganized in new consumerist lands through the media, another point I was trying to make in the Gen Bub essay:

a global projection of consumerism into zones previously entirely relegated to economic marginality demands a reconstruction of needs and desires -- of cultural traditions, religious prohibitions, dietary habits, sexual mores, traditions of self-sufficiency -- similar to that experienced by the Euro-American proletariat in the first part of the twentieth century, but exceeding it in scale. In this process the vanguard organisations are the great media corporations -- characterised by concentrated ownership, vertical and horizontal integration, and mastery of world-spanning arrays of convergent technologies....Globalisation means that everywhere, all the time, it is "video night in Kathmandu," as the habits of media spectatorship are stimulated and implanted worldwide.

"Video night" is outdated -- it's internet time everywhere, and Chinese consumers, as the McKinsey report stresses, are eager adopters of the medium. BAsically, the internet is first and foremost a consumerist training tool from capital's perspective, which is why it will continue to be difficult to make it into something subversive. Lots of minds are working hard to make it strictly consumerist, and they already have come up with the iPad to further their machinations. Hopefully people aren't buying that either.

Denouncing Deadbeats As Political Strategy (14 July 2010)

Via Ezra Klein comes this chart from Daniel Indiviglio:

That depicts the gap between available job openings and the number of unemployed people -- both the official measure and the more comprehensive U5, which includes "discouraged" and "loosely attached" members of the prospective workforce (i.e. upstanding members of the reserve army of the unemployed). It appears quite obvious that many unemployed people would struggle to get a job no matter how hard they tried, and the resulting discouragement would make them feel worse about themselves and their skills than if they did go in for a stint of funemployment. So extending jobless benefits would seem like a humane and sensible thing for the U.S. government to do, especially considering it would function as economic stimulus to put money in the hands of those who urgently need to spend it.

But humanity and sensibility are not what mediated politics are about. Steve Benen calls attention to "the ways in which Republican lawmakers and candidates seem to actively dislike -- on a personal level -- those who've lost their jobs in the recession" -- that is, the Republicans' apparent eagerness to campaign on a theme of "to hell with the deadbeats." Benen cites, among other examples, Pennsylvania gubernatorial hopeful Tom Corbett, who claims that "if we keep extending unemployment, people are just going to sit there," as well as Sharron Angle, the Senate candidate in Nevada, who believes the unemployed are "spoiled."

How could such a strategy succeed, particularly when the data is plainly against such notions and such assertions seemingly come across as heartless? Part of the calculation probably involves writing off the vote of the unemployed, who may be too discouraged or congenitally unlikely to vote in the first place. Then one can factor in the consolation such rants provide those who managed not to lose their jobs and who may be suffering from survivor guilt. There's solace in the message coming from ostensibly respectable candidates that those others had it coming it some obscure way that has been borne out by their willingness to remain unemployed.

And there is even the chance the deadbeats line will resonate among the deadbeats themselves. Inherent in the argument is an insistence on the relevance of individual agency, that one really can get a job if they try. The chart suggests that isn't true, that individual agency matters only insofar as one can outcompete an ever growing number of competitors for a position, and for the losers no amount of agency will secure them a nonexistent position. But faith in the illusion of individual agency is hard to do without, especially in a society already so insistent about the glory of individualism. Who wants pity and reaffirmed powerlessness?

Republicans thinking strategically probably figure they can eke out a small majority by cobbling together those groups under the bogus banner of individualism and the respect for "hard work," though their rhetoric in practice is negated by their policies of transferring the inherent risks of business on to workers and rendering the worker's level of effort somewhat beside the point outside the realm of ideology.

Reward Cards, Interchange Fees, Class Warfare (22 June 2010)

I have never really understood the popular zeal for enrolling in airline-loyalty programs and collecting miles toward discounted flights or whatever else one uses that company scrip for. Part of my skepticism stems from a belief that companies don't particularly deserve any loyalty -- why blunt the beneficial effects of corporate competition? -- and if they did, it wouldn't be because they bought it with an intentionally confusing price-discrimination scheme that charges different prices according to how many arbitrary, bureaucratic hoops one is willing to jump through in hopes of bargains. (It's especially weird when airline-mile-collecting chumps are depicted as corporate-class swashbucklers. The film Up in the Air had an ambivalent take on this -- it seemed to admire its characters for the loyalty-program mastery that seemed to be part of the attempt to satirize them as tools.) Loyalty programs seem to present the promise of a deal down the road as a beguiling substitute for an actual deal in the here and now. It's an ongoing implementation of the rebate strategy, in which retailers get consumers to pay full price and hope they screw up or forget to apply for the money that they understood at the point of sale as a discount. it is confusion as a business strategy, and creates even more of an incentive for businesses to flood the zone with disinformation and fine print.

These programs are a manifestation of what Michael Betancourt, in this article, calls "agnotologic capitalism: a capitalism systemically based on the production and maintenance of ignorance." In such an economy, profits are secured by duping or trapping people, distracting them at the key moment in which they enter into contracts not in their best interest. Or to put this another way, firms sell consumers the pleasures of distraction, paid for by entering into unfavorable contracts regarding the goods the consumers are ostensibly interested in instead of the pleasures. Airline customers are buying the pleasures (such as they are) of playing the miles game as much as the flights themselves.

Lately, in an effort try to take the world as it is rather than stubbornly refuse to acknowledge it, I have signed up for rewards programs for several airlines, but all that I've accomplished by doing that is a tremendous spike in the amount of junk mail I receive -- mainly offers to sign up for miles-based credit cards through which I earn miles for using the card instead of cash. Such rewards cards are the basis of the credit-card-company racket of collecting more interchange fees -- the processing costs merchants must pay when their customers use plastic. This leads to a roundabout series of cross-subsidies, as Kevin Drum argues here, in which the poor subsidize the rich:

Banks charge merchants far more in interchange fees than it costs to actually run their payment networks, and merchants pay because they have no choice. Visa and Mastercard are functional monopolies, so if you want to do business with them — and what merchant can afford not to? — you have to pay whatever they tell you to pay. This cost gets passed on to consumers, of course, and the poor and working class pay it. The middle class and the rich, however, don't: they basically get the fees rebated in the form of reward cards.

The most diabolical aspect of this is that I become the agent of destruction: reward cards give me an incentive to use credit, which makes retailers increase the cost of goods for all customers, regardless of whether they use credit or not. It enlists me in the effort to exploit the poor, investing me in the structure of society that makes my advantage seem contingent on the continued disadvantage of those below me. Rewards programs are basically disguised class warfare. Middle class people like me get "rewarded" -- that is, we don't get punished by having to pay the passed-through interchange costs -- for being middle class.

Mike Konczal has much more about interchange fees here. Two highlights:

1. "The system is set-up to encourage you to use credit as much as possible, and then pay that credit off later. This is not an accident. The common phrase among credit card company people is that people are “sloppy payers”, and these sloppy payments function as a major profit center for businesses. This system also transfer money upwards in a regressive, tax-free manner and distorts prices so that shareholders of financial companies can get a cut." This is more agnotology at work. We basically pay for privilege of being care free about money, not simply the stuff we get with a credit card. Companies hope we will slip up and be careless, and thus promote such carelessness in most of their marketing materials. Credit card companies have put themselves in the business of encouraging us to be "sloppy."

2. "this is the payment system. If it was a random consumer good, I would care much less about cross-subsidies and squeezing. If people who drink their coffee black subsidize cream and sugar coffee drinkers, whatever. But this is the very mechanism of which our economy runs – the way in which we trade goods and services. If distortions goes to the core of the economy, it doesn’t surprise me that we have a lot of bad scenarios much further downstream." The payment system is not some God-given thing, as Konczal points out, it's "not a state of nature event" but the complex product of institutions, regulation, convention, social trust, and so on. All payment systems have clearing risks, and it seems to me that one of the justifications for federal states is to minimize that risk so that commerce can flourish; banks, on the other hand want it to be a profit center.

Happily, it seems that interchange will indeed be facing new regulation soon. Felix Salmon notes that this may have some effects that middle-class credit-card users won't like: "if credit-card interchange fees stay high while debit-card fees fall, then merchants will simply start offering broad discounts to anybody using cash or debit, essentially forcing customers to pay extra for all those frequent-flier miles and cash rebates." I hope that eventually means the end of credit-card reward programs in general.

UPDATE: Salmon has more on payment systems in this post. The essential point: "Being able to easily pay for things without worrying about the mechanism is a great public good." We don't want to have to decide between modes of payment anymore than we want to have to second-guess our doctors about what they prescribe for us, as advocates of competition in health care demand we do. Competition among payment systems seems like a libertarian idea that can be logically defended but is wildly impractical and would b counterproductive in reality. As Salmon writes, "The fact is that payments are a utility; they’re regulated like utilities; and utilities tend not to see much in the way of innovative new entrants."

And as my friend's old landlord, who refused to take checks, liked to say, "Cash is king."

Programming the poor (1 April 2010)

At Time.com, Barbara Kiviat has a rundown of a New York City pilot program (modeled after Mexico's Oportunidades) in which poor people are given cash rewards for things like going to the dentist and having a job and, at one point, signing up for a library card. It's not that the cost of the dentist visit was covered (though that may have been the case); it's that the program paid people a reward for doing it. This New York Times article has details on how well this has worked. Apparently, results were mixed.

It seems peculiar and patronizing to have to incentivize these sort of behaviors; you would think it is incentive enough to reap the benefits of clean teeth and steady employment and so on. The theory behind the program seems to be that the poor, by virtue of their poverty, are incapable of responding to incentives like those above them in the class hierarchy; they are unable to grasp such subtleties as the benefits of hygiene. Instead, like computers programmable only in a single language of ones and zeros, the poor understand only one sort of incentive: cash. Their condition -- their "complicated, resource-constrained lives" as Kiviat puts it -- has presumably made them morally one-dimensional. Then, though initially motivated by cash, the poor learn by doing what it feels like to experience the non-cash benefits of virtuous behavior. And this apparently will make them change their ways and break the intergenerational poverty trap.

Kiviat praises the empiricism associated with the implementation of this program, so I feel churlish throwing in my two-bit speculations. But I'm not really even getting two bits for them, so I will toss them out there anyway. Cash payments seem a bizarre way to try to change the habitus of the poor. Aside from being sort of self-contradictory (giving cash incentives to try to get people to see the virtue of doing certain things for their own intrinsic value) it basically ignores the importance of social capital. To be able to have your shit together, so to speak, requires having a stable footing in an entire communal system. It means having better transportation, better connections, better access to amenities, friends who can share better solutions to life's problems, etc. Despite its limitations, Barbara Ehrenreich's Nickeled and Dimed offers some insight into this -- how poverty breaks down the middle-class approach to life and brings forth what can appear to middle-class people to be a bizarre and incoherent lifestyle, but is in fact life lived in perpetual triage mode. The poverty habitus derives from that, and I guess I am skeptical that crisis mode can be easily unlearned.

I always think of the same incident when I think of habitus-related questions. About 15 years ago, I was on campus at a university where I was an instructor, and a frazzled woman approached in a panic. People were discreetly avoiding eye contact with her and shifting their direction so as to not engage with her, sort of what happens when a homeless person passes through a subway car. I wasn't fast enough and abruptly she blurted a question out at me about how she could find a particular room number. I asked which building and she didn't know. I shrugged and began walking away but she continued to yell at me, demanding to know where this room was. And she explained that she had to show up at this room to make sure she didn't violate the terms of her parole or probation or something, and she was supposed to be their 15 minutes ago, and on and on. It was all on a paper she got in the mail, but she forgot to bring it. Maybe if I was a different sort of person, I would have taken her somewhere on campus where they would have that sort of information on hand (not that I knew of such a place). But instead I just started walking away faster.

At the time, I kept thinking, if I were in her predicament, I would have tried to show up for this highly critical appointment at least an hour ahead of time, so I could avoid going back to jail. And I wouldn't be counting on total strangers to know what the hell I was talking about if I showed up late. And so on. But it dawned me eventually I had no idea what sort of circumstances the woman was in the midst of and I probably shouldn't apply my frame of reference to her problems. It's more useful to think instead about what the prerequisites are for being prepared and consider how the social coping behavior I take for granted is actually a status marker, and then when I walked away quickly, I was basically trying to preserve my advantage.

Wishing For Frugality: Is It Just an Enabling Fiction? (7 Oct 2009)

In the New Yorker, James Surowiecki writes about his skepticism of the much-ballyhooed new frugality. (He expands the column on his blog here.) After some zigging and zagging, he concludes:

But the evidence for a radical shift in the way we consume seems more like the product of wishful thinking (there’s a palpable longing among pundits for Americans to become more frugal) than anything else. In many categories, spending has dropped only slightly, if at all. And, while these are very tough times for retailers who believed that spending could only go up, retail sales rose briskly in August. Before we go proclaiming this the age of the American tightwad, a little perspective is in order. Even after the worst recession of the past seventy years, retail sales this year will be about where they were in 2005. Does anyone really think that four years ago Americans were misers?

His point about wishful thinking extends beyond pundits; it seems as though we all would like to see some more frugality from everyone else -- this would ease the pressure on us to spend more to keep up, and make what we purchase more distinctive. I suspect that many Americans carry around an idea of how much the U.S. should be saving, and that we would like to see as much as that as possible done by other people. Frugality is one of those traits we piously praise in others because we secretly believe that takes us off the hook for exhibiting it ourselves.

An Economist blogger makes a related point in this Free Exchange post. The credit bubble led consumers to bid up the price of desirable goods; the absence of credit will deflate those goods: "The end of the bubble years has meant an implosion in the market for many positional consumer goods." But the desire and appeal of these goods has not been lessened by our alleged moral soul-searching about the meaning of thrift.

At the same time, conspicuous consumption hasn't been driving the increase in consumption in recent years -- the housing bubble and great risk shift has. Surowiecki cites Elizabeth Warren, who made the case a few years ago that, in Surowiecki's summary, "a hefty chunk of the increase in consumption in recent decades has been the result of higher housing prices, the rising cost of medical care, more spending on education, and childcare." So it seems less likely that the sudden increase in the savings rate can be pinned to the disappearance of Veblenesque consumption. Surowiecki cites this CAP article by Amanda Logan and Christian E. Weller that attributes almost all of the savings rate jump to consumers cutting back spending on autos and gasoline. "Consumers have not altered the share of their total disposable income that they are spending on most goods and services very drastically," they conclude.

The point is that the level of general consumer frivolity cannot be extracted by simply looking at relative spending levels or broad savings rate data -- a lesson I have reluctantly absorbed in the past few years, having often attempted to make that case. I keep reminding myself that consumerism and consumption are not the same thing. The former is more a matter of marketing saturation, and of how people in a society orient their thinking, conceive of goals and their own identity. The consumer society can entrench itself deeper even in periods when consumer spending is dropping and savings is increasing. The mainstream media is responding to an apparent social need in pushing the "new frugality" narrative, perhaps to make us feel better about being unable to spend like we want to or perhaps to make us feel like there has been a moral consolation prize in the rising unemployment -- we've learned to be tough and economical and to surrender unnecessary vanities.

Frugality is a pleasing idea in the abstract, but what it means in practice is pretty flexible. In Rob Walker's most recent column, he notes how "habits of thrift and frugality have taken on the cast of virtue" recently before exploring the ways retailers are trying to take advantage of this through conspicuous discounting. But what attracts people is less the virtue of saving but rather the idea that they have gotten one over on the chumps who pay full price. That feeling is amplified by online retailers' creating members-only clubs for discounts. From Walker's column:

The members-only notion is an old one, notes Ellen Ruppel Shell, author of the recent book Cheap: The High Cost of Discount Culture, and pairs up well with the always-appealing bargain idea. “Once you become a member of a club,” she observes, “it makes you feel special, and it lowers your guard a little bit.” Discounting sparks similar feelings, she continues. “You often think you’re the only one in the world that could have found this. Which is why you brag about it to your friends.” There’s a trade-off on these sites, of course: the air of clock-ticking excitement isn’t exactly conducive to considered decisions. “You have to be a very savvy consumer to do your shopping this way,” Shell cautions.

But in the midst of thinking everyone else is a sucker for missing out on the bargains we've found, we become the actual suckers:

To reverse Shell’s formulation, it’s easy to conclude that if you’re shopping this way, you must be pretty savvy — and maybe that virtuously thrifty feeling gives you license. “You may think, Oh, I’m going to get a great pair of shoes today,” suggests Stacey Santo, a vice president of RueLaLa, “and then surprise yourself by walking away with a spa treatment.”

A climate of frugality may be nothing more than an enabling fiction, the necessary pretense of this particular moment to allow us to fulfill retailers' wishes and mistake them for our own.

Market-made ignorance (2 Oct 2009)

More about financial innovation and the vanilla-option reform. Why? Because this particular problem illustrates well the consequences of imperfect markets, highlighting flaws in the assumption that competition produces optimal outcomes for consumers. Firms compete for profit, not to help or satisfy customers. And in some of the most critical markets we as consumers must enter, the firms we deal with have reason to try to confuse us and make poor choices, and no competing firms have any reason to undercut them and force them into more ethical behavior. In short, the suppliers in markets for health insurance and mortgages and so on have reason to keep their products complex and their customers ignorant, and will continue to produce more complexity and move the goal posts as consumers struggle to educate themselves. That in turn gives us incentive to hop off the learning treadmill, and either hire an expert, opt out and live as a second-class citizen, or resolve to be taken advantage of by fat cats.

In this post (which you should read first), Mike Konczal brought up this paper (pdf) by economists Xavier Gabaix and David Laibson about "shrouded product attributes" -- econospeak for hidden fees and the like. The paper, as Konczal explains it, is "a look at markets where there are low cost, high hidden fee firms, and how competition from medium cost, no fee firms will lose. What’s interesting about this is it is generalizable to a wide variety of favorable market conditions (zero-cost advertising, for instance). And luring sophisticated consumers away won’t work as they are cross-subsidized by the naive consumers paying fees." In practice, the paper suggests that companies can't make money by disclosing all possible hidden fees in their particular line of business and charging a little more for their honesty. Those companies will get driven out of business by the companies that charge a raft of fees and reward savvy consumers with bargains.

That remains true not only with hidden fees but with generalized confusion about the pricing of products and options offered. Firms may find themselves with incentives to present their product and pricing schemes confusingly (think cell-phone service providers) because the ignorant won't know they are being bilked and the hypervigilant will be "cross-subsidized" -- they will be able to save at the suckers' expense and won't want to deal with a more straightforward firm. That leaves ordinary people -- neither stupid nor obsessive -- with the unpleasant choice of having to do battle with such firms (in the "market for lemons" rife with information asymmetries) to procure goods/services that are now part of standard social life in the U.S.

Konczal's point is that this logic applies to financial products -- we need loans and credit cards to get along in the modern world, but banks have no incentive to offer a more straightforward version of these products. Instead they have reason to pit their customers against each other:

I saw this cross-subsidized problem first hand talking about the credit card bill earlier in the year. People were upset their “free” points were going to take a hit as a result of banning high interest rate jumps off those who miss a payment and letting credit card markets reset along those lines. If they were “free” because they were subsidized in part by mislead consumers is that a just and/or fair arrangement? I suppose it depends on what you think about mislead consumers – if they are struggling as a result of increased income volatility or health care cost shocks, piling on them strikes me as unjust. But explain that to someone who is flying for free off them!

Banks get to play divide and conquer to keep their profits up.

Karl Smith has a post that puts the issues in a slightly different context. His conclusion: "The key here is that the innovation creates economic rents but its not produced by collusion or even market power. Its better thought of as a tax on consumers that is collected by those able to produce the most opaque products."

David Brooks's moral economy (1 Oct 2009)

A recent David Brooks column in the New York Times foments about the "erosion in economic values" that he expects to launch the "next culture war."

A crusade for economic self-restraint would have to rearrange the current alliances and embrace policies like energy taxes and spending cuts that are now deemed politically impossible. But this sort of moral revival is what the country actually needs.

If it sounds familar, it's because he wrote the same op-ed a year ago. There he wrote:

There are dozens of things that could be done. But the most important is to shift values. Franklin made it prestigious to embrace certain bourgeois virtues. Now it’s socially acceptable to undermine those virtues. It’s considered normal to play the debt game and imagine that decisions made today will have no consequences for the future.

Basically, Brooks is unsatisfied with the much-heralded New Frugality, and he discounts the data that indicates the U.S. savings rate has surged in the past year.

Over the past few months, those debt levels have begun to come down. But that doesn’t mean we’ve re-established standards of personal restraint. We’ve simply shifted from private debt to public debt. By 2019, federal debt will amount to an amazing 83 percent of G.D.P. (before counting the costs of health reform and everything else). By that year, interest payments alone on the federal debt will cost $803 billion.

The logic here seems suspiciously nonsensical. Conflating public and private debt is a subterfuge if you want to rail about personal morality. If there is a connection, as Krugman notes, it's Reagan's fault. (He proved, after all, that "deficits don't matter," as Dick Cheney put it.) Kevin Drum, channelling Elizabeth Warren, notes that Americans stopped saving when their wages grew stagnant and their bills kept increasing, and banks were deregulated enough to lend recklessly to them.

And as Andrew Leonard argues at Salon, morality has little to do with our tendency to respond to economic incentives:

Americans ran up a lot of debt in the last few decades. There's no question about that. But one of the most striking developments of the last year has been how Americans have responded to the financial crisis at an individual level. We made a collective decision to start saving and stop spending. Is this because we woke up one morning last fall and suddenly became born-again Calvinists? No, it seems clear that we were responding rationally to economic incentives. The economy crashed, unemployment surged, home prices plummeted, and presto: We all started pinching pennies. Morality, insofar as expressed via our spending habits, is merely a reflection of the economy.

That's why I've generally been skeptical about the new frugality -- we've been trained by being raised in capitalism to respond to the economic drift and call that morality; the idea that we have a morality that supersedes what is happening in the economy is outdated, which is what I think Brooks is lamenting. He wants morality to drive the economy rather than vice versa, but for that to be the case you have to question the conservative tenet of trusting the market to arbitrate social conflicts. You would need to champion a resistance to economic incentives, a dismantling of the market-made consciousness, a rejection of the idea that there is justice in economic equilibria, of the idea that markets are fair. Religious conservatives can probably make that case and argue for a subjectivity grounded in religion, not the market. Brooks seems to want it both ways, though: He wants to condemn consumer desire as evil but champion the prerogatives of the businesses that have ushered in the consumerist era that have done so much to instigate that consumer desire.

When we respond to incentives, ideologically it seems as though we are being allowed to choose freely. If we are expected to adhere to some higher set of values, often these register as constraints, prohibitions and proscriptions -- curtailments of freedom. The problem is that "freedom" has come to be defined in terms of the breadth of consumer choice so that other sorts of inequalities (income inequalities in particular) could be allowed to persist. Not clear how a return to Calvinism can be sold as liberating.

Consumerism: By-product of international finance? (21 Sept 2009)

It's easy to moralize about consumerism, assume it has grown up somehow out of the malfeasance of marketers and the laziness and gullibility of consumers, who are eager to replace other fulfilling ways to occupy themselves with shopping, a seemingly derivative activity that replaces the joy of developing our capabilities with the pleasures of passive ownership. This wish to moralize stems from a desire to individualize things far beyond our control and make it seem as though we are ultimately responsible for the sort of world we live in and that ultimately it suits us; it is the product of the sorts of choices we can imagine people making. Nobody, for instance, might have seemed to want that condo building that went up on the corner, or that brand new shopping center down the street from a nearly identical one, but it doesn't seem so crazy once you see the people living or shopping there. And you can think to yourself, if we can only stop that guy, the guy walking into that new Dick's Sporting Goods, or the guy who just leased that new condo, or who took out the mortgage on that townhouse in the new development where the horse farm used to be, we can restore some sanity and balance to our lives and the rate at which the familiar is changing all around us.

But what if the choices for them (and for us) are stacked, are pre-decided to a far greater degree than we are willing to recognize? What if the matrix in which we are making our decisions is shaped by things that our puny politics can't touch, that our individual choices are grains of sand in a vast socioeconomic combine -- we might have chosen to stick to some contiguous grain to form a minute little cluster, yet some much larger force has decided to shape up into a sand castle built too close to the incoming tide. (That was a little fanciful, but you see what I am getting at.)

The point is, it may be that international capital flows have driven our consumerist microbehaviors much more than we know; that it wasn't just personal ignorance, irresponsibility, cupidity, greed and covetousness that drove the housing bubble and the boom in consumer debt; but instead those moral motives came after the fact, after our fate was sealed by the wash of investment coming in from overseas. We didn't want consumerism, but someone had to sop up all those Chinese exports. We didn't want to be in debt, but there were so many foreigners buying dollars, that the banks basically had to give money away to anybody, and who will turn down money when it seems to be offered to them for free? And if they think it sounds too good to be true, well, that's precisely what marketing is for.

Liaquat Ahamed suggests took something like this took place in the past decade in an essay in the New York Times Book Review, of all places. He taps into a sort of historical reasoning that is far removed from finger-pointing and shaming people for wanting stuff and behaving irresponsibly:

In the wake of the 1997 financial crisis there, countries in East Asia set out to build up war chests of dollars as insurance against domestic banking runs or downturns in the global economy. At about the same time, China embarked on a program of export-led growth, engineered by keeping its currency artificially low.
Interpretations of what happened next differ. Some argue that to absorb these goods from abroad while avoiding unemployment at home, the United States very consciously stimulated consumer demand. The country, in effect, was forced to live beyond its means. Others believe that the Fed misread the fall in prices as a symptom of inadequate demand rather than for what it was — an astounding, once-in-a-generation expansion in the supply of low-cost goods — and kept interest rates low for an unusually long time, which provoked the real estate bubble.

The flood of money was coming in and it had to go somewhere. If you accept this logic, the question becomes, how does a nation "very consciously stimulate consumer demand"? Is it simply a matter of sending out checks -- metaphorically dropping cash from helicopters, Bernanke style? Is it the president telling everyone to return to business as usual and start shopping, as Bush did after 9/11? Is it working ideological visions of what the good life is supposed to consist of in speeches and political campaigns? Or is it something that plays out more indirectly: Banks increase their marketing, which contributes to the promulgation of a certain view of a successful life, one that hinges on consumption rather than savings. Luxury goods makers begin trying to reach aspirational consumers, i.e. turn us into aspirational consumers. People begin to evaluate their wealth not in dollar figures but in belongings, in house size, in car size, in the extent of their credit line. I don't know what the answer is, but it seems that if there is such a throttle that can be controlled for consumer demand, we would want to seize control of it for ourselves. I never got the memo from the "Untied States" that I was now expected to consume more and like it. Instead, I ended up consuming more and felt out of control about it; I found myself spending more time in stores without knowing why and without a clue about how to reverse the trend. (This was before the government started sending out tax rebate checks to "stimulate" us all.)

Ahamed argues that the U.S. "found itself literally operating as a gigantic bank, taking short-term liquid deposits from countries with surpluses and investing the money in long-term, risky assets at home and abroad." -- I don't know if that "literally" belongs there, but the upshot is that the U.S. basically imported risk from abroad and distributed it among its citizens -- with a little creativity one could probably reconstitute this process as what Jacob Hacker has dubbed the Great Risk Shift -- the way in which middle-class people in America now have less of a social safety net. If we wouldn't take on debt and risk voluntarily, we could be forced to by the slow and steady withdrawal of social services. Goodbye Social Security, hello 401K loaded with all sorts of investments that turn out to be surprisingly dicey, like those money market accounts that teetered on the edge of buck-breaking last fall. Ahamed cites FT columnist Martin Wolf:

As Wolf traces out so well in his 2008 book “Fixing Global Finance,” the United States was able to absorb all the goods coming out of Asia only by letting its consumers go progressively deeper into debt — a process that had its own limits. Moreover, the flood of money simply overwhelmed the capacity of financial institutions to handle it. A lot, for example, ended up in the most unregulated segments of the global banking system, like off-shore deposits on the books of non-American banks. These banks, now awash with cash and desperate for places to put the money, became easy marks for American investment banks seeking to peddle securitized mortgages. When a large percentage of these loans went bad, instead of a dollar panic we had a global banking crisis.

It's hard to grasp the idea that a "flood of money" can be a problem, but that is what happens when we confuse money with prosperity -- money has to be moving to ahve value, and there can be too much of it around to keep it moving. Too much money means that the economy has become too imbalanced, that we have exceeded inherent limits, that socially useful labor has become detached from the society it was supposed to be useful for (i.e. impoverished Chinese making junk for underemployed America).

It's not clear what causes these global financial imbalances -- governmental trade policies are part of it. But individual citizen choice doesn't seem to factor in. Still, there must be reliable mechanisms by which the requisite consumer behavior is extracted from given populations. Is it some inborn greed in human nature that gets tapped into or sublimated as the situation requires? Or is it the existing class structures around the world, and the endless struggle for mobility within them (and over the signals that represent belonging) that plays the integral role? Is this the essence of the class struggle, a means of balancing international capital flows?

Anyway, if global money flows have reversed, American consumers will find the field in which they make choices suddenly changed. Suddenly they will seem thrifty and moral again, especially in the aggregate, and we can begin to generalize about what the consumption data means morally, what it tells us about how people really are. This is where a recent post by Anton Steinpilz at Generation Bubble picks up the story:Taking off from one of the dime-a-dozen "recessionista" stories about the New Thrift, Steinpilz claims that the middle classes are now "worried that their children and their children’s children will have snatched from them the exorbitant privilege of indulging their ephemeral pleasures with made-to-break trifles of sweated and immiserated workers throughout the developing world." To replace that lost privilege, they will start to loot the lifestyles of the local poor, raid their T.J. Maxxes and Aldis, and co-opt what constraints the poor have always found inescapable and make them into accoutrements and gestures, apparent trends in the hands of those classes that still might have chosen differently. When the middle class could afford to, because of international financial trends, it emulates the rich; trends have reversed, they emulate the poor; either way they remain class-signifier parasites. The rich could always contrive more positional goods to keep themselves differentiated; the poor instead (if I am reading Steinpilz correctly) find the meaning of their lives seized from them and injected into an alien lifestyle.

So, a theory: Destabilization along the boundaries of social class allows for the calibration of individual behavior with the larger demands of international capital flows, without ever allowing individuals to recognize the connection or opt out of the game without giving up the principles of personal identity altogether.

Exploitation as business model (10 June 2009)

I was happy that credit-care-reform legislation passed, but admittedly, Arnold Kling, writing for the Atlantic's business site, seems to have a point here. He cites a number of examples from an old Fast Company article of consumers falling for really bad sales pitches from Capital One, and then concludes:

Many readers of the article were appalled by the consumer exploitation implicit in this data-driven marketing that seemed to impress the magazine. I can certainly understand wanting to protect consumers from such exploitation.
My concern, however, is that ultimately consumers with low intelligence and low conscientiousness are inevitably going to be exploited. If you remove one means of exploitation, another will arise.
With tighter credit card regulation, my guess is that credit card companies will stop exploiting some of the consumers with low intelligence and/or conscientiousness. Instead, these consumers will be exploited by other lenders or by merchants. But I doubt that legislation or regulation can stop the exploitation of such consumers altogether.

That's true; there will always be ill-informed, ignorant, negligent, or just plain stupid people who will constitute the prey of unscrupulous businesses. But that unfortunate situation shouldn't lead us to conclude that all businesses should be allowed to operate so that they increase the number of ignorant and negligent by making the most of asymmetrical information. It seems that the credit-card business is one in which competitors have no incentive to compete by providing lucid explanations to customers -- it's much like the cell-phone-service business, where there's de facto collusion to offer consumers only opaque and confusing plans and take advantage of inadvertent fees and contract-breaking hassles. So with credit cards, the government is stepping in not to try to legislate away stupidity or consumer laziness, but to try to create a business environment that discourages companies from making a business model out of making society more miserable.

Chinese saving (8 May 2009)

Via Barry Ritholtz comes this chart, depicting trends in consumption in China:

As Ritholtz notes, a similar chart for the U.S. would be somewhat different. Economists who are concerned about global trade imbalances have long wonder when the Chinese consumer will emerge and begin to soak up its share of the world's output, instead of the Chinese Central Bank stockpiling foreign currencies. This chart seems to suggest that it won't happen anytime soon. What data like this makes me wonder is how the Chinese experience their own relative prosperity, how the consequences of rampant economic growth are experienced if not in terms of increasing purchasing power and more goods and more choices.

Sometimes the argument is made that the Chinese must save more because the social safety net there is extremely tenuous -- they don't even have the comfort of titles to property and social services are spotty and the bureaucracy presumably needs to be greased with many bribes and that sort of thing. This sort of logic would then be flipped to argue that a low savings rate is proof of a just, confident, and well-functioning society -- it's not a matter of impulsive consumers as the wrongheaded moralists and anachronistic puritans would have you believe. It strikes me as a conundrum of consumerism that the failure to save could be read blithely and myopically as the accomplishment a successful economic equilibrium, as though the fund for future investment to sustain those consumption levels were entirely irrelevant. Consumerism -- an economic order based on maximizing consumer spending -- must encourage the idea that savings are a kind of "glut," a residual that proves an inefficient sort of budgeting has taken place somewhere. Personal savings can then feel like a personal failure to find enough stuff to spend one's earnings on, to be sufficiently full of desires, to make having worked worth it. In a culture in which we are basically compelled to spend to keep the world as we know it going, accruing savings can leave us feeling guilty for not wanting enough. It's possible that at this point, we would feel too guilty to ever believe that we are satisfied with what we have.

Credit-card convenience (5 May 2009)

I've worried before about whether I should switch to a cash-only lifestyle. The idea was that using only cash would keep me in touch with reality and allow me to actively resist the creep of ersatz convenience into my life. But this reasoning may be somewhat flawed, in that there are straight financial incentives for customers to use credit. (Then if they use it unwisely, they fall prey to the abusive lending practices that the consumer credit bill of rights law stalled in the Senate currently is intended to prevent. Basically, the payment system is designed to grease the path to debt slavery.)

After looking at how interchange fees -- what banks charge business for processing credit-card payments -- have increased despite technology making credit-card usage far more efficient, Mike at Rortybomb wonders why more businesses don't offer customers a discount for using cash. He breaks out some game-theoretical analysis to show that customers (thanks in part to rewards programs) have an incentive to pay with credit, especially since businesses pass on the bank fees to consumers through uniformly higher prices:

A small business I was at had a sign noting that they get charged over 2% every time a customer used a credit card, so why don’t you pay cash or with a check? But as I was about to pay cash, I wondered: “Don’t the prices already reflect that I will use a credit card? I might as well get points towards my free inflatable grill or whatever comes with the card.”

As Mike notes, this structure encourages us to use credit cards even when we don't find using them to be more convenient.

Nonetheless, I still think retailers are too mindful of consumer convenience to ever implement a cash discount, which does send a message that customers are not always right in their preferences. The discount -- differential pricing for different classes of consumers -- would make explicit something retailers prefer to remain concealed: the practice of price discrimination. Once customers are aware that their activities might affect what they have to pay, their comfort level with shopping as a leisure activity generally has to shift as well. In America, set prices promote the enticing illusion that shopping has a leveling effect, that in the great arena of goods, all customers are equal since they are entitled to the same great deals. This also has the byproduct of letting us experience any exclusive deals we finagle as personal triumphs, secret signs of our specialness or our ability to beat the system, transcend it, rise above consumerism while mastering its terms.

Cash is king (12 March 2009)

For a while, I've wondered if I should use cash for more of my purchases. Research has found that we are more conscious of what we are spending when we are peeling off bills rather than swiping a card and signing a receipt. We feel the pain of loss as giving up greenbacks, which is some sort of testimony to their fetishistic power.

Also, the paranoid in me worries that my purchases will be tracked and used in targeting marketing at me or at people like me. It may be forbidden to sell off records of our purchases (I'm not sure), but even then it still may be permissible to lump yours in with others in a demographic, and sell that information. If this is true, aggregate purchasing decisions by a particular group -- one assembled by credit-card companies -- can develop momentum, shaping the marketing it receives, further shaping the same sorts of choices, until the realm of options open to that group have become curtailed in practical terms. And these groups could end up having less and less in common with one another, leaving us a society segmented into demographics formed not by any voluntary affiliation but by underlying spending patterns -- that is, a society defined in terms of how classes shop. This, in turn, probably reinforces the tendencies to self-identify in that way, further entrenching that we must shop in order to be -- in order to have social identity at all.

There's also the matter of credit card fees -- I'm usually successful at evading the ones the credit-card companies would love to charge me, but the stores at which I pay in credit have to pay a vig (the interchange fee) to Discover and MasterCard. Theoretically, interchange fees are passed through to we the customers in the form of higher prices, so if we all paid in cash, we all could afford more. (And if we all recycled, there would never be any more trash again.) These fees are why some restaurants won't take cards -- well, that and tax evasion -- and why stores like Ikea offer discounts for purchases made with debit cards. But I'm sure that many large-scale retailers prefer when we pay in credit as this cuts down on till tapping and employees' thieving.

It's hard to remember when credit cards weren't so widely accepted; they used to be verboten at grocery stores. And if I'm remembering right, you used to need the specific oil-company credit card to pay in credit at gas stations, and even them there would be a punitive per-gallon markup. Now I experience a weird frisson when I pay for groceries or gas with cash: "Look at me! I'm paying with cash!" It's as if I'm doing something novel, something almost outrageous -- it feels like I am on the lam and trying to avoid leaving a paper trail, or that I am making some laudable gesture of voluntary simplicity. But the convenience of using credit and consolidating my expenses into one monthly payment is hard to resist and seems like a net gain for me -- think of all those free short-term loans I'm getting!

Anyway, that's a long preamble to my wanting to link to a few articles about how credit-card companies are now scrambling to cut credit lines. In the New Yorker, James Surowiecki's most recent column explains the ins and outs of the situation pretty well, emphasizing the credit-card companies "strange" business model:

credit-card companies have created a strange business, in which there’s a fine line between good and bad customers. Their best customers aren’t those who dutifully pay off their balance every month; instead, they’re the ones who charge a lot and pay only a little every month, carrying a sizable balance and racking up interest charges and late fees. These are the “revolvers,” and the credit-card business feeds on them.

In other words, credit-card companies are always on a knife edge; they have to encourage imprudent -- but not too imprudent -- behavior in a sizable portion of their customers to thrive. This makes their customers extremely unlikely to be loyal to them, seeing as they thrive by undermining the morals of their customers. (Hence the variety of loyalty programs credit cards routinely roll out. My favorite is Citi's -- the "Thank You" program. No, Citi, thank you.)

The efforts of credit-card issuers to retract some of the credit they eagerly extended during the boom (trying to hook some more "revolvers" on the line) now threaten to put us squarely into paradox-of-thrift territory. Credit lines are being reduced somewhat indiscriminately, worsening consumer confidence and increasing the likelihood of defaults. That is what analyst Meredith Whitney discusses in this WSJ op-ed. Whitney enumerates reasons that credit lines are being pulled -- overoptimistic underwriting standards, tarring entire zip codes as credit risks when a few in it foreclose, credit-card companies trying to avoid being the one card in the pocket of a likely defaulter, and coming regulation that makes it harder for companies to change rates on customers. Her conclusion:

Over the past 20 years, Americans have also grown to use their credit card as a cash-flow management tool. For example, 90% of credit-card users revolve a balance (i.e., don't pay it off in full) at least once a year, and over 45% of credit-card users revolve every month. Undeniably, consumers look at their unused credit balances as a "what if" reserve. "What if" my kid needs braces? "What if" my dog gets sick? "What if" I lose one of my jobs? This unused credit portion has grown to be relied on as a source of liquidity and a liquidity management tool for many U.S. consumers. In fact, a relatively small portion of U.S. consumers have actually maxed out their credit cards, and most currently have ample room to spare on their unused credit lines. For example, the industry credit line utilization rate (or percentage of total credit lines outstanding drawn upon) was just 17% at the end of 2008. However, this is in the process of changing dramatically.

Without doubt, credit was extended too freely over the past 15 years, and a rationalization of lending is unavoidable. What is avoidable, however, is taking credit away from people who have the ability to pay their bills. If credit is taken away from what otherwise is an able borrower, that borrower's financial position weakens considerably. With two-thirds of the U.S. economy dependent upon consumer spending, we should tread carefully and act collectively.

This is true as far as it goes, but the underlying question is whether most people should be using credit cards as a "liquidity management tool" by revolving debt rather than living on a more consistently realistic budget. Credit-card companies have incentives to find those people and entice them to carry a balance; this increased "liquidity" in practice amounts to consumers reconfiguring their standard of living in unsustainable terms. Some rely on credit in emergencies, but many choose to revolve credit to keep spending more than they make. As Surowiecki explains, "The easy availability of credit cards encouraged people to live beyond their means—studies suggest that people really do spend more when they can pay with a credit card, and that big credit lines further encourage extravagance." This has externalities to it: the rest of us need to spend more (and go into debt) to feel like we are keeping up, or we need to make the difficult and somewhat isolating choice to fly in the face of new social norms -- forgoing the stuff that seems to have become de rigueur for our social class. We experience a kind of declassing even if we are content with what we have. Credit being extended to traditionally poor credit risks exacerbates that tendency further -- those we considered beneath us suddenly seem to have more of life's good things than we do. All of which is to say that accessibility to credit accelerates the cycling through of class signifiers and inflates the value of all of the ones in play. This seems highly unstable -- financially and emotionally.

Diderot effects (2 March 2009)

The Atlantic's new business site (which it annoyingly calls a "channel") recently posted an interesting but fairly cryptic article by anthropologist Grant McCracken, looking at potential shifts in consumer behavior in the downturn. He outlines several possibilities in relation to a concept he doesn't really explain here, the "Diderot effect." Diderot, an 18th-century intellectual, wrote an essay about being given a fancy dressing gown, which made everything else he owned feel shabby to him. Thus, he explains in the essay, he needed to replace the rest of his stuff to maintain consistency among his belongings at the new level of their perceived status. The assumption is that we instinctively strive for that uniformity in our possessions -- that we want to communicate a coherent portrait of our cultural capital by having a collection of things whose meaning is readily legible to others and that don't embody too many internal contradictions. Pushing it further, we may pursue this consistency to convey a coherent sense of our identity to ourselves -- we don't know who we really are until we see ourselves reflected back to ourselves in a cogent group of possessions.

I'm a bit skeptical about this internal urge to consistency; it's possible that this tendency is encouraged by advertising and marketing efforts to promote what a coherent set of belongings should be, promulgating associations between objects to establish a society-wide understanding of what makes for the standard-issue set at various status levels. In other words, mass media advertising and the content it supports encourage the establishment of "lifestyles," the logical extension of what Diderot was writing about as a personal idiosyncrasy.

The coalescence of lifestyles may have the laudatory effect of elevating what makes for a subsistence level of consumption in our collective understanding -- it couples irrefutable necessities like food and shelter together with more nebulous goods -- education, media -- that allow people a minimal sense of social belonging. But while this minimum standard has improved in absolute terms over the days of starvation wages, recently it hasn't improved in relative terms. Income inequality has increased; barriers to social mobility have hardened. That suggests, in turn, that the distinctive goods that we use to make those class barriers known have become more visible and more inaccessible, notwithstanding the supposed democratization of luxury. That widely touted pre-crash trend demonstrated how an improvement in "real" standards can nevertheless leave social class in place. Democratized luxuries are just evident knock-offs, declassé goods that mark the inferiority of their owners to those higher in the hierarchy. The hypocritical cant about "democracy" that's evoked is a perfect example of ideological inversion -- Orwellian Newspeak.

But what happens now, with the recession leveling off all consumption? If consumption was the proimary way of policing class borders, does the fact that there will be less of it imply that those barriers have become more permeable? That more of us can pass as a member of a higher status group through clever and thrifty purchases? Will some other manner of social display more widely available come to signify status?

McCracken's post doesn't exactly deal with that question, but it gets at the microfoundations of status consumption. He offers several different possibilities for what will happen to consumption in the wake of the recession. First, everyone could scale back, leaving the existing hierarchy in place, only a lower level. Then with recovery, it will merely ramp back up. Alternatively, certain items of distinction will become more valuable and more cherished, and sacrifices will be made to hold on to the ability to purchase these specific exceptions.So rather than social class being signaled by a collection of goods, it will temporarily come to be signaled by one expensive good.

But is it possible that the new, scaled-back levels will prove "sticky"? McCracken writes,

Displeasure, as we move to a lower level of consumption, might for some consumers eventually lose its sting and turn to comfort too. Or not. The question is whether we might habituate to a lower level of spending. I think this can only happen if some of the deeper cultural drivers of the consumer culture fall silent. These would include competitive spending. (This is largely dead among some Millenials.) It would also include the wish to stay in fashion or in touch with the curve. (Here too some young consumers are turning their backs on fashion, especially the branded, mainstream variety.) There are positive forces: the wish to go green, to "save the planet," this has been the great staple of elementary school education and it is now on the verge of being installed in our culture as orthodoxy. (This is no doubt as it should be.) This is where we really have to do our anthropology: what are the cultural drivers that might intervene here and lock consumption habits into place.

I'm pretty skeptical that there are any such cultural drivers -- capitalism relies too much on competition for its dynamism for anything to override those sorts of pressures.

More money, more problems (8 Jan 2009)

It's clear our economy has run into an effective demand problem: for highly logical reasons banks are loath to lend and consumers are choosing to save rather than spend. (How dare we! After so much effort has been invested in making us slavishly consume the surplus!) This WSJ chart illuminates what it has chosen to call "the frugality trap":

The chart illustrates how the U.S. economy's dependence on consumer spending has grown and grown over the past few decades, but seemed to reach a ceiling in 2001. The current crisis may be an indication that the level achieved was not as stable as it appeared, but the solution the ruling class has apparently settled on is an effort to restore that level. That's why it is a trap rather than an opportunity to reconceive our collective economic purpose. An economic reorganization to stabilize a smaller personal consumption to GDP ratio would presumably be to painful -- it would seem to mean a reduction in living standards and would definitely mean growing accustomed to acquiring fewer new things -- and politically unacceptable. Obama's proposed fiscal stimulus package (a wealth of spending initiatives and, as we've recently learned, tax cuts) is meant to try to turn the tide against this, and the stock markets anyway seem enthusiastic about its chances.

But there remains something jarring about shoveling money at people so they will buy more, particularly since easy credit, fueling heedless consumerism, helped bring the economy to this point where it requires stimulus. Economist Arnold Kling, an outspoken stimulus skeptic, expresses the problem succinctly: "from a Keynesian perspective, you always want to transfer wealth from the prudent to the profligate. But from any normal perspective, you don't." This is exactly what sticks in my craw when I think about, say, plans to prevent foreclosures. Money is being transferred from the prudent people who eschewed real-estate purchases they couldn't afford (like me) to those profligate people who trusted in the zeitgeist (made manifest in ready credit) and didn't worry about such trivial concerns as affordability. They were acting on the same principles as the bankers apparently were, if this immortal quote from Citibank CEO Chuck Prince, uttered at the height of the bubble, is any indication: "When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing." If the credit is out there, you're a fool not to take it, even if you know the whole thing is unsustainable. (Some of Ponzi schemer BernieMadoff's clients apparently had this view as well.) Of course, no one is taking Prince's compensation from the bubble years back since he was fired, whereas the people who danced to the music by buying overpriced, oversized houses now have to give them back to the banks.

Anyway, a Keynesian stimulus requires getting people -- anyone, prudent or not -- to spend, even if they don't "deserve" to. The need to overcome that ideological obstacle requires a strenuous effort to remove moral debate from economic policy considerations. This column by the FT's Martin Wolf is an excellent example. The most important lesson from Keynes, he argues, is

that one should not treat the economy as a morality tale. In the 1930s, two opposing ideological visions were on offer: the Austrian; and the socialist. The Austrians – Ludwig von Mises and Friedrich von Hayek – argued that a purging of the excesses of the 1920s was required. Socialists argued that socialism needed to replace failed capitalism, outright. These views were grounded in alternative secular religions: the former in the view that individual self-seeking behaviour guaranteed a stable economic order; the latter in the idea that the identical motivation could lead only to exploitation, instability and crisis.
Keynes’s genius – a very English one – was to insist we should approach an economic system not as a morality play but as a technical challenge. He wished to preserve as much liberty as possible, while recognising that the minimum state was unacceptable to a democratic society with an urbanised economy. He wished to preserve a market economy, without believing that laisser faire makes everything for the best in the best of all possible worlds.

But the ideological impediment is persistent, warranting political compromise that tends to reinforce the skepticism.Paul Krugman has written a series of posts about the stimulus possibly being too small:

I see the following scenario: a weak stimulus plan, perhaps even weaker than what we’re talking about now, is crafted to win those extra GOP votes. The plan limits the rise in unemployment, but things are still pretty bad, with the rate peaking at something like 9 percent and coming down only slowly. And then Mitch McConnell says “See, government spending doesn’t work.”

Tyler Cowen makes precisely that case in advance, in economic terms: He argues that

Recovery requires that zombie banks behave like real banks, that risk premia are properly priced, and that the economy undergoes its sectoral shifts toward whatever will replace construction and finance and debt-driven consumption. Fiscal policy won’t do much toward these ends and in fact a temporarily successful stimulus might hinder these long-run adjustments.

Perhaps the ideological conundrum comes down to this: when individuals and firms spend recklessly, this constitutes their freedom (even when the need to spend feels like a compulsion); when governments do the same, this proves they are dispensable (even when government credit is universally acknowledged as necessary to maintain the economic system as we know it). How can we resent and discourage the systemic incentives to fiscal recklessness at the individual level by licensing the government to be reckless in our stead?

Spending less, buying more (2 Jan 2009)

Mark Thoma linked to this post from Susan Woodward and Robert Hall, in which they point out that though spending on consumption is down in dollar terms, consumption actually rose when the figure is adjusted for deflation.

Consumption of durable goods, adjusted for price declines

This is something to remember when hearing about how the recession is changing consumer behavior. Chances are it hasn't changed much at all; we're just buying cheaper stuff -- either taking advantage of falling prices (notice any sales this holiday season?) or substituting inferior goods.

Lend to everyone, let the government sort it out (18 Dec 2008)

Reading this post in whcih Adam Levitin recounts credit-card lenders' abuse of behavioral finance -- key excerpt:

The card lender often isn't looking to get the principal repaid. Instead, the interest rate and fees returns are high enough that they cover the cost of the principal. The principal remains outstanding, and the ideal consumer makes minimum payments forever, making enough new charges to keep the balance from ever amortizing. In effect, the consumer becomes an annuity.

-- right after this post about the potential incentive to voluntarily participate in a Ponzi scheme if you are expecting a bailout -- key excerpt from a paper by Utpal Bhattacharya:

We argue in this paper that if agents correctly believe in the possibility of a partial bailout when a gigantic Ponzi scheme collapses, and they recognize that a bailout is tantamount to a redistribution of wealth from non-participants to participants, it may be rational for agents to participate, even if they know that it is the last round.

-- led me to this question: If credit-card companies can expect a bailout if a critical mass of borrowers default, do they become aware of point at which it becomes more prudent to lend to everyone and encourage them to charge up a storm rather than perform due diligence on the risks various individual borrowers represent? They can collect their fees from customers until the whole thing collapses, hopefully with a loud enough crash that the state will restore much of the principal. A related question: Did mortgage lenders reach that point a few years ago? Is this how investors' cupidity led them to interpret the implicit government backing of Fannie and Freddie?

Consuming and the safety net (8 Dec 200)

As part of my ongoing preoccupation with Chinese consumer demand, I felt obliged to link to this editorial from today's FT. The editors raise a claim frequently asserted in evaluating China's consumer behavior, that "China's citizens save because they fear nobody will look after them in bad times -- and bad times are coming." You'd think that the People's Republic would have a more robust safety net in place for the people. It may be that one needs cash on hand to distribute the bribes and make the black-market purchases to get something of a standard that we can find straightforwardly on the market (though affording it is becoming more and more of a problem).

Anyway, the rationale implied here is that in Western countries the state supplies extends much-greater security to its citizens; in effect, it saves for them and covers their emergency needs. This the populace can go out and spend as much as it would like on luxuries much more comfortably. So a good way to stimulate the economy would be to strengthen the social safety net -- more unemployment benefits, affordable health insurance, more generous social security benefits, and so on. Under such a regime, we would work to earn the money for the frivolous stuff that we use to define ourselves and shape our identity -- the markers of distinction that have preoccupied us throughout the consumerist boom. But the state would assure that our subsistence needs are met.

This seems the implicit promise of consumer capitalism -- that society is so prosperous that we can concentrate all our efforts on self-fashioning (even if these ultimately make us insecure and existentially angsty). But of course "we" means "middle class and up"; there remains the strata of lower class workers who have little margin for error with money, for whom identity creation in the hipster mode remains unthinkably. These are the people our society chooses to motivate with blunter incentives -- starvation, homelessness, etc. And safety-net improvements will most likely not be made for lower-income people in practice (except incidentally), since in helping them, no extra cash is freed up to buy baubles and prop up demand. Some might even argue that allowing the lower-income people to play at homeownership through subprime mortgages caused the crisis in the first place -- a distortion that puts the cart before the horse. Financial engineers needed loans to work with to manufacture more exciting securities; unthinkable loans were then extended to meet this need (not the "need" of poor people to own McMansions).

I wonder whether the degree to which the middle class must rely on the state safety net is the degree to which it must be withdrawn from the lower classes from whom the middle class must remain distinct. They can't be standing in the same welfare line -- that would be a scandal. Better not to extend welfare to the lower classes at all.

Depression modern (27 Nov 2008)

Should we be thankful for the economic turmoil? Recently Drake Bennett wrote a speculative essay for The Boston Globe about what life in the U.S. might be like if a new Depression really took hold. He makes it sound like an anti-consumerist paradise:

two of the basics of existence - food and clothing - are a lot cheaper today, thanks to industrial agriculture and overseas labor. The average middle-class man in the late 1920s, according to the writer and cultural critic Virginia Postrel, could afford just six outfits, and his wife nine - by comparison, the average woman today has seven pairs of jeans alone....

I wonder about this comparison, since we now have so many new social contexts that invite different rules about what dress is appropriate. Because I don't have to wear a suit to work, I have only one. I have about five nice shirts and maybe five pairs of pants that are not shabby or casual. Maybe we have more casual, disposable clothes -- a way of chewing up our accursed share. But we probably don't have much more than people from the 1920s did in the way of adult clothes. Beyond a certain point, more clothes is more clutter, creating unnecessary optional paralysis. (Then again, I am an advocate of the stealth uniform.)

Bennett continues:

If we look closely, however, we might see more former lawyers wearing knockoffs, doing their back-to-school shopping at Target or Wal-Mart rather than Banana Republic and Abercrombie & Fitch. Lean times might kill off much of the taboo around buying hand-me-downs, and with modern distribution networks - and a push from the reduce-reuse-recycle mind-set of environmentalism - we might see the development of nationwide used-clothing chains.

These already exist, especially if you regard Goodwill and the Salvation Army as franchise for second-hand-store brands. And I've been to Savers from Seattle to Phoenix to Providence to Montreal. The thrift infrastructure has been building up for years, but it is premised on other people not valuing their belongings and giving them away for nothing. When people replace perfectly useful things with new versions out of a sensitivity to fashion or a burning itch to spend, this is even better for thrift stores. But such luxury spending would be cut first, if we are truly rational about cutting back. The fashion cycle could, in theory, slow down. People may suddenly discover all this extra use value in goods they might otherwise have discarded, and only the truly worthless junk would make it to Savers. So it may be that second-hand stores thrive in flush times and stand to be depleted in a downturn, from an initial surge of customers and then a drying-up of quality donations. (In other words, I would no longer be able to find a vintage IBM buckling spring keyboard for $6.)

Bennett addresses the return to use value as it relates to technology.

In general, novelty would lose some of its luster. It's not simply that we'd buy less, we'd look for different qualities in what we buy. New technology would grow less seductive, basic reliability more important. We'd see more products like Nextel phones and the Panasonic Toughbook laptop, which trade on their sturdiness, and fewer like the iPhone - beautiful, cleverly designed, but not known for durability. The neighborhood appliance shop could reappear in a new form - unlicensed, with hacked cellphones and rebuilt computers.

The underlying idea here is that gadgetry fulfills our need to express our identity more than anything else. The alleged functionality improvements usually prove detrimental, at least initially, as reliability is surrendered to style. Bennett cites anthropologist Grant McCracken's "surging vs. dwelling" explanation of consumer behavior:

the difference, as he wrote recently on his blog, between believing that the world "teems with new features, new things, new opportunities, new excitement" and thinking that life's pleasures come from counting one's blessings and appreciating and holding onto what one already has. Economic uncertainty, he argues, drives us toward the latter.

The impact of a depression, then, will be gauged in terms of how expansive our identities can become. Consolidation, "dwelling," is a matter of retreat to more traditional self-definitions -- family, religion, etc. -- what McCracken dubs "homeyness" and what others would call domestic suffocation. On the other hand, "surging" is embracing the material richness of capitalism as a means to do some freelance self-fashioning along lines dictated by our dreams, or more likely, by what seems to be endorsed in the larger world of mass media. This subjects us to various forms of media manipulation, but at least we are fooled into thinking we are autonomous.

So, the danger in a depression now is not so much that people will starve but that we will be deprived of the usual consumerist tokens we have come to depend on to express our identity. We won't be able to afford to spend on brand distinctions and will in effect feel declassed. Chances are we wouldn't get "homey" or immediately snap into those virtuous behaviors I occasionally tout as replacements to consumerism -- being more active and creating things for ourselves, etc. More likely we just feel disoriented, transformed from a somebody into a nobody without the trinkets that grant us self-knowledge, the things we are accustomed to that let us make manifest and material what we want to believe about ourselves. We would have to learn to make those things for ourselves, and this would be a painful adjustment.

Consumerism lets us participate in a far vaster world than our household by sharing the brands and designs that function as a language of distinction. It's one thing to buy a set of designer measuring spoons at Target and feel classy, another altogether to try to make something equally as polished, with the same immediately apprehensible ability to serve as a social signifier. The spoons tell people you have never met just what you are trying to be; the homemade knickknack speaks a private, most likely incomprehensible language. The sphere into which we can project our identity contracts. Enter domestic suffocation.

Much of a modern depression would unfold in the domestic sphere: people driving less, shopping less, and eating in their houses more. They would watch television at home; unemployed parents would watch over their own kids instead of taking them to day care.

There's no guarantee that this would be transitional -- that the isolating retreat from a society grounded in the shared ability to spend won't totally unhinge us and that a richer vocabulary of selfhood would eventually emerge to supplant brands and hype and gadgets and gear and whatnot. But that's the wager in praising the sunny side of economic stagnation.

When countries go bankrupt (19 Nov 2008)

Paul Kedrosky linked to this FT article describing life in Iceland after their banking system completely collapsed. The whole thing makes for some unsettling reading, unless you hate Sigur Ros or something and can extract some schadenfreude from the whole situation.

The Icelandic krona’s freeze in the capital markets had now spilled over into the day-to-day transactions of Icelanders abroad. Holidaymakers and business travellers venturing “til Útlanda”, as it is called, found their credit cards refused, and those wishing to buy foreign currency could not find willing sellers, aside from one or two who limited their purchases to €200.
Trust in the banks had evaporated and people were trying to find a safe haven for their cash. One man had waited for six hours in a bank while his life savings, more than £1m in kronur (at IKr200 to the pound), were counted out in cash in front of him. “I feel like an innocent man dragged from his bed, put in a barrel and hurled over Gullfoss!” wrote one journalist that morning.

This is why people used to stuff money into mattresses.

Naturally, Iceland (just like the U.S.) had an irresponsible housing boom alongside its overleveraged banking system.

Easy access to 100 per cent mortgages has seen a change to the traditional pattern of young Icelanders living with their parents until their mid-twenties. The suburbs of Reykjavik have grown by a third in the past decade, most of it housing for first-time buyers. Whole new neighbourhoods have emerged. New streets house young couples, many with children, most with two cars in the drive and furnished with the best that Ikea can provide. All bought with 100 per cent loans, many in foreign currencies.

Also mentioned are the "viking raiders" -- brash Icelandic bankers like Jon Ásgeir who have now destroyed their nation.

One of the most telling images was the departure of Jon Ásgeir’s private jet on news that the government had nationalised Glitnir Bank (in which his investment vehicle Stodir was a leading shareholder), wiping out his shareholding and rattling the debt-burdened house of cards that is his Baugur business empire. Painted black and as sleek as a Stealth bomber, the aircraft was photographed taxiing from its hangar by Morgunbladid, a daily newspaper. Like the last helicopter out of Saigon, the departure of Ásgeir’s jet symbolised the end of an era, the last act of Iceland’s debt-fuelled spending spree.

An article from Spiegel also explores what happens when nations go bankrupt. It highlights Argentina's experience, when people scurried to Uruguay with suitcases full of dollar bills and others slept in front of ATMs waiting for a chance to withdrawal money, if any was left. And it looks at Hungary, the first European nation to be bailed out by the IMF.

Much of the blame for Hungary's current debacle lies with the failings of the past. The once-successful nation of 10 million people lived beyond its means for years. With government finances spinning out of control, the national debt ballooned to two-thirds of the country's GDP. "The funding for our excessively high standard of living came from other countries," admits András Simor, the governor of the central bank, not without a dose of self-criticism.
The Hungarians have always been considered shopaholics. Hundreds of thousands bought themselves big cars and went on shopping sprees in the chic boutiques on Váci Utca in Budapest -- all on credit. The real estate market boomed, turning close to 90 percent of Hungarian apartments are privately owned.

This all sounds very familiar. How long will it be before we have to say, "We are all Hungarians now"?