Rich Broderick • 10/2/08 • Today, the whole elaborate system of easy short-term credit that keeps our version of capitalism afloat is on the verge of a shutdown. And soon.
If that happens, if businesses from auto dealerships to tool-dye manufacturers to dry cleaners cannot order supplies or meet payrolls because the local bank won’t lend the money, the effect on the economy will be akin to driving a car with no oil in it.
(I actually did that once when a mechanic forgot to the tighten the plug on my car’s engine block. The results weren’t pretty. In a case of yet another kind of failed regulatory oversight, the whole engine seized up and I was left to tramp to the next freeway exit like, well, like a tramp.)
Our fateful addiction to easy-credit, which has fueled the past two-and-a-half decades of increasingly violent swings in the business cycle, was not set off, as the blithely racist Michelle Bachmann claims, by the Community Redevelopment Act, which outlawed the common banking practice of redlining minority neighborhoods.
No, it began with other legislation from the same era as the CRA – the late 1970s repeal of usury laws. It was that repeal which triggered the blizzard of “pre-approved” credit card applications that, until very recently, buried every mailbox in the country.
Thus began the wave of financial deregulation that culminated in the 1999 bill co-sponsored by Phil Gramm that prohibited any regulation whatsoever of any investment “instrument” created from that day forward.
And, oh, how inventive we have been in creating those new instruments! — the credit swaps, LDOs, and mortgage-backed securities we’ve been hearing so much about. Like the rest of us, Wall Street became hopelessly addicted to easy credit, leading “venerable” investment banking firms like the now-defunct Lehman Brothers to try operating at suicidal rates of leveraging – as much as 150-to-1 by some accounts.
Well, as I said, that easy supply of credit is suddenly drying up – and corporate capitalism as we have known it may itself be on its death bed.
And ultimately, for all the dislocations this will cause, that would be a good thing.
Based upon consumption rather than production, the American economic system is unsustainable in every possible way, preordained not only to destroy itself but also the global ecosystem upon which human civilization – perhaps human life itself – depends.
There is not a single crisis facing us today, either abroad or at home, that doesn’t have as its root cause the social and economic injustices that are the inevitable by-products of such an economic system.
Today, the U.S. consumes 30 percent of the world’s resources even though it holds only six percent of the world’s population. An economic system based upon that kind of misallocation virtually mandates wholesale waste. We will only begin to heal the climate, alleviate the growing gap between the richest and poorest nations, and avoid the apocalyptic resource wars of which the invasion of Iraq is only a foretaste, if we move toward a global economy in which a country with six percent of the world’s population only consumes six percent of the world’s resources on a yearly basis. And if that’s going to happen we must radically redefine prosperity.
Fortunately, the economic crisis should provide a boost toward that goal. Advertising, a “first to be affected, last to recover” industry, is exquisitely sensitive to the business cycle. A big downturn in the economy will lead to an even bigger cutback in advertising budgets. And that, frankly, would be a very, very good thing.
Each year, almost $300 billion is spent on advertising in the United States, more than half of it on consumer advertising. That $150 billion or so per year represents the biggest, most sustained propaganda campaign in the history of the world, dwarfing anything envisioned by Hitler, Stalin or Mao.
This propaganda campaign – which in turn colors virtually all mainstream media content, both entertainment and what now passes as “news” – has been waged on behalf of an economic system that can only “grow” if the definition of what we “need” keeps changing and expanding.
How effective has this campaign been? Let’s take a single example.
In the 1950s, the average size of a newly constructed house in the U.S. was under 1500 sq. ft. Today it is over 2500 sq. ft. Americans, in other words, now feel that they must live in houses that are more than 1,000 sq. ft. larger than 50 years ago, with all the attendant increase in the use of building materials as well as fuel for heat and light, even though the average American family is now half the size of what it was in the 1950s.
What occurred in those five decades to convince us that we needed bigger houses for our smaller families? The answer: the cumulative and interdependent effect of consumer advertising. Reduce it, and our definition of “the good life” will similarly scale back.
In addition to a reduction in advertising, a severe economic contraction might have other positive by-products. We may end up too broke to pursue the “endless war” of the bogus War on Terror. Ditto, the equally bogus precursor of the War on Terror, the apparently endless War on Drugs, the number one reason why the U.S. has the highest incarceration rate – and the biggest prison population – in the world, with each convict costing about $40,000 a year to maintain.
Meanwhile, since advertising fuels the media and the media fuels the idea that politics is spectacle, we might see a reversal of the decades-long decline in civic participation. Starve TV and we could end up feeding citizenship.
Of course, a prolonged economic downtown – even a milder replay of the Great Depression – could bring with it much different results: the final breakdown of our sham democracy and the rise of an openly, rather than covertly, fascist regime.
Ultimately, though, whether that happens or something more positive comes from our economic crisis depends upon us, upon whether we decide to seize this historical moment as an opportunity or succumb, like Wall Street, to panic. As in 1933 so it is true today.
The only thing we have to fear is fear itself.