Why We Want What We Don’t Need

The Overspent American: Why We Want What We Don’t Need

Consumer Protection Hub (2018)

Film Review

This documentary, narrated by Juliet Schor (author of the 1999 book The Overspent American: Why We Want What We Don’t Need), examines the political, economic and psychological forces responsible for compulsive consumption in all developed countries.

The most important factors Schor identifies are

1. The movement of women (starting in the 1970s) out of economically homogeneous neighborhoods into the workplace – exposing them to lifestyles  (cars, homes, clothes etc) of coworkers across the economic spectrum. This would lead to expansion into the working class of competitive consumption. Previously “keeping up with the Jones’s” was mainly limited to affluent neighborhoods.

2. The rapid increase in income equality that began in the 1970s. Corporations strenuously resisted efforts by workers to benefit (through increased wages and decreased work hours) from widespread productivity gains. Instead Wall Street helped fuel competitive consumption via usurious consumer credit (ie credit cards).

3. The tendency of TV dramas and sitcoms to portray $100,000+ annual incomes as average and normal. Schor offers the portrayal of Bill Cosby’s family as typical African Americans and Friends characters as typical mid-twenties roommates (there’s no way the characters depicted could have afforded Manhattan apartments).

According to Schor, the net effect of these influences has been growing demand for mcmansion-size homes, gas guzzling SUVs, brand name athletic footwear and casual apparel and niche coffee.

Satisfying these cravings has led to massive personal debt levels (approximately 50% of US GDP), grueling work schedules, virtual disappearance of family life and growing unwillingness of voters to be taxed for education, parks, libraries and other public services.

The self-help recommendations Schor gives for curtailing compulsive consumption habits are

1. Controlling your irrational desires by limiting mall visits, surfing Internet shopping sites and exposure to catalogues and fashion magazines.

2. Making a conscious choice to downshift to a lifestyle that reduces your consumption (eg Voluntary Simplicity*).

3. Demanding corporate and regulatory policies that allow people to work shorter hours.

4. Lobbying for a progress consumption tax (aka luxury tax).

5. Learning to recognize and question advertising messaging.

6. Learning to connect with people and community rather than competing with them.

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*Voluntary Simplicity, or simple living, is a way of life that rejects the high-consumption, materialistic lifestyles of consumer cultures and affirms what is often just called ‘the simple life’ or ‘downshifting.’

 

Understanding the Current Economic Crisis

The ABC’s of the Economic Crisis: What Working People Need to Know
Fred Magdoff and Michael Yates

Monthly Review Press (2009)

Book Review

In the ABC’s of the Economic Crisis, Magdoff and Yates use stagnation theory to explain the origins of the current global economic crisis. Karl Marx predicted that overproduction and stagnation would be inevitable under monopoly capitalism once market demand has been saturated. Magdoff and Yates use the auto industry as an example. Immediately after World War II, consumers bought a lot of cars and trucks which were unavailable between 1941 and 1945. By 1970 there was a surplus of cars – all the Americans who wanted cars and trucks had already bought them. Meanwhile the world’s poorer nations didn’t have a mass market large enough to reduce this surplus.

The same was true of other durable goods (refrigerators, washing machines, dishwashers, vaccuum cleaners, etc). And as consumer buying slowed, so did profits and GDP growth.

Why Capitalism Didn’t End With the Great Depression

Many Marxists (including John Strachey in The Coming Struggle for Power) believed the Great Depression signaled end stage stagnation and the imminent death of capitalism. According to Magdoff and Yates, it was only the massive economic boost of World War II military spending that saved capitalism in the thirties and forties.

There was also a brief post war boom in the fifties and sixties, as consumers rushed to buy goods that were unavailable during the war. When the sixties ended, stagnation set in again, accompanied by a marked slowing of profits and growth. However neither declined to 1930s levels, thanks to the “financialization” of the US economy.

The Financialization of the US Economy

The term “financialization” describes the process of creating profits without producing products or services. In the US, finanancialization injected money into the economy in three ways: via massive government spending and indebtedness (to private banks), via massive consumer indebtedness and via an explosion in the trade of derivatives and similar financial products.

Between 1980 and the 2008 crash, the banking, insurance and investment sector became the largest growth sector of the US economy. Beyond financing unprecedented levels of consumer, business and government debt, this sector also engaged massively in speculation (ie gambling).

Financialization: A Giant Ponzi Scheme

As Magdoff and Yates describe, the enormous “wealth” created by the financial sector helps to drive the “real” productive economy. The main problem with financialization is that it’s basically a Ponzi scheme – it can continue only so long as economic growth continues. If it goes on too long, the speculative bubble will burst, resulting in financial collapse, as it did in 1929 and 2008.

The Link Between Declining Profits and Low Wages

Despite the life support provided by “financialization,” economic stagnation continued between 1970 and 2008. As Magdoff and Yates point out, GDP growth dropped from 4.4 to 3.3 percent in the 1970s, to 3.1 percent in the eighties and nineties, and 2.2 percent between 2000 and 2008.

A significant decline in wages and purchasing power accompanied this decline in profits and growth. In order to keep workers consuming, the corporate sector compensated by giving them credit cards – lending them money at 18-20% interest they were no longer paying in wages.

How Banks Use Credit Cards to Rip Us Off

The Secret of History of the Credit Card

PBS (2004)

Film Review

The Secret History of the Credit Card is an old Frontline documentary featuring Senator Elizabeth Warren when she was still a Harvard law professor and ex-New York governor Elliott Spitzer when he was still state attorney general. It traces the “secret” repeal (and circumvention) of state usury laws that allowed banks to charge as much as 30% on credit card loans. This, in turn, made credit card banks the most profitable companies in the US. In 2003, several of them earned higher profits than MacDonald’s or Microsoft.

In 1981, when Citibank made its infamous deal with South Dakota, high interest rates were causing a massive loss for credit card companies. Although they paid 12% on average to borrow funds from other banks, state usury laws capped the interest they could charge customers at 9%. In return for South Dakota’s pledge to repeal their usury laws, Citibank agreed to move their entire credit card operation to Sioux Falls South Dakota.

The documentary goes on to explore the various marketing ploys the credit card industry employs to con consumers into increasing the credit card debt on which they pay 18-30% interest.

In 2003, approximately 90 million US credit card customers were “revolvers” (paying 18-30% interest on monthly balances), and 51 million were “deadbeats” (the industry term for credit card users who get “free” credit by paying their full balance every month).

The filmmakers are also highly critical of the Office of the Comptroller of the Currency (OCC), the Treasury division charged with regulating banks. They provide several examples of attempts by the OCC to undermine the ability of state prosecutors to protect consumers against credit card companies’ flagrant lawbreaking.

In 2004 when this documentary was made, the Better Business Bureau received more complaints about credit card companies than any other industry.

For copyright reasons, the video can’t be embedded. It can be viewed free at http://topdocumentaryfilms.com/secret-history-of-the-credit-card/

Also see Credit Card Nation – a great book on the credit card rip-off.