A few days after the unfortunate events of September 11, 2001, and when uncertainty and fear reigned among U.S. Americans; the president of the country advised his fellow citizens “to go shopping” so that the country could keep a sounded financial situation. As a matter of fact the exact words from the president were: “Americans must get back to work, to go shopping, going to the theatre, to help get the country back on a sounder financial footing.” In December 2006, while facing a critical war situation in Iraq and when the first signs of an economic downturn were showing up, the same president came back with the same recommendation: “to go shopping more”. In this occasion his exact words were: “As we work with Congress in the coming year to chart a new course in Iraq and strengthen our military to meet the challenges of the 21st century, we must also work together to achieve important goals for the American people here at home. This work begins with keeping our economy growing. … And I encourage you all to go shopping more.” It is noteworthy to point out that the president’s words did not even refer to consume more but just to shop more.
Since that date of December 2006, what were just first signs of an economic downturn turned out to be the most severe economic crisis since the great depression. It is not necessary to remind readers that many so-called developed countries have been in the middle of economic turmoil. We all know of the financial collapse of such emblematic U.S. investment banks as Bear Stearns and Lehman Brothers, of the troubles faced by many U.S. firms such as J.P. Morgan, Merrill Lynch, Goldman Sachs, Bank of America, General Motors, AIG, Fannie Mae, and Freddie Mac. We all know of unemployment rates which are near two digits in the U.S. and that resist to go down. We all know of the U.S. facing a downgrade in its sovereign debt classification. We all know that the economic crisis has not restrained itself to the U.S. The list of countries facing economic troubles is large: Ireland, Estonia, Iceland, Portugal, Greece, Italy, Spain and so on. For example, unemployment rates in Spain are near 20%, while younger Spaniards face an unemployment rate that almost doubles the national one.
As expected, the economic crisis has forced economists to review their theories and to look for new recommendations. There has been a relative consensus about the causes of the crises. As stated by Baily, Litan and Johnson in his paper untitled The Origins of the Financial Crisis: “The financial crisis that has been wreaking havoc in markets in the U.S. and across the world since August 2007 had its origins in an asset price bubble that interacted with new kinds of financial innovations that masked risk; with companies that failed to follow their own risk management procedures; and with regulators and supervisors that failed to restrain excessive risk taking.” In other words, there has been a misuse of the lending-borrowing schemes in the country.
There has been a review of the theories as well as a discussion about the economic policies that ought to be implemented in order to get out of the crisis. However, I see little discussion about where we ought to get out from this crisis. Following the same spirit expressed by the former president; the economic authorities in the U.S. have opted to stimulate people’s purchasing. The Federal Reserve Bank has applied a lax monetary policy; the interest rate is near zero in order to induce people to keep borrowing in order to keep purchasing. The ‘cash for clunkers’ program provided subsidies for the purchasing of new cars in order to induce people to keep buying. Some congressmen argue in favor of reducing taxes to stimulate consumption. All these policies are based on the idea that we must stimulate shopping in order to get out of the crisis. Thus, the idea is to find the light at the end of the tunnel by looking backwards and going back to the pre-crisis situation, where people’s role was to purchase in order to keep the economy moving on.
I wonder whether people were borrowing because they could not satisfy their basic needs; I wonder what people with an average per capita income of about US$ 40000 dollars per year need to borrow for; I wonder how people spent the money they got from mortgage loans; I wonder what are the well-being benefits from spending on the satisfaction of wants, desires and even craves; I wonder what the well-being implications of borrowing money to getting rid of a five-years-old car in order to buy a new model are.
There may be different ends in the tunnel and we risk following the wrong light when trying to get out. We would not take full advantage of the crisis if we just want to go back. The crisis could be a factor for catharsis and for understanding of what ought to be the final aims in society and what are the role of people and the role of commodities and production. In other words, I am concerned about what exit we aim for when attempting to get out of the crisis. It seems to me that we have not understood that the deeper causes of the crisis have to be found in a system based on promoting shopping so as to keep producing. This is a system that has forgotten that the well-being of people must constitute the final aim for any social organization, while production and consumption are no more than mere instruments for attaining that final aim.
I think the president of the U.S. got it wrong when he encouraged his fellow citizens “to go shopping more” in order to keep the economy moving on. I think many economists who are advising about the way to get out of the crisis do also got it wrong. It may not be wrong economics, but it is a wrong principle to base a social organization on. I am concerned about a reversion taking place in the role of consumption and human beings in society. In principle, production and consumption play instrumental roles in the pursuing of people’s well-being. However, as expressed by the president of the United States, it seems that now the role of human beings is to purchase –not even to consume- to keep the financial system sound.
If we forget that the final goal of any social organization is the well-being of its citizens then we risk converting human beings in instruments and we risk making of people no more than mere gadgets within a system which aims to producing more, to selling more, and to keep generating profits. If there is no deep learning from this economic crisis we risk ending up with more of the same. I think the study of people’s well-being can make a substantial contribution to placing the horse before the cart and to understanding that not all lights at the end of the tunnel are equally worth for.
2 Comments
Thanks for this, Mariano. Your post is very relevant to a book I am currently reading, The Shock Doctrine: The Rise of Disaster Capitalism by Naomi Klein. She does a terrific job of describing the devastation wreaked upon the general well-being of populations by political, financial and corporate structures that are aligned with the Milton Friedman (University of Chicago) style of economics. She ties this to war, torture, and the bifurcation of wealth that we are seeing on a global basis. I appreciate her treatment of the subject has it focues on the causes as well as the effects. I warn you that it is disturbing reading, but I read it nevertheless to better understand the world in which I find myself.
Hello Mariano and Wellbeing Colleagues,
In reading your post and the precedent one, I have deeply reflected about the loose of common sense in order to be globally predictable. In observing the nature of cancer cells in any living body, we encounter two properties: continuos growth and resistence to be destroyed. This couple of characteristics finally kill the organism that sustain them alive. Using common sense, and a small portion of imagination, it is not difficult to relate today´s economic condition and direction with that of cancerous cells in a planetary body. The point, as Willis Harman wisely said, it is impossible to do business in a death society. The real issue here is the adoption of a human mentality in which life and good health are the highest values, beyond production and the superficial pleasure of comsuption. We each have the power of deciding for ourself and for empowering others!