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Trickle-down recession

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Wednesday, Sep 5, 2007

This morning, NPR had an item about the impact of the subprime-mortgage crisis on which real-estate experts were complaining that the pendulum has swung too far too quickly: A few months ago loans were too easy to come by; now they are too hard—bankers now have the temerity to verify borrowers incomes. This was accompanied with the usual trumpet sounding about home ownership as the basis of the American dream, and what about the families? If a middle-class family can’t exercise its god-given right to home ownership, then why the hell do we even have an America for? We were then invited to feel sorry for the families that couldn’t afford median-priced homes in bubble-inflated markets, with no indication given that the lax lending helped foster the high prices in the first places. Instead the implicit prescription was more of the germs that led to the disease in the first place.


To give the matter more urgency, the piece went on to elucidate this chain of reasoning. When the middle class feel as though they can’t afford the half-a-million dollar houses for sale in southern California, they may become discouraged about economic prospects generally, and curb their discretionary spending on luxury consumer goods—an interesting link, because expensive housing isn’t always regarded as the luxury good that it is. This downturn in consumption would then spread throughout the economy, bringing on a recession that would harm everyone. We are already seeing some of this in the ways local governments are being affected by the loss of housing-related revenues, as this WSJ story points out. Lower housing prices mean lower tax assessments, and fewer homes sold mean fewer taxes paid, fewer housing starts mean fewer associated fees collected. You start to see how many people have an interest in prolonging the housing bubble, how deeply perverse the incentives can be as long as people believe the inflation in housing can be contained to housing, where it is offset by generous income tax breaks and the happy possibility of home equity loans.


But whenever I hear about housing woes threatening consumption, I think about my frequent complaints about consumerism and wonder whether I should consider this a good thing, if whether my recent fixation of credit markets is a product of hoping that credit will dry up altogether, forcing a shift in values away from consumption, for which there will no longer be any funds. By that logic then, what I am hoping for is a return of the Great Depression, when people were forced to find other ways to occupy themselves than shopping (and working).


But I don’t in fact hope for that kind of material deprivation, rampant unemployment, and generalized insecurity. One thing worth remembering is that increased consumption is different from consumerism. Increased consumption is a macroeconomic fact inseparable from any kind of growth, even if it is restricted to the population. More prevelant consumerism, however, is a matter of social priorities. What’s needed is a way to divorce prosperity from the ethics of frivolity; to find a way to mitigate the corrosive effects prosperity sometimes seems to have on individuals, making them vain, selfish and insipid; obsessed with developing their own identity and lifestyle rather than contributing anything to their communities, etc.—the typical complaints about consumerism. One could argue that these traits are actually good—the libertarian approach that sees self-obsession as a radical expression of freedom. By this argument, shopping makes our lives meaningful—all those important choices about what to buy that we make and almost take for granted—as opposed to the opposite. Consumerism widens the scope of our ultimate activity rather than narrows it into a channel carved out by corporate interests and conformism and a customary allegiance to what appears to be common sense.


Or one can refute the complaints. Maybe such self-involved and shallow people don’t actually exist and are only posited by the advertisements that are designed to sustain consumer enthusiasm, yet this is belied by the apparent success of such ads (they keep making them and devoting millions of dollars to them) and the theoretical apparatus that has identity being formed by such cultural influences, as in Judith Williamson’s case (critiqued here) that ads function as Althusserian ideological state apparatuses allowing us to define ourselves in a way that is complicit with the economic system they support.


The important question, I guess, is whether economic growth relies on consumerism—whether consumption will only grow at the rate required or in the directions necessary for capitalism (consumption of goods made for profit in order to display status) when consumers are prodded ideologically. John Kenneth Galbraith argued as much in The Affluent Society but many other economists scoffed at that assessment. But one can’t reject consumerist values merely out of being offended by their puerility—one person’s BeerFest is another person’s Hamlet. It seems that the point where one differentiates between consumption and consumerism is where critics of consumerism become enivronmentalists, insisting that sustainability is the basis upon which to restrict growth and develop alternative values.

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