26 September 2009

Spoiled: The Economic Downturn, Luxury as Necessity, and "Struggling" in the Modern Economy

  • Sep 26, 2009

Spoiled: The Economic Downturn, Luxury as Necessity, and "Struggling" in the Modern Economy

My original comment was not meant to imply I don't believe that there are tangible effects on people (most notably unemployment, which is certainly up compared to a few years ago).
All I said was that media and politicians largely made it up.  I think it is a self-fulfilling prophesy to an extent, where in people hear constant messages that times are tight, therefore they cut back on consumption, therefore retail markets fall, therefore manufacturers cut back, and employers start laying people off.  Which fuels the beginning of the cycle even more.  This is why business analysts track "consumer confidence".  In fact, to a large extent it is what the stock market is all about.  Its less a question of how well a company is doing and more one of how popular are they.  If people think its doing well, they buy, which itself drives the stock price up.  It works both ways, so if everyone is convinced the market is doing bad, they sell so they don't lose too much by waiting, and then companies don't have the capital to invest.


I think it is totally unreasonable to adjust what it means to be "poor" based on those around you.
If we did that, billionaires could claim to be poor if those around them are multi billionaires.  In fact, everyone except for the single richest person in the world would be "poor".
Clearly there should be some objective standard of poverty.
I think the only reasonable one is the point at which you have a reasonable fear of not being able to provide the basic necessities for oneself and family.  Food, shelter, clean water.  If you can afford so little food that it affects your health, you can claim to be poor.

It doesn't have to be a "big" car.  If you own a car, you aren't poor.  Period.  Never mind that most people in the world couldn't even afford the up-front purchase price of a car.  Much higher than that in the long run is costs for fuel, insurance, parking and tolls, maintenance, tickets...
For hundreds of thousands of years of human existence even the wealthiest people in the world could not buy cars.
Only in the US do people honestly believe that they are a "necessity".
All over the country people claim to be struggling who are paying for cable TV.  They eat out and buy $2 cups of coffee.  They have cell phones and internet connections.  These are things most people in the world can't afford.  They are not basic necessities.

Supposedly a person in the bay area needs 3 times the federal poverty level in order to live "comfortably"

They take it for granted that everyone needs a car.
And since when does every 6 year old need her own room?!
In the case of the 2nd article, I have no contempt for the person they profile.  She (rightly) considers herself middle class.
(Hopefully, after having been interviewed she doesn't change her own standards).
Now, going into collection, obviously a problem.  Thing is, that is another of those uniquely American things: living beyond your means.
The whole recession started because of people deliberately buying beyond their means with interest only loans.  The whole idea being, buy something you can't afford and assume that the market will go up enough to cover it.  Then, surprise!  The people who were living beyond their means defaulted on their loans.
Consider that the size of an average new home has increased 250% over the past half century.

Then banks didn't want to lend.  "Credit crunch".  Well, again - the solution to a credit crunch?  Don't live beyond your means. http://www.huffingtonpost.com/harry-moroz/forget-the-squeeze-the-mi_b_263100.html

Thing is, poor people don't get lines of credit extended to them in the first place.  Because they are poor.  The people who go to Labor Ready for temp work, the people who live here in the trailer park, they don't get loans for houses or new cars.  They don't have credit cards.  Most of them don't even have bank accounts.  They pay rent with money orders and bring paychecks to check cashing places.

This is poverty: http://www.utne.com/Politics/Squatter-Villages-Tent-Cities-Informal-Urbanism-Economic-Crisis.aspx
And it was around long before the foreclosures on sub-prime loans started piling up.

In my line of work, between my low rates, and my green focus and good reputation, I end up having a huge range in terms of the incomes of my customers (hence the sliding scale idea).
I get students and people on SSI who genuinely can't afford more than me.  I get others who live in 6 bedroom 3 story houses in the hills.  I have been nonchalantly handed $100 tips on more than one occasion.

I also work with day laborer sometimes.  These are people who will work for pretty much whatever you offer to pay them, work incredibly hard, and never complain.  I ask them about work, about home, they invariably tell me: they are getting very little work here.  Very little.  But it is still better than the situation back home.  That's why they are here.  They work for less than minimum wage since they lack language skills and legal papers.
A customer yesterday mentioned her mother used to work for Nike in Vietnam.  The company ships the product clear around the world because the people will work for a fraction of the US minimum wage.  But she said it was a very decent salary compared to other options available to the people there.

The worldwide average income for an adult is roughly $7000.
http://hypertextbook.com/facts/2006/MateNagy.shtml (note, this is over a decade out of date - the inequality has grown since)
That's including the 1st world; including the US.
This is in "purchasing power parity" - accounting for not only exchange rates, but what you can actually buy with a given amount locally.

Over 80% of the worlds population has an annual income below that rate.
The world median income is $1700.

So, yeah, I do think that is pretty much just the homeless who have a legitimate claim to poverty in this country.  

There are plenty claims that the economic downturn hits the poor hardest: but then, they are putting people who own $290,000 4-bedroom townhouses in the category of "working class"

The truly poor don't have far to fall.  A recession can not possibly affect them as much as someone who has tens or hundreds of thousands of dollars of annual income to potentially lose.


The last thing I wanted to mention is about how profit distribution ties in to unemployment.
In this country it has always been accepted as a given by almost everyone that 100% of the increase per worker in productivity due to advances in technology goes to the owners of the company, and not to the employees.
For example, say someone invents a machine that allows a worker to produce 2 times more widgets per hour.
What happens is (since the market for widgets hasn't grown, so they don't need to produce twice as many) the company lays off half it's work force, produces the same amount of widgets, sells them at the same price, and increases its profit substantially (paying half the wages, but making the exact same revenue).

There is no inherent reason that they couldn't instead reduce all of the workers hours 50%, while increasing wages 100%.  Neither the employees nor the company loses any money.  They both make exactly the same as they did before.  The only change is the workers have half the work hours, and can use the rest of that time however they choose.
In the 2nd option no unemployment is caused.

In actuality productivity per worker has increased roughly 20 fold over the past century.
Over the same time (adjusted for inflation) wages have only increased 7 fold.  The entire rest of that increase has gone to profit  - ultimately to the upper class, who own the means of production.

Profit is after business expenses and costs and taxes, after wages, even after salaries to the CEO and upper management, often in the millions (even among companies that are losing money - even ones that got federal bail out money paid million+ salaries.)
Profit is what is left over after that.  It goes to people who do literally no work for it at all.
There are industries which make as much as 20% profit margins.

So when companies claim they "have to" lay off workers because they are making less revenue, I say they are full of crap.  If they are making ANY profit, anything over breaking even, they have no justification for laying people off.  If they are paying upper management 6 digit incomes, there is no justification for laying off their lowest wage earners.
In many European countries (and Canada) that is actually illegal.  The government can (and will) sue a company for laying off workers unnecessarily.  In these places it is understood that the whole purpose of the economy is to serve the needs of the people, not to make people with investment capital even richer.

We could reduce unemployment to the minimum possible by having overtime kick in at, say, 35 hours a week.  Then to maintain current levels of production, companies need to hire 15% more people just to get back to the level they were at before.

There is nothing inherently good about creating wealth (or widgets for that matter) just for its own sake.
Going from multi-millionaire to billionaire will cause no overall long-term increase in happiness.

But instead of increasing the income of the destitute and struggling up to the level of secure in basic necessities, as a society we have been allowing - even encouraging - all of the increase in wealth to go to the top levels of society.  The ranks of middle class conservatives and libertarians push for this hardest of all: http://answers.yahoo.com/question/index?qid=20090128071009AADfUVw


It's human nature to want more than whatever one has, and to want more than everyone around you.
And everyone wants to believe they earned what they have, no matter how strong the evidence against it, because its easier on the conscious than admitting being greedy and amoral.
Its what explains the "pull yourself up by the bootstraps" myth.
You can see it in everyone who rallies against illegal immigrants.  They will insist it has to do with following laws for the sake of laws, but suggest making all immigration legal, and you find out its really about allowing them government benefits and taking American's jobs.  The only way to justify it would be to claim that some people "earned" being born in a first world country.  (People always have the "us vs them" xenophobic mentality that makes benefiting at the expense of others ok as long as they are "others")
I think that, just like with laws to discourage violence, or the use of birth control, discouraging some of our basic instincts is better for everybody; the desire to always have more, on a planet with finite resources, is what makes people who live extravagant lives in this country think they are poor.  I think that's not ok.

The economic downturn means that people who lived excessively unsustainable lives now live moderately less unsustainable lives. It's actually not enough, but its a start.
I think that's a good thing.

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